According to Crisil Ratings, legacy urea plants are set for a structural reset in profitability following the tightening of energy-efficiency norms announced on July 30, 2026. The agency expects energy-efficiency gains for these plants to decline, resulting in a 25% reduction in profitability to ₹1,250 per tonne from ₹1,700 per tonne. As reported by Crisil, the impact will not be uniform, as it will be sharper for manufacturers with greater dependence on legacy urea operations and for plants that benefited the most from earlier efficiency-linked savings.
India's urea manufacturing capacity falls into two distinct categories, with legacy plants accounting for 74% of overall capacity and plants established under the New Urea Policy (NUP) 2012. According to Crisil's analysis, manufacturers rated by the agency are expected to absorb the impact without material pressure on their credit profiles, supported by earnings diversification across complex fertilisers, crop-protection chemicals and other businesses, as well as controlled leverage. The NUP 2012 plants remain insulated from the latest change in energy norms until the policy period ends.
Legacy plants are significantly dependent on subsidy inflows, which account for 80-85% of their revenue. As reported by Crisil, subsidy support has two components, including compensation for variable costs based on prescribed energy norms and a defined fixed cost per tonne. The fixed-cost component for legacy urea plants was last revised in March 2007, with additional fixed-cost support provided in 2020 only partly offsetting rising fixed costs, resulting in under-recoveries for several manufacturers.
At the end of fiscal 2025, the composite energy norm stood at 5.77 gigacalories (Gcal) per tonne against actual consumption of around 5.5 Gcal per tonne, translating into energy-efficiency gains of ₹1,300 per tonne. According to Crisil, the composite norm has now been reduced to about 5.67 Gcal per tonne from April 1, 2025, onwards. The government has tightened these norms over the years, with the last tightening in two tranches in April 2018 and October 2020.
For legacy plants, nearly three-fourths of operating profitability from urea is linked to energy-efficiency gains. As noted by Crisil's Anand Kulkarni, the impact will be most visible for the most efficient plants, where earnings from energy savings have historically been the highest. Over the medium term, manufacturers may partly offset this loss through targeted energy-efficiency capex, although the benefits will vary depending on plant age and the scope for technological upgrades.
