UPDATE 1-India SAIL Q1 net falls; dramatic demand rise unlikely

* Q1 net drops 28 pct on lower prices, high input costs

* To borrow 40-50 bln rupees by March 2010 to fund capex

* Also considering equity issue

* Shares rise 3.3 pct, outperforms main index (Adds details)

NEW DELHI, July 30 (Reuters) - Steel Authority of India (SAIL.BO), one of India's leading steelmakers, reported a smaller-than-expected 28 percent drop in quarterly net profit, but cautioned that any "dramatic upturn" in global demand for the alloy was unlikely.

The state-run firm, which has the largest steel making capacity within India, plans to borrow 40 billion to 50 billion rupees ($830 million-$1 billion) this fiscal year to meet its capex plans, Chairman S.K. Roongta said, adding that additional equity issue was also another option the company was looking at.

"We are considering that," Roongta said of the additional equity issue, without giving details.

The steel industry, recognised as a broad gauge of an economy's strength, has globally seen demand tumble, driven by the weakness in key automotive and construction sectors.

"We must reckon the fact that even now globally capacity utilisation is quite low. As the demand picks up, there is enough capacity," Steel Authority's Roongta said.

"We are not going to see any situation where demand will be more than supply."

Prices are, however, not under pressure, he said.

Steel Authority's production and sales in the July month is up about 10 percent from a year ago and it will try to maintain the trend for the quarter ending September, Roongta said.

He expects raw material prices to be sequentially lower in the September quarter.

The world's top two steelmakers, ArcelorMittal (ISPA.AS) and Nippon Steel (5401.T), on Wednesday posted quarterly losses. Nippon Steel forecast a worse-than-expected loss in the six months to September while ArcelorMittal projected only a slow pick-up over the rest of 2009. [ID:nLT412594]

PROFIT FALLS

Steel Authority said net profit fell to 13.26 billion rupees for its fiscal first quarter ended June, from 18.35 billion a year earlier, hit by lower steel prices and higher input costs, mainly of coal.

Net sales fell to 89.51 billion rupees from 107.22 billion a year earlier, even as sales and production in volume terms rose.

A Reuters poll of nine brokerages had expected net profit of 11.8 billion rupees on sales of 98.5 billion.

Tata Steel (TISC.BO) on Wednesday missed forecasts with a 47 percent drop in net profit from its Indian operations.

Shares in Steel Authority, which the market values at about $15 billion, closed 3.3 percent higher at 175.65 rupees, outperforming the broader market that gained 1.4 percent. ($1=48.4 rupees) (Additional reporting by Prashant Mehra in MUMBAI) (Reporting by Devidutta Tripathy; Editing by Himani Sarkar)