With the long-awaited new urea investment policy finally coming into place, fertiliser companies have more than one reason to smile, and which is clearly reflected in their share prices.
The policy is expected to encourage fresh investments into the sector, leading to capacity expansion. It would also boost the flagging urea production, reducing the country's dependence on imports.
"The Cabinet Committee on Economic Affairs has approved a new fertilizer policy which is long term, realistic and farmer friendly," said Shruti Bhargava, analyst at Networth Stock Broking.
The new policy aims at attracting investments in the urea sector by resumption and expansion of existing units to meet the set target of 40 mn of urea by 2012. This includes reviving eight units of Fertilizer Corporation of India and Hindustan Fertilizer Corporation.
At present, India produces 21 mn tonne of urea as against the rising demand of 27-28 mn tonne, which it has been filling through imports.
Under the new norms, the international price-parity formula for domestic urea manufacturers would be adopted for calculation of subsidy and cost of production. Existing units producing additional urea will get an import parity price of 85 per cent in the price band of $250-425 a tonne while that for expanding units it would be 90 per cent.
