Tata Steel Ltd.’s European arm reported a better-than-expected performance in the quarter ended March. Yet, concerns persist. Tata Steel Europe reported an operating profit of Rs 65 crore in the fourth quarter; the consensus estimate of analysts tracked by Bloomberg was a loss of around Rs 215 crore. Lower raw material costs that benefited the spreads aided the performance of European division, Koushik Chatterjee, executive director and chief financial officer of the steelmaker, said at a post-earnings conference.

The steelmaker also said it may hike prices of the alloy in the region, where imports are growing and its peer ArcelorMittal has already increased prices. The performance of the European division contrasts with the performance in the domestic market.

Tata Steel reported a wider than-expected loss of Rs 1,096 crore during the same period as prices of steel fell and it accounted for an impairment of more than Rs 3,000 crore due to the Covid-19 outbreak. The company’s auditors raised concerns on the material uncertainty over Tata Steel Europe.

“Without qualifying our opinion on the specific purpose financial information, we have considered the adequacy of the disclosure made in the special purpose financial information concerning Tata Steel European’s ability to continue as a going concern,” Tata Steel said in a statement. The steelmaker also said the impact of Covid-19 pandemic will require Tata Steel Europe to access group company support to meet its obligations.

The ability of Tata Steel Europe to continue as a going concern is dependent on the availability of future funding, which could have an impact on the carrying of an investment of Rs 20,854.9 crore, its auditors suggested in a note. This isn’t the first time the company’s auditors have flagged concerns on the sustainability of Tata Steel Europe. This found mention in Tata Steel’s FY19 annual report.

Tata Steel Europe has been dependent on group funding for long and it needs to be seen how the company management plugs this hole, Ritesh Shah, analyst at Investec Capital Securities India Pvt., told BloombergQuint. “Tata Steel’s consolidated numbers may surprise on the upside but I would like to highlight cash flow issues with fixed costs of European business at more than $950 million and current Ebitda run-rate nowhere near to ensure sustainable business case.”

The company, however, didn’t directly comment on a deal for a rescue package with the U.K. government. It said it was in talks with the government on various issues.

The company said it overshot its capex target for FY20 but its net debt remains stable at around Rs 10,500 crore. It spent capex of Rs 9,500 crore compared to the earmarked Rs 8,000 crore. That was revised down from Rs 12, 000 crore at the start of FY20. Chatterjee said Tata Steel would restrict its capex in FY21 to maintenance and critical components and would reveal more details by the second quarter after assessing the situation on ground.