India's Tata Steel shows 89 percent fall in Q2 profit

MUMBAI: India's Tata Steel, the world's seventh-largest steelmaker, on Thursday reported a steep 89 percent fall in quarterly net profit as costs rose and demand from Europe weakened.

Tata Steel's consolidated net profit for the three months to September totalled 2.12 billion rupees ($43 million) from 19.78 billion rupees over the same period a year earlier.

Sales rose 15 percent to 327 billion rupees, the firm said in a statement to the Bombay Stock Exchange (BSE).

Analysts had estimated that Tata Steel would record a profit of 9 billion rupees.

The earnings include its operations in India, Europe and Southeast Asia.

Tata Steel, part of the sprawling tea-to-vehicles Tata Group conglomerate, became one of the world's biggest steelmakers after purchasing Anglo-Dutch company Corus for $13.7 billion in 2007.

In the quarter, Tata Steel's raw material costs rose 15 percent to 108.32 billion rupees. Freight costs also rose 13 percent to 16.85 million rupees.

Tata Steel shares closed down 4.08 percent at 448.8 rupees at the BSE on Wednesday.

India's stock markets were closed on Thursday due to a public holiday and will re-open Friday.

Tata Steel's managing director H.M. Nerurkar called overall market conditions "soft" but said Indian operations performed strong, even as high interest rates impacted steel demand.

The firm's stand-alone India operations showed a 15 percent sales growth at 82.12 billion rupees, while operating profit slid 17 percent to 27.93 billion rupees.

India's pace of growth in industrial output has been slowing amid rising interest rates and raw material costs.

The hawkish Reserve Bank of India has raised interest rates 13 times since March 2010 to battle stubborn near-double-digit inflation.

Tata Steel's European operations showed a 43 percent fall in operating profit to 5.05 billion rupees.

Tata Steel Europe chief executive Karl-Ulrich Köhler said: "Higher raw material costs and lower average selling prices made the normally quiet summer quarter particularly testing."

Köhler was however confident that restructuring initiatives undertaken by Tata Steel Europe in the first half of 2011 would improve its competitive edge.

The global steel industry is facing an uncertain outlook after firms in Europe announced production cuts due to weakening demand and rising costs.

Corus was rebranded to Tata Steel Europe in September 2010.

Copyright AFP (Agence France-Presse), 2010