Tata Steel, the largest Indian producer of steel, reported a huge drop in its first-quarter consolidated net profit, hit by provisions for impairment of non-core assets and higher taxes.

Group net income, including that of subsidiary Tata Steel Europe, dropped 70% to 3.37bn rupees ($55m, £33m, €41m) in the April-June first-quarter, as against 11.39 billion rupees a year ago, the Mumbai-based firm said in a statement.

Net sales jumped 11% to 361.43bn rupees, buoyed by an increase in European demand.

Tata Steel's stock finished 1.33% lower at 534.70 rupees (£5.2) in Mumbai while the benchmark S&P BSE Sensex share average finished 0.15% higher.

Tata Steel's shares have risen some 26% this year.

T V Narendran, Managing Director of Tata Steel India and South East Asia, said in the statement: "The economic sentiment has improved in India after the general elections and the new government has been clearly communicating its intentions to bring the economy back to the growth path. Government's thrust on development of core industries like housing and infrastructure should boost steel demand in the coming quarters...In South East Asia, we are focussing on improving our product offering, expanding our customer reach and optimising costs to improve the performance."

Karl-Ulrich Kohler, MD & CEO of Tata Steel in Europe, said: "European steel demand is moving in the right direction. Though demand remains well below levels we would regard as healthy, we can see greater stability emerging in the markets we serve. Our quarterly financial performance improved slightly, despite market spreads tightening compared to the previous year. This would not have happened without the work we are doing to reduce costs and improve our products and services. We maintained the good pace set last year in our portfolio enhancement programme. We have launched ten new products and increased the proportion of differentiated sales by almost 20%."