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India's domestic urea sector is set for a fresh investment cycle, with fertiliser companies expected to commit Rs 80,000-90,000 crore in capital expenditure over the next six months, as the new investment policy is likely to spur capacity additions and reduce the country's dependence on urea imports from 2030-31, according to ICRA.
The plants coming up under the New Investment Policy for Urea-2026 (NIPU-2026) are expected to be commissioned in around 3.5-4 years, ICRA said. The investments are expected to materially improve domestic urea self-sufficiency from 2030-31. India imported around 27 per cent of its urea requirement in 2025-26, with domestic capacity at 30.6 million tonnes per annum (MMTPA) against demand of around 39.9 million tonnes, the rating agency said. The new policy, however, has tightened project economics by lowering notified realisations and reducing the return band. Under NIPU-2026, the return on equity range has been narrowed to 12-16 per cent, compared with 12-20 per cent under the earlier NIP-2012. "Despite this, the debt coverage and return metrics are expected to remain comfortable for the project proponents," ICRA Senior Vice President and Group Head Girishkumar Kadam said. ICRA estimates that the lower floor and ceiling realisations could reduce EBITDA by Rs 250-280 crore for a standard 1.27-MMTPA unit compared with NIP-2012. The cumulative debt service coverage ratio for a greenfield project is nevertheless expected at 1.26 times over the eight-year policy period. Kadam said controlling project costs and consistently operating plants at more than 95 per cent capacity utilisation would be crucial for project proponents. The investment cycle is also expected to create opportunities for allied sectors. Each new 1.27-MMTPA urea plant is expected to add around 2.2 million standard cubic metres per day (mmscmd) of gas demand and about 0.6 million tonnes of LNG consumption. Gas transmission companies, gas traders and LNG terminals could therefore see higher activity, while EPC contractors and manufacturers of critical equipment such as high-pressure process vessels, heat exchangers, reactors and ammonia converters are likely to benefit from the expected order pipeline. ICRA, however, flagged dependence on imported natural gas as a key risk. The share of imported LNG in fertiliser-sector consumption rose to around 85 per cent in 2025-26 from 64 per cent in 2020-21, making diversification of gas sourcing contracts important as new urea capacity comes online. (ANI)
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