Tata 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.

For 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 year quarter.

Revenues 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

Operating 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 ago.

The 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

Interest 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.

On 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.

Standalone 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.

Steel 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.

Tata 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.

However, an emerging view among analysts is that the Corus acquisition, even if expensive and hence financially risky in the short- to 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.