Steel, which is in the middle of a takeover battle with
Brazilian company CSN for European steelmaker Corus, has
reported good results for the third quarter. Helped by
improved realisations, the company achieved better operating
margins during the last reporting quarter.
the quarter ended 31 December 2006, consolidated net profit
increased 27.3 per cent to Rs1,054.65 crore, or Rs18.19
per share, as compared to Rs828.51 crore, or Rs14.93 per
share, for the corresponding period of previous year.
Consolidated net revenues increased 18.86 per cent to
Rs5,971.15 crore from Rs5,023.69 crore for the previous
from the steel business, which contribute 81.16 per cent
of total revenues, increased 20.44 per cent over the previous
year quarter while the ferro alloys and minerals business
recorded a revenue growth of 22.35 per cent. Other businesses
achieved a revenue growth of 48.61 per cent
profits increased 26.58 per cent over the previous year
quarter. Operating margins as a percentage of net revenues
improved to 31.66 per cent from 29.73 per cent a year
modest 6.59 per cent increase in raw material and other
input costs was the major factor behind improved operating
margins. Cost of power went up 34.38 per cent while freight
and handling charges increased 25.77 per cent. Staff costs
increased 12.46 per cent over the previous year quarter
while other operating expenses went up by 25.41 per cent
costs for the quarter more than doubled to Rs96.23 crore
from Rs47.87 crore while depreciation charges were lower
by 4.94 per cent. A 72.31 per cent jump in other income
to Rs101.13 crore also helped the bottom line.
a standalone basis, Tata Steel''s net profit for the quarter
increased 41.13 per cent to Rs1,063.75 crore, or Rs18.33
per share, as compared to Rs753.74 crore, or Rs13.62 per
share for the corresponding period of previous year. Standalone
net revenues increased 20.88 per cent to Rs4,469.98 crore
from Rs3,698 crore a year ago.
operating profit for the quarter increased 28.1 per cent
from the previous year quarter while operating margins
improved to 39.9 per cent from 37.65 per cent a year ago.
The substantial difference between consolidated and standalone
operating margins indicate that Tata Steel has still not
been able to achieve any major improvements in operating
efficiencies of its recently acquired overseas businesses.
However, the company may be able to achieve better margins
in its overseas operations in future by replacing costlier
raw material with unfinished slabs from its Indian plants.
price outlook for the coming few quarters is reasonably
positive as demand remains strong. Iron ore prices for
current year contracts have gone up from last year levels,
indicating a firm price outlook among global steel producers.
Sustained global economic growth momentum would keep steel
demand strong at least in the near future.
Steel''s stock price movement in the short term would depend
on the result of its Corus bid. Competitive bidding with
CSN has raised valuations of Corus considerably and analysts
were worried about the possible impact on Tata Steel''s
financials if the company is successful in its bid. This
had led to the stock''s underperformance till the recent
metal rally lifted it out of the slumber.
an emerging view among analysts is that the Corus acquisition,
even if expensive and hence financially risky in the short-
medium-term, makes very good strategic sense for Tata
Steel in the long term. If this view gains further currency,
the stock may react positively if Tata Steel bags Corus.