New Delhi: Tata Steel Ltd on Monday swung to its highest quarterly loss in two fiscal years after it booked a ₹6,358 crore impairment charge related to a decarbonization project at its Port Talbot plant in the UK.

The steelmaker reported a loss of ₹6,511 crore for the three months ended 30 September from a profit of ₹1,297 crore a year earlier, the company said in a statement on Wednesday. A Bloomberg survey of analysts expected a profit of ₹569 crore.

“We have assessed the potential impact of the (Electric Arc Induction) EAF-based decarbonization project and restructuring in the UK,” the company said in an exchange filing. Tata Steel said it took a ₹2,746 crore impairment charge in its consolidated statements for the decarbonization project. It also took a ₹3,612 crore charge for restructuring and other provisions.

On 15 September, the UK committed £500 million to help Tata Steel overhaul the country’s biggest steelworks and keep it running. The payment will assist Tata in transitioning its Port Talbot plant in South Wales to cleaner and more cost-effective steel production through electricity rather than coal. Tata will cover the remaining £1.25 billion in capital costs.

Tata Steel’s consolidated revenue from operations fell 7.5% to ₹55,682 crore during the quarter ended September from ₹59,879 crore in the year earlier.

Earnings before interest, taxes, depreciation, and amortization (Ebitda) was ₹4,315 crore at an 8% margin. The company’s net debt stood at ₹77,032 crore and liquidity at ₹27,637 crore as of 30 September.

Although the global economic slowdown, particularly in Europe, affected the company’s finances, the Indian business delivered improved margins.

“The India business generated a higher margin of around 20%, and Ebitda stood at ₹6,841 crore,” said Koushik Chatterjee, executive director and chief financial officer.

Analysts expect domestic demand to remain robust. “We expect the full-year domestic steel demand growth to be nearly in double digits, primarily driven by the government trust in infrastructure spending and front-loading of capital expenditure by both Central and state governments,” said Priyesh Ruparelia, vice president and co-group head of corporate ratings of Icra Ltd.

He, however, cautioned that prices may soften in the second half of the fiscal year.

“In the second half of the fiscal, we expect the domestic steel prices to go down because of the lower international steel prices, leading to higher imports. Further, the impact of higher coking coal prices during the months of September and October as supply constraints continue to remain an issue will be visible during the second half of the fiscal.”

In Europe, margins moderated, especially in the UK business, while the Netherlands business was broadly stable from the preceding three months.

“Given our plans to change the processed route for steelmaking, the existing heavy-end assets at Tata Steel UK will only be used for a defined period. Accordingly, we have taken an impairment charge of ₹12,560 crore in the standalone financial statements. We have also taken a charge of ₹6,358 crore in consolidated financial statements in relation to the UK business. We continue to remain focused on cost optimization, operational improvements and working capital management to maximize cash flows,” Chatterjee said.

The company’s board also approved the amalgamation of Bhubaneshwar Power Pvt. Ltd into Tata Steel Ltd. “The amalgamation will ensure consolidation of all power assets under a single entity, which will increase system agility for power generation and allocation,” the company said.