Four consecutive quarters of decline in profit due to soaring costs and flat realisations have dragged the share price of steel-maker SAIL down by 55 per cent in the last one year.

During the half year ended September 2011, the elevated metallurgical coal prices squeezed the company's operating margins which contracted by just under eight percentage points to 14.2 per cent. An unpleasant surprise during the September quarter was the sudden depreciation in the value of the rupee against the dollar which resulted in forex losses of over Rs 500 crore on short-term foreign-currency borrowings.

The inability to pass on costs completely hurt the company's profits which dropped by over 41 per cent to under Rs 1,334 crore during the first half of the ongoing fiscal.

Sales volumes during the six months ended September 2011 remained flat at 6.1 million tonnes. Limited increases in steel prices over the period saw net sales rise by 10 per cent to just under Rs 24,000 crore over first half of FY12. Steel price rises lagged those of their input costs which hurt steel maker's margins.

Adding to problems are investor concerns over delays in commissioning brownfield capacity. New capacity is expected to go on stream by the end of FY13. Another source for investor concern is the wage negotiations due early next year which would add to margin pressure. The good news for the company includes the expected additions of iron ore mines in Chiria. This ensures raw material visibility over the long term as the company's new capacity comes on stream.

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