Tata Steel, the world’s seventh largest steel maker, may see its net profit fall

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almost a third in October-December 2011 quarter, thanks to foreign exchange losses and weak demand which has translated into weak steel prices, according to analysts.

Bhavesh Chauhan, an analyst at Angel Broking, said the company’s net profit according to his estimate is expected to decline by 35 per cent from a year ago. Tata Steel had reported a consolidated net profit of around Rs 881 crore in the quarter ended December 2010. He said the company is expected to report earnings before interest taxes depreciation and amortisation margin of nine per cent in the October-December 2011 quarter as compared to 11.7 per cent in the year ago period.

Tata Steel’s Europe operations failed to gain momentum due to uncertainty in the European economy. Demand for steel declined which led to sharp correction in prices on that continent.

Sanjay Jain, an analyst at Motilal Oswal said that he too expects Tata Steel’s consolidated net profit to decline to Rs 240 crore from Rs 881 crore a year ago. He expects the company to report earnings before interest, taxes, depreciation and amortisation of Rs 2,336 crore in the third quarter. “Steel prices declined by around 15 per cent in October-December 2011 due to weak demand globally,” he said.

As compared to the Bloomberg consensus analyst estimate of a Rs 256 crore consolidated net profit, the metals analyst at brokerage Prabhudas Lilladher said Tata Steel would report a loss of around Rs 371 crore on an adjusted basis. “The firm is likely to report $54 million EBITDA loss in Europe in the third quarter of this fiscal and on a consolidated basis could report a foreign exchange loss of around Rs 310 crore,” said the analyst, who declined to be identified.

Chauhan said although prices of raw materials such as coking coal and iron ore fell in the quarter, the fall was lower than that of the finished product steel.

Despite the weak forecast, analysts are positive on the outlook for its shares. Chauhan said, “We have a buy rating on the share as the company’s expansion plan in Jamshedpur is expected to be completed by the first quarter of 2013.” The analyst from Prabhudas Lilladher said, “We are positive on the share as on the valuation front it looks attractive.”

Tata Steel’s shares on Friday ended at Rs 416, up 7 per cent from the previous day’s close, on Bombay Stock Exchange.