Legacy urea plants to suffer 25% profitability cut due to stringent energy norms: Crisil

12 Aug 2026 Evaluate

The rating agency -- Crisis Ratings has said that the tightening of energy-efficiency norms announced on July 30, 2026 is likely to structurally reset the profitability of legacy urea plants. It said energy-efficiency gains for these plants are estimated to decline, resulting in around 25% reduction in their profitability to around Rs 1,250 per tonne from around Rs 1,700 per tonne. Crisil explained that India’s urea manufacturing capacity broadly falls into two categories i.e. legacy plants, which account for about 74% of overall capacity, and plants set up under the New Urea Policy (NUP) 2012. Legacy plants are significantly dependent on subsidy inflows, which account for 80-85% of their revenue, while the plants set up under NUP 2012 are assured a 12% return on equity and remain insulated from the latest change in energy norms until the policy period ends.

Crisil noted that nearly three-fourths of operating profitability of legacy plants coming from urea is linked to energy-efficiency gains. With the latest tightening, these gains are set to narrow, lowering operating profitability. The impact will be most visible for the most efficient plants, where earnings from energy savings have historically been the highest. Besides, gas prices are also expected to influence the eventual impact on profitability. Higher gas prices, including those stemming from the West Asia conflict, could partly offset the decline in profitability by around Rs 75-100 per tonne this fiscal.

In spite of earnings pressure on legacy urea plants, the aggregate credit impact is expected to remain contained. Crisil pointed that legacy urea operations contribute only about 30% of EBITDA for the rated universe, with the balance generated by diversified businesses such as complex fertilisers and crop-protection chemicals. Further, balance sheets provide a buffer, with gross debt to EBITDA estimated at controlled levels of around two times this fiscal, like the previous fiscal. It added that the pace and effectiveness of energy-efficiency capex will bear watching in the coming times. At the same time, any policy support, including an upward revision in fixed-cost reimbursement, could further cushion profitability.

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