COAL INDIA LTD.: 'THE BIG ONE'; BEST ENTRY PRICE

In case one wants to have a whiff of Natural Resources in one's Portfolio, then Coal India seems a natural inclusion. However, of late, the dynamics of Policy pronouncements seems to have taken some  sheen off the Stock making it even more important to enter at the best possible price for good returns.

TECHNICALS:  Even though the data is rather limited, the feel that I get from the available Price Charts is that the Scrip is currently going through a bottoming out process, call it consolidation if you like, but the distinct signs of troughing out are visible. The recent low  made on 5/10/2011 intraday at 314 approx seems to be a durable bottom for the Stock in the medium term. On the upside, the first resistance is at 342 and then a stronger one at 357. Confirmation of uptrend only after it trades above 382 for a reasonable period.

FUNDAMENTALS: The Stock has a lot going for it; the world's largest and cheapest coal producer; a large reservoir of unmet and spiralling demand within the country; substantial mining reserve; reasonable pricing power (notwithstanding the disparate noises emerging from different administrative arms of the government and the effect of the prospective Mining Act); an ambitious modernisation/beneficiation program which would mean greater contribution to overall margins and profitability; projected revenue CAGR of 15% approx. and stable OPMs at 16% approx over the next two years; thus far a pretty rosy scenario. However, and there always is a however isn't it, the biggest negatives are the fickleness of Policy directives and the tardy bureaucratic delays likely in the modernisation program. These are indeed big party-poopers from the Investor's point of view since news flow could see the Scrip react sharply either way.

Overall, taking a balanced view, the Scrip can be ACCUMULATED in the range 314-337 (CMP) for the long term but at the same time keeping some reserve to pick up the Scrip on news-flow triggered sell-offs!!!