Bloomberg News

Steel Authority Profit Slides on Coal Costs, Currency Loss

February 13, 2012

(Updates with spending budget in sixth paragraph)

Feb. 13 (Bloomberg) -- Steel Authority of India Ltd., the nation’s second-biggest producer, reported a worse-than-expected 43 percent decline in third-quarter profit because of higher raw material costs and a foreign-exchange loss.

Net income dropped to 6.32 billion rupees ($129 million) in the three months ended Dec. 31 from 11.1 billion rupees a year earlier, the company said today in a statement. The median of 32 analyst estimates compiled by Bloomberg was 7.87 billion rupees. Sales fell 5 percent to 105.9 billion rupees.

The price of imported coking coal, a key raw material used to make steel, jumped 17 percent, while the Indian rupee fell 16 percent in the last quarter from a year earlier. Steel Authority imports about 70 percent of the coking coal it needs to fire its blast furnaces. The price of hot-rolled coils rose 3.5 percent in the period.

The company booked a one-time foreign-exchange loss of 4.66 billion rupees, compared with a gain of 331.6 million rupees a year earlier. Raw material costs rose 14 percent to 59.9 billion rupees, while employee expenses were little changed at 18.6 billion rupees, the company said. Power and fuel costs surged 27 percent to 11.3 billion rupees.

Shares of New Delhi-based Steel Authority fell 2.6 percent to 110.30 rupees at the close of trading in Mumbai. The stock has risen 35 percent this year, compared with a 15 percent gain in the key Sensitive Index.

Higher Spending

Steel Authority may increase its spending by 15 percent to 145 billion rupees in the year starting April 1, Chairman C.S. Verma told reporters today in New Delhi. The company has cash reserves of 86.7 billion rupees as of Dec. 31, he said.

Borrowings reached 199.25 billion rupees as of Dec. 31, of which about 42 percent was in foreign currency, he said. Steel Authority plans to borrow about 70 billion rupees in the year ending March 31, 2013, he said, without giving details.

Demand for the alloy is expected to be “firm” and prices should be “stable” in the fourth quarter, Verma said. Production will probably reach 19 million tons in the next fiscal year, he said.

The company’s volume sales fell 19 percent to 2.62 million tons, while the average price climbed 17 percent to 37,326 rupees a ton in the third quarter from a year earlier, Verma said.

India’s steel ministry forecasts demand for the alloy, which grew 9.9 percent in the last fiscal year, may rise at a slower pace in the year that started April 1 as higher interest rates curb demand for cars and homes.

A consortium led by Steel Authority in November won the right to develop the biggest mining project in Afghanistan. The proposed iron ore mines at Hajigak may hold an estimated 1.8 billion metric tons of the steelmaking raw material.

--Editors: Indranil Ghosh, John Chacko

To contact the reporter for this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net;

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net


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