Urea price hike possible only after general elections: Ind-Ra

It has given a stable to negative outlook for the fertiliser sector in the next financial year, due to delay in subsidy payments and no major initiatives on policy front

The hike in urea prices, much awaited by the fertiliser industry, may be possible only after general elections this year, a rating agency has said.

"The long-pending urea price hike is a possibility only after the scheduled elections in mid-2014. A marginal increase in urea prices over the past 10 years and a large subsidy budget have made urea price hike inevitable," India Ratings & Research (Ind-Ra) said in its latest report.

Urea is a controlled commodity and its MRP is fixed at Rs 5,360 per tonne. The government pays the difference between cost of production and MRP as subsidy to manufacturers.

Ind-Ra has given a stable to negative outlook for the fertiliser sector in the next financial year, due to delay in subsidy payments and no major initiatives on policy front.

"The outlook on the fertiliser industry could be revised to negative if the government's subsidy support declines due to pressures to reduce fiscal deficit and an increase in subsidy burden," the agency said.

It said the subsidy in the next fiscal and company's borrowings will depend on the price at which gas delivered to the industry.

"The gas price hike and the government's intervention on gas prices for the fertiliser industry will determine the total subsidy, fertiliser prices and the credit profile of fertiliser companies in FY15," the report added.

The fertiliser industry could bring fresh investments in the sector only after the government clears new investment policy, that facilitates both brownfield and greenfield expansion of plants, the agency said.