Budget 2012: NIP 2012- positive in long term, gas price remains a key

Prabhudas Lilladher has come out with its report on India agri products. According to the research firm NIP 2012 will be positive for players like Chambal, Tata Chemicals, RCF etc.

Much awaited new urea investment policy got final nod: According to Media and Industry sources, Group of Ministers (GoM) have given in-principle nod to the New Investment Policy (NIP 2012) to attract investments in the urea sector. Policy has to get an approval from the cabinet. Government has linked the subsidy of urea with the gas prices between US$6.5- US$14/mmbtu. We believe that the policy is positive for the sector as new investment is likely to kick-off post announcement. Availability of gas at US$14/mmbtu in FY17 onwards remains a key issue under NIP 2012. Our interaction with industry players suggest that government is expected to re-consider the ceiling gas cost. If government would not re-consider the same, we believe that new investment is unlikely to come under NIP 2012.

Key highlights of the NIP 2012: Under NIP 2012, subsidy is linked with gas price i.e. US$6.5/mmbtu in the case of Green-field and Brown-field projects (US$7.5/mmbtu in the case of revamp) subject to floor and ceiling urea price. Floor and ceiling urea price will upward revise by US$20/MT, with a change in US$1/mmbtu in the gas cost up to US$14/mmbtu. Government has considered energy norms of 5.0Gcal for new plants with the expected capex of ~Rs48bn/42bn for Green-field/Brown-field projects. According to the above, RoE is expected to work out at 8% to12% subject to the floor and ceiling urea price. However, we believe that actual capex amount would be lower than government estimate. Further, companies

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