Steel Authority of India Ltd. (SAIL), the country's largest steelmaker, reported profit rose for a second quarter because of increased sales of high-margin products. Its shares had the biggest drop in more than three months.
Net income rose to 14.43 billion rupees ($320 million), or 3.5 rupees a share, in the second quarter ended September, from 11.27 billion rupees, or 2.73 rupees, a year ago, the company said. That's less than the 15.26 billion rupees median estimate of five analysts surveyed by Bloomberg. Sales rose 18 percent.
Asian steel prices are recovering because of a construction boom in China and India, the world's fastest-growing economies, and a slowdown in production in China, which supplies a third of the world's steel. Prices of hot-rolled sheets in Shanghai have climbed 31 percent since January, according to Beijing Antaike Information Development Co. Prices fell 11 percent in July.
``Prices are expected to remain buoyant on strong demand from India and China,'' said U.R Rao, chief investment manager at Mumbai-based Canbank Mutual Fund. ``Indian steelmakers will do well in the next few quarters.''
The company's shares fell 4 percent to 87.55 rupees, the biggest drop since July 11, as some investors judged the stock's 26 percent gain from Sept. 1 through Oct. 27 was overdone. The country's key stock index rose to a record 13,024.26.
``The fall was sharp because there was some profit-taking at these prices,'' Rao said.
Steel Authority sold a record 2.9 million metric tons in the quarter, up 5 percent from a year ago. Sales may exceed 3 million tons in the three months ending December, Chairman S.K. Roongta said today in New Delhi. Sales at Tata Steel, which is reporting later today, rose 12 percent to 2.3 million tons.
Steel prices in India jumped 10 percent in the six months ended Sept. 30 as increased government outlays on roads, ports, power and other infrastructure stoked demand for the metal. The nation's economy, Asia's fourth-biggest, is forecast to expand at 8 percent for a fourth year.
Earnings were buoyed by increased ``sales of value-added products and higher prices,'' Roongta told reporters.
Steel Authority's raw material costs jumped 17 percent in the quarter to 30.47 billion rupees because it paid more for imported coking coal. Costs may drop in the December quarter as the company gains from a drop in annual coal costs, Arvind Desai, vice president at money manager Global Markets, said.
The company imports 9 million tons a year, or two-third of its annual needs.
Steel Authority will build a 6 million metric ton plant in the eastern Jharkhand state only if it gets a license to tap the Chiria iron ore mine, which holds 2 billion metric tons of the steelmaking raw material, Roongta said.
The Jharkhand government in December canceled a lease for two blocks of the Chiria mine allotted to Indian Iron & Steel Company, a unit of Steel Authority.
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