Supply chain disruptions stemming from the ongoing conflict in West Asia could impact India’s annual domestic production of both complex fertilisers and urea by 10 to 15%. Profitability of manufacturers may decline due to lower capacity utilisation, driven by constraints in the availability of key raw materials.
Rising Costs to Inflate Working Capital and Subsidy Burden
An increase in the prices of raw materials and imported fertilisers is expected to raise the working capital requirements of companies. This may also push up the government’s subsidy burden by ₹20,000–25,000 crore, according to Crisil Ratings.
Sector Supported by Strong Liquidity and Government Backing
Despite these challenges, two key factors are expected to support the sector’s credit profile: the strong liquidity position of large fertiliser companies and the government’s consistent track record of providing timely and adequate subsidy disbursements.
Fertiliser Consumption Mix in India
Urea accounts for about 45% of India’s fertiliser consumption. Complex fertilisers, including diammonium phosphate (DAP) and nitrogen, phosphorus and potassium (NPK), contribute roughly one-third, while single super phosphate (SSP) and muriate of potash (MOP) make up the remainder.
High Import Dependence Remains a Concern
The fertiliser sector continues to rely heavily on imports. Around 20% of urea and one-third of complex fertilisers, primarily DAP, are imported. Additionally, key raw materials such as natural gas (which accounts for nearly 80% of urea production costs), ammonia, and phosphoric acid are largely sourced from overseas due to limited domestic reserves.
Significant Reliance on West Asia
West Asia remains a critical supplier. It accounted for about 40% of India’s urea and DAP imports during the first nine months of fiscal 2026, compared with 42% in fiscal 2025 and 28% in fiscal 2024. Dependence is even higher for domestic production inputs, with 60 to 65% of liquefied natural gas (LNG) and 75 to 80% of ammonia imports originating from the region.
Industry Warning on Kharif Season Impact
Crisil Ratings director Anand Kulkarni said, “The ongoing issues in the Middle East could disrupt the fertiliser supply chain at a crucial time for the kharif season. If disruptions in LNG and ammonia supplies continue for around three months, domestic urea and complex fertiliser production could decline by 10–15%.”
Profitability to Take a Hit
Reduced capacity utilisation is expected to dent profitability, particularly for urea manufacturers. Sub-optimal utilisation lowers energy efficiency, which directly impacts margins.
Energy Efficiency Key to Urea Margins
Profitability in the urea segment largely depends on the gap between prescribed energy norms and actual energy consumption, as natural gas costs are fully passed through. Efficient players typically consume around 5% less energy than prescribed norms, which enhances their profitability.
Complex Fertilisers Face Cost Pressures
Profitability in the complex fertiliser segment may also be impacted due to rising input costs, adjustments in Nutrient-Based Subsidy (NBS) rates, and retail pricing dynamics. Ammonia prices have already surged by 24% since the onset of the conflict. With limited ability to pass on these costs, profitability will depend on corresponding increases in NBS rates.