MUMBAI (Bloomberg) - Tata Steel Ltd., India's largest producer, posted a nine percent gain in fourth-quarter profit, excluding contributions from unit Corus Group plc., as higher demand from construction and automobile customers boosted prices.

Net income rose to 12.1 billion rupees ($282 million) in the three months ended March 31 from 11 billion rupees a year earlier. The numbers were derived from full-year earnings announced by the Mumbai-based company yesterday. Five analysts in Bloomberg News survey had predicted a median profit of 12.3 billion rupees. Sales gained 15 percent to 57.4 billion rupees.

Tata bought Corus in January last year for $13 billion to tap European steel demand. A global shortage of steel helped Tata increase prices for builders and automobile companies, more than covering record raw material costs.

"Tata will show strong earnings growth in the next few quarters as it will be able to pass on higher costs by increasing prices in the European market," Bharath S, an analyst at Sundaram BNP Paribas Mutual Fund, said by telephone from Chennai before the earnings statement. The BNP fund held about 700,000 Tata Steel shares as of May 31.

Tata Steel shares rose 1.9 percent to 756.55 rupees at the end of trading in Mumbai yesterday. The earnings were announced after the market closed. The stock is down 19 percent this year, compared with a 29 percent drop in India's key Sensitive Index.

Tata and Corus sell more than two-thirds of their production in Europe. While Tata imports a third of the coal needed for its mills in India and mines its own iron ore, Corus buys both the raw materials. The group will reorganise in the next six to 12 months to increase raw material assets and expand in new markets, managing director B Muthuraman told reporters in Mumbai yesterday.

"Our mining unit owns overseas mining assets and we will look at the best possible way of unlocking value since we need funds for securing raw material," he said, without elaborating.

The company has acquired a coal mine in Mozambique with reserves of 1.94 billion metric tons and an iron ore mine in Ivory Coast with an estimated reserve of 750 million tonnes.

Raw material costs reached 333.3 billion rupees in the last financial year, the company said.

Profit rose 11 percent to 46.9 billion rupees in the year ended March 31 from 42.2 billion rupees a year earlier, the company said in a statement yesterday. Sales rose 12 percent to 196.9 billion rupees. Consolidated net income, including Corus, rose to 123.2 billion rupees from 41.7 billion rupees.

While coking coal prices tripled and iron ore surged to a record this year, Tata Steel, South Korea's Posco and rivals took advantage of demand to pass on the costs by lifting prices. Nippon Steel Corp., which has not increased prices enough to cover costs, said in April that full-year profit will fall 41 percent.

Steel prices in Europe will be 20 percent more than expected, Deutsche Bank AG said on June 18. The bank forecast hot-rolled coil prices at $930 a metric tonne in 2008, 40 percent more than last year, according to analyst Timo Pirskanen.

Corus, which plans to raise prices of strip products and electrical sheets from July 1, may ask customers to pay a raw- material surcharge after iron ore and coal prices reached records, London-based spokeswoman Annanya Sarin said on May 22.

The UK unit expects to enhance its revenue by $600 million this year by producing more value added steel and raising overall output, Corus chief executive Phillipe Varin said.

Still, Tata Steel faces price limits domestically. The Indian government asked steelmakers to lower prices by as much as 10 percent last month to help contain inflation.

The producers agreed to maintain prices until the end of next month.

"The only concern we have for Tata is when the government will allow steelmakers to raise prices in India," said Niraj Shah, an analyst at Centrum Broking Pvt.

The company has raised prices for customers with one-year contracts, Mr. Muthuraman said. Tata sells about 25 percent of its total production through annual contracts.

Tata Steel plans to increase its domestic production to 10 million metric tonnes by December 2010 from seven million tonnes.

The company also plans to build a new mill that will add 1.5 million tonnes of cold-rolled steel to output and be used to meet demand from the automobile sector, chief operating officer HM Nerurkar said at the briefing yesterday.

The company will supply some critical parts for the Nano, the world's cheapest car that associate company Tata Motors Ltd. is developing, Mr. Muthuraman said.