After the successful call on Vedanta, (on 12th April 16), I initiate the call on NMDC.
NMDC is India’s largest iron ore producer, producing around 30 m MT of Iron Ore per annum. Approximately 95% of iron Ore produced is sold domestically. The book value per share as per the 2014-15 annual report is Rs 81.54 and the current market price (CMP) is Rs 95.00. The total dividend declared for FY 2014-15 was Rs 8.55 /share which provides a yield of around 9.00% before taxes at the CMP.
The stock price is correlated to international prices of Iron Ore, though the quality of produce is on an average is inferior to 62 Fe Iron Ore fines.
Iron Ore prices have been broadly volatile between a 38 to 64 Dollar/ MT and are expected to remain volatile. With a new boss at Rio Tinto, the focus seems to be shifting from outright maintenance of market share to a more balanced perspective between profits, dividend and market share. Rio Tinto is up around 18% since June 16, NMDC by around 7% since June 16.
A breakout from the 38/64 channel could propel international Iron Ore prices into a new range between 80 to 90 dollars/MT. When the Iron Ore prices averaged around 56 dollars / MT, the NMDC price hovered at around 102.
There is an inverted head and shoulder formation in process on the NMDC chart which portends a breakout from the 85 to 106 range . Its early days , but the international commodity price scenario has changed from a grossly bearish one to that of stability . Prices , however do not remain stable, they eventually break out.
Apart from the weekly trend line support, the 38.2 % Fibonacci retracement for the move from 190 to 78 , targets a 122 number.
Looking at the overall structure , would call a target between 120 to 125 within the next 3 months , going long at current market prices and adding to longs with a stop loss of 80.00 .