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SAIL Posts Unexpected Q1 Profit Drop On Forex Losses

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Steel Authority of India Ltd (SAIL), the country's largest domestic steel producer, reported on 6 August an unexpected 18 per cent drop in quarterly profit, weighed down by high input costs, large foreign exchange losses and sluggish sales.

Indian steel consumption has waned in recent quarters after growing in double-digits over the past few years as Asia's third-largest economy slows. The strong growth previously has pushed local firms to boost capacity and drawn global steelmakers to set up base in the country.

State-owned SAIL said its net profit in April-June, its fiscal first quarter, fell to Rs 696 crore from
Rs 848 crore a year earlier. A Reuters poll of brokerages had estimated on average net profit of Rs 983 crore for the quarter.

Net sales slipped to Rs 10,640 crore from Rs 10,830 crore a year earlier.

SAIL shares lost ground after the news, giving up most of the gains earlier in the day. The stock closed at Rs 85.40, up 0.9 per cent but had risen to as much as Rs 87.35 early in trade on 6 August.

Steel prices are expected to remain stable for the next quarter, although input costs are still at an unsustainable level, SAIL said.

"Especially with the sluggish market conditions globally, this level of coal prices, input prices cannot
be sustained by the steel industry," SAIL chairman C.S. Verma told reporters after announcing the results.

Weaker Rupee Hits
SAIL said it incurred a foreign exchange loss of Rs 257 crore during the quarter, mainly on account of the sharply weaker rupee. The currency had slipped 8.5 percent against the dollar, during the quarter.

"These are really sluggish market conditions (globally)...we cannot remain insulated from the happenings of the European and the U.S. markets," Verma said, adding that the situation in India has so far been better than global conditions.

Last month, India's No 3 steelmaker JSW Steel also reported a sharp drop in profit on account of forex losses.

Globally, steelmakers are struggling with the debt crisis in Europe, weak growth in Japan and a slower pace of expansion in China, the world's largest producer and consumer. ArcelorMittal, the world's largest steelmaker, said last month its European steel demand may fall 3 to 5 per cent this year.

SAIL expects prices for coking coal, a key raw material, to soften in coming quarters as prices ease globally and quarterly supply contracts come up for re-negotiation. The impact may only be visible in the December quarter, Verma said.

The company imports 75 per cent of its coking coal requirement.

SAIL, with annual capacity of about 14 million tonnes, is the largest steel producer in India, but lags Tata Steel's global capacity of about 27 million tonnes.

The steelmaker is in the process of raising steel capacity to 17 million tonnes by March 2014, and plans to spend Rs 12,000 crore on the on-going expansion projects during the current fiscal year.

Shares in the company, valued at $6.3 billion, have risen 4.5 per cent so far in 2012, underperforming a 12.5 per cent increase in the main stock index.


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