SAIL Q4 net up 25 pct, but below f'cast

Fri, May 16 07:24 PM

NEW DELHI (Reuters) - State-run Steel Authority of India Ltd said on Friday its March quarter net profit grew by 25 percent on higher sales, although it lagged forecasts due to rising employee costs.

Shares in the company jumped 7.3 percent on a higher dividend pay out and as fresh speculation that Chinese interests were looking to build a stake in the world's largest miner BHP Billiton increased interest in steel stocks.

More investment in roads, ports and houses has boosted steel demand in Asia's third-largest economy, bringing steel makers higher prices, but costlier raw materials are seen as a concern.

SAIL is India's largest producer of steel domestically but it trails Tata Steel on a global basis.

It has its own iron ore mines which insulate it from the recent runaway increase in the raw material price, but lack of self-sufficiency in coking coal is seen hitting margins from the June quarter. SAIL imports three-quarters of the coal it needs.

"There is no denying the fact that cost pressures are the steepest ever witnessed by the industry, except for the fact that we have captive iron ore," SAIL Chairman S.K. Roongta told reporters at a news conference.

Pawan Burde, a Mumbai-based steel analyst with Angel Broking, said higher coal prices, which have more than tripled since last year, would be reflected fully in SAIL's accounts from the current quarter.

"It is a major concern for them. They were buying at $96, now they will be signing contracts at $300," Burde said.

SAIL, along with other steel makers, has agreed not to increase prices for three months starting May as the government tries to curb inflation, running at a 3-½ year high.

But internationally steel prices have risen by up to 70 percent in the last six months and are seen rising further.

SAIL ran its plants at more than full capacity to achieve its highest ever quarterly production of 3.5 million tonnes during the March quarter, and sales rose nearly 36 percent to 135.51 billion rupees from 99.84 billion in the year-ago quarter.

But higher employee costs due to rising wages led to a lower-than-expected increase in net profit to 23.77 billion rupees ($560 million) for the fiscal fourth quarter ended March, from 19.02 billion a year earlier. The latest quarter profit included exceptional gains worth 3.1 billion rupees.

Analysts polled by Reuters Estimates had expected net profit of 24.14 billion on revenue of 113.84 billion.

SAIL shares added 12.7 rupees to close at 185.90, in a Mumbai market that gained 0.5 percent.

(Reporting by Devidutta Tripathy)

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