Urea Industry Poised For Rs 80,000-90,000 Crore Investment Push Over Next 6 Months: ICRA

New Delhi, Aug 20 (KNN) India’s domestic urea industry is expected to enter a fresh investment cycle, with fertiliser companies likely to commit Rs 80,000-90,000 crore in capital expenditure over the next six months, according to ICRA.

The investment push follows the government’s notification of the New Investment Policy for Urea-2026 (NIPU-2026), which is expected to encourage new capacity and reduce India’s dependence on urea imports from 2030-31. Projects approved under the policy are likely to be commissioned in around 3.5-4 years.

Import Dependence to Ease

India imported around 27 per cent of its urea requirement in 2025-26, as domestic production capacity of 30.6 million tonnes per annum (MMTPA) remained below demand of about 39.9 million tonnes.

ICRA expects the proposed capacity additions to materially improve domestic self-sufficiency from 2030-31, after limited capacity expansion in recent years amid steady growth in consumption and the retirement of some plants.

Tighter Project Economics

ICRA Senior VP & Group Head Girishkumar Kadam said, “NIPU-2026 has tightened the return window to 12-16% return on equity (RoE) against 12-20% under NIP-2012, and the floor and ceiling realisations have also been reduced, which will impact the EBITDA level by Rs 250-280 crore for a standard 1.27MMTPA unit vis-à-vis NIP-2012.” 

“Despite this, the debt coverage and return metrics are expected to remain comfortable for the project proponents,” he added.

However, effective control over capital expenditure and maintaining plant capacity utilisation above 95 per cent will be critical. The cumulative debt service coverage ratio (DSCR) for a greenfield project is expected to remain comfortable at 1.26 times over the eight-year policy period, providing a healthy cushion for debt servicing, Kadam noted.

Gas Demand to Rise

The investment cycle is also expected to generate demand across the gas and capital goods sectors. Each new 1.27-MMTPA urea plant is expected to require around 2.2 million standard cubic metres per day (mmscmd) of gas, equivalent to about 0.6 million tonnes of LNG consumption.

This could benefit gas transmission companies, gas traders and LNG terminals through higher volumes and utilisation. EPC contractors and manufacturers of equipment such as high-pressure process vessels, heat exchangers, reactors and ammonia converters are also expected to see higher orders.

Imported Gas Remains Key Risk

ICRA, however, flagged the fertiliser sector’s growing dependence on imported gas as a key risk.

The share of imported LNG in the fertiliser sector’s gas consumption rose to around 85 per cent in 2025-26 from 64 per cent in 2020-21. ICRA said diversification of gas sourcing contracts would therefore be important as new urea capacity comes online.

The rating agency noted that the fertiliser pool gas price rose to around USD 19 per mmBtu in April 2026 from about USD 13 per mmBtu earlier during the West Asia crisis. With gas supply contracts currently concentrated towards West Asia, greater diversification could help reduce the risk of future supply disruptions.

The expected capacity additions could also provide gas suppliers with greater visibility to enter into long-term sourcing arrangements for urea plants, ICRA said.

(KNN Bureau)