Mumbai: Tata Steel Ltd posted an 89% decline in consolidated net profit for the three months ended 30 June on the back of waning European demand, drop in other income, and the absence of a one-time profit that had boosted its earnings a year earlier.

The company, one of the top 10 steel makers globally, reported a net profit (after taxes, minority interest and share of associates) of 597.88 crore in April-June, down from 5,346.55 crore in the 2011 April-June quarter.

The India operations, Tata Steel MD H.M. Nerurkar, said in a note, “posted a robust performance against the backdrop of weakening demand and increased competition.

Total income from operations rose 2.5 % to 33,821.20 crore, compared with 33,000 crore a year ago.

Net profit fell short of analyst expectations. A Bloomberg poll of 36 analysts had forecast net profit in the quarter at 617 crore.

The hit was largely on account of higher costs and a drop in other income.

While total expenses swelled from 29,693.73 crore in 2011 to 31,725.90 crore in the quarter—fuelled mainly by power costs, freight, depreciation and other expenses—other income fell 62% to 289.38 crore.

Other income is that revenue earned from activities other than the normal business operations of a company.

Tata Steel’s shares dropped 1.19% to close at 395.65 on Monday on BSE; the benchmark index Sensex gained 0.43% to close at 17,633.45 points.

The results were announced after market hours.

On a stand-alone basis, Tata Steel’s net profit fell 39% to 1,356.56 crore from 2,219.43 crore in the corresponding period last year, eroded by rising raw material costs and other expenses.

Revenue rose to 8,908.03 crore from 7,860.25 crore last year.

Net debt at the end of June 2012 increased to 54,020 crore, up from 47,657 crore at the end of March, according to a company statement.

“The rise in debt is something that I want greater clarity (on) from the company management. I want to know if (the debt) was on account of rupee depreciation," said a Mumbai-based sector analyst with a domestic brokerage who did not want to be identified.

The company will have a conference call with analysts on Tuesday.

“I would also be looking out for (management) guidance on the cost of raw materials going forward and the reasons behind the dip in realizations on a sequential basis from the European operations," the analyst said.

April-June was the second straight quarter for which the steel maker has reported a year-on-year decline in profit after posting a loss in the October-December quarter, dragged down by European operations that are struggling with a tough economic environment. “European steel demand is lower than expected and prices have weakened," Tata Steel Europe’s managing director Karl-Ulrich Köhler said in a company statement.

But he added that the company continued “to seek to mitigate the effects of this with tight cost control and emphasis on increased product differentiation".

The Indian operations, Tata Steel managing director H.M. Nerurkar said in a statement, “posted a robust performance against the backdrop of weakening demand and increased competition".

He added that “market challenges have made us focus on tightening of costs, improving product-mix and ensuring that the ramp-up of our brownfield expansion takes place by the year-end".

The group’s steel deliveries declined 6.2% to 5.68 million tonnes (mt) in the fiscal first quarter compared to 6.05 mt in the same quarter last year; the decline was driven mostly by Europe, where deliveries fell 9.5% to 3.21 mt in the same period.

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