New urea policy 2015- Positive for urea industry: CARE

New urea policy 2015 (NUP), which is effective from June 1, 2015 has principal objectives of maximizing domestic urea production and promoting energy efficiency to rationalize subsidy burden. The policy aims at tightening the energy consumption norms based on the actual energy consumption levels of respective units during past few years. Further, the subsidy calculation for production above reassessed capacity has been modified to protect the interest of stakeholders in case of significant volatility in International Parity Price (IPP). The overall impact of NUP would be positive on the fertilizer industry. For Government of India (GoI), the NUP is expected to bring benefits of subsidy rationalization and maximization of domestic production, thus reducing reliance on imports. Further, the policy is also expected to reduce complexity in implementation of previous policies. With tightening of energy consumption norms for urea units, the profit on energy savings would be driven by their ability to reduce energy consumption level. Many units would still earn reasonable profit on energy savings even with tightening of norms. The policy for production above reassessed capacity is also likely to be positive for all urea units as it entitles units for a fixed contribution, subject to a cap of IPP of urea plus other incidental charges that GoI incurs on imported urea. Thus, energy efficient units would be able to compete against imports and produce more which would improve their cash flows.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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