But a steep fall in iron ore prices in the past year, due to a global economic slowdown, negated the growth in volumes. Average realizations were down by 50% year-on-year. As a result, ore sales fell by 40% in value while consolidated sales declined by 39% to Rs534 crore.

Operating profit margin fell to 28.6% from 48.4% a year ago. Lower inland transportation costs and a sharp fall in export duty contributed to a 15% drop in operating expenses. But for this, operating margin would have fallen further. The company was helped by a doubling of other income to Rs89 crore. The result of all this was that net profit fell by 50% to Rs166.5 crore.

The results evidently disappointed the street, going by the sharp drop in Sesa’s share price of about 8% on Wednesday. The company’s first-half earnings per share stands at Rs7.3, while consensus earnings estimate for fiscal year 2009-10 is Rs24 per share.

Besides, the markets are concerned about the firm’s plans to raise as much as Rs6,000 crore to fund expansion, since it could lead to high equity dilution.

On the positive side, the base effect of higher ore prices will reduce in the current quarter, according to Sesa’s managing director P.K. Mukherjee. Chinese spot ore prices had peaked at $150 (around Rs6,960 today) in September 2008, which now trades at $70.

The outlook on global steel production holds the key to Sesa’s future performance. The World Steel Association recently forecast a 9.2% increase in steel consumption in 2010, after an 8.9% decline in 2009. Steady growth in demand will eventually translate to higher ore prices.

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