Tata Steel Q2 net profit plunges 89%

KOLKATA: Buffeted by a steep rise in the prices of key raw materials — iron ore and coal — and further exacerbated by low demand for steel in Europe, Tata Steel, the world’s seventh-largest steelmaker, reported a 89.3% decline in consolidated net profit for the second quarter ended September.

The steel major said on Thursday its net profit fell to Rs212 crore from Rs1,979 crore in the same period last year. Net sales grew 15.7% to Rs32,507 crore. The results were below market expectations. The exchanges were closed due to a holiday on Thursday. On BSE, Tata Steel shares fell 4.8% to Rs448.80 on Wednesday.

The stock has declined 34% so far in 2011, compared with the 15.3% fall in the benchmark sensitive index. Tata Steel Group, like most others, has been hit by rising input costs and slow demand in its overseas operations. However, its domestic operations are relatively insulated from input cost hikes since it has access to captive raw materials like iron ore and coal.

Realisation too is under pressure since average price of steel has softened in global markets though domestic prices have remained firm. Consolidated input costs went up to Rs10,830 crore against Rs9,410 crore in same period last year.

Tata Steel managing director H M Nerurkar said: “Tata Steel’s Indian operations performed strongly despite the overall soft market situation. The continued interest rate hikes impacted steel demand growth but the company sequentially increased sales volume due to enhanced market reach and customer focus.

Higher raw material prices and adverse currency movements impacted profits in Q2 of FY12. But the focus on company-wide cost saving initiatives yielded desired results.”