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Gladiator Stocks - Metals to outshine post multi-year breakout... - ICICI Direct

Posted On: 2021-02-26 00:50:15 (Time Zone: Arizona, USA)

Metal index has outperformed the benchmark throughout current rally since March 2020. Recently it resolved out of two months consolidation, indicating resumption of primary up trend. This rejuvenation of upward momentum augurs well for Metal index to challenge its all-time high of 2018 and result in multi-year consolidation breakout.

Tata Steel

Technical View

- The stock is breaking above its multi-year highs of CY 2010 (Rs. 704), CY 2011 (Rs. 702) and CY 2018 (Rs. 755) highlighting strength and structural turnaround thus offers fresh entry opportunity

- We expect the stock to continue with its positive momentum and head towards Rs. 845 levels as it is the 123.6% external retracement of the entire previous decline (Rs. 755-251) which also confluence with the measuring implication of the range breakout of last seven weeks (Rs. 731-596)

- Structurally, it has completely retraced its 26 months decline (Rs. 755 to 251) in just 11 months. A faster retracement in less than half the time interval highlights extension of the current rally and a robust price structure.

- The entire rally of the last 11 months is supported by strong volume of almost double of the 50 months average volume of 20 Cr. Share per month, signalling larger participation in the direction of the trend

Fundamental View

Tata Steel's consolidated steelmaking capacity is ~34 MT out of which ~20.6 MT is in India. In India, Tata Steel has operations in Jamshedpur (12 MT), Kalinganagar (3 MT), Tata Steel BSL (5.6 MT), aggregating to 20.6 MT. Indian operations' key assets viz. Jamshedpur, Kalinganagar, Dhenkanal have globally cost competitive position, aiding overall EBITDA margins. In Q3FY21, the higher margin domestic operations accounted for ~68% of overall sales volumes. In Q3FY21, Tata Steel's consolidated sales volume was 6.9 MT of which Indian operations contributed 4.65 MT

In India, Tata Steel possesses and operates captive mines that ensure cost-competitiveness and production efficiencies through an uninterrupted supply of raw material. Tata Steel's iron ore mines enable 100% captive iron ore usage and the coal mines in ensure ~25-30% captive coal usage in operations


Technical View

- The stock has relatively underperformed the metal space during ongoing up move since March 2020. We expect stock to resolve higher and witness catch up activity as it resolved out of seven years falling channel, indicating resumption of primary up trend. Thereby, providing fresh entry opportunity

- We expect stock to accelerate upward momentum and head toward our target of Rs. 152 as it is 123.6% external retracement of entire CY20 decline (Rs. 140-62)

- Key point to highlight is that, the volume traction of current up move since March 2020 is 2x compared to the average volume of 2013-20 volume, indicating larger participation in the direction of trend that agars well for durability of ongoing up move

- On the oscillator front, monthly RSI resolved out of four years high. Meanwhile, MACD generated bullish crossover and on the verge of resolving out of zero line, indicating acceleration of upward momentum

Fundamental View

NMDC is India's largest merchant miner of iron ore in India, with mining operations in the state of Chattisgarh and Karnataka. For Q3FY21, NMDC reported healthy financial performance wherein it reported a robust EBITDA/tonne of Rs. 2982/tonne. For Q3FY21, NMDC reported revenue of operations at Rs. 4355 crore (up 45% YoY, 95% QoQ). EBITDA came in at Rs. 2767 crore (up 74% YoY, 169% QoQ). EBITDA margin came in at 63.5% as compared to 52.9% in Q3FY20 and 46.9% in Q2FY21. Ensuing PAT for the quarter was at Rs. 2109 crore

Recently, NMDC has obtained the Lease extension of Donimalai Iron Ore Mine for 20 years w.e.f. 03.11.2018 from Govt. of Karnataka (GoK) and completing the associated statutory requirements, the said Donimalai Iron Ore Mine was restarted on 18.02.2021 by the company. Donimalai has a capacity of ~7 MT per annum. The restart of Donimalai would aid NMDC's volume growth, going forward

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Source: Equity Bulls

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