Indian Toners and Developers: Value buy or value trap?


(Aksh) #41

Hi @mihir23192,

When and how the mgmt has clarified regarding the merger? What’s the rationale?

Regards,
Aksh


(Mihir Naik) #42

Management has clarified the Exchange Ratio. BSE Accouncement Link

1028 shares in Indian Toners & Developers for Every 100 Shares in ITDL.

Total Shares of ITDL Imagetec = 10,00,000 Out of which 51% is owned by the company and 49% Promoters.

If we value ITDL Imagetec on this measure, 10,00,000/1001028150= Valuation is Roughly 155 Crores.

Profit of FY 14 was 12.5 crores. It gives reasonable PE of 12. This year profit is higher.

If the promoters are fraud than they must have paid themselves cash as the holding company holds lot of cash. And the valuation would have been on a higher side as well.

Promoter holding is also very comfortable now. I believe this is a good company to invest in. :slight_smile:


#43

Mihir,

what will be the equity capital of the combined entity?
Thanks.


(Mihir Naik) #44

Current Equity is 8.06 Crores.

New Shares are to be issued = (503720+63+146+148+196)= 504273

Equity Capital Increased = 0.50 Lakh

Total Equity Capital will be 8.56

PS: I think I have made some mistake. Do let me know if you find any. :smiley:


#45

Thanks for your response. With the amalgamation, the company does look exciting. Though there has been a fair bit of run-up off-late after the announcement.


(Mihir Naik) #46

The inherent business is very good. You can read my brief note. High cashflow generation with low capital employed.


(Parth S) #47

So according to my calculations new shares outsanding will be 1.35 Crore Shares:

Pre-Merger Outsanding Shares= 80.07 Lakh Shares
Promoter-Holding Company shares to be merged=28.3 Lakh Shares
New Shares to be Issued=82.78 Lakh Shares (Approx. 50 Lakh shares for ITDL stake and the remaining for the merger of Holding Companies).

New Equity Capital should be: 1.35 Crore Shares * 10 = 13.5 Crores


(sandybansal) #48

Hi all,
I have recently joined the Valuepickr forum. This seems to be a good company.
I am trying hard to find any red flags, no luck so far.

But the stock seems to have run too far. What do u think is a good entry point.

Also, in this entire thread, I havent been able to find any information on the fundamentals of the Toner industry. Here is one report I found.The Future of the Toner Industry in China.pdf (977.9 KB)

Since the company is primarily into exports, I was looking for what are the biggest manufactures of Toners in the world. I was looking to read their annual reports and compare.

Also, I am looking to read the last 15 annual reports of ITDL but the website contains only last 5. Any suggestions where can I get them?


(Mihir Naik) #49

No Formal information on Toner Industry.

As far as I have understood, There is a lot of competition in International Market from Japan. Japan is throwing very good quality toners at competitive rates. So ITDL has a strategy to focus on Domestic sales and drive growth from there.

Someone told me that the son of Promoter himself meeting some of the costumers in India to close the deal.

Regarding Annual Reports you have to mail them. They will provide.


(sandybansal) #50

@mihir23192

Mihir,

I was trying to do some research into the toner industry and I have found some useful information.

Here is a 2013 article. Basically what this article is saying is that HP gets most of its revenue (2/3rd) from selling toner and not from selling printers. This is true for other printer makers as well. This essentially means ITDL faces competition directly from printer manufacturer. These printer manufacturers had high margins in their toners.
https://blog.atomicinc.com/2015/03/13/hp-printing-is-an-ink-company-not-a-printer-company-2396/

Here is another article, barely 10 days old. It says

IDC believes that with all the major vendors such as Brother, Canon, Epson and HP now offering ink-tank HCPs with very competitive prices for printer consumables, the third party market is expected to experience a decline in market share as OEMs regain the upper hand.

“However, there are growth opportunities for third party vendors in the laser toner market where there are higher margins. With declining margins in the ink cartridge market, there has already been a shift in focus by the third party brands into the laser toner market with many new third party brands emerging within Asia/Pacific.”

So does all this means end of ache din for ITDL?


(Mihir Naik) #51

Thank you so much for bringing this point.

You have given me a very important point to ponder upon. I will certainly raise this point before the management.

I don’t believe it’s an end to acche din because the company is also into laser toner which is a quite profitable business. Moreover, the business haven’t experienced contraction in margin till now. (This might be the reason of cheaper RM cost)

Overall, the main point is, If Inkjet toner industry is declining due to OEMs coming into this market by lowering prices than how ITDL is affected by this move?

Will update if I get futher info. This quarterly result will also be an important event to look at.


(Aksh) #52

Q1FY17 result is out. On the face of it looks disappointing.
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=4c9d4d11-d9e3-4eb7-81f2-faba7157c4d3

Though there is a decent jump in Consol. Revenue YOY, OP is only a marginally up indicating pressure on the margin. NP is down. EPS is 2.94 vs 3.08

Standalone nos. are even worse increasing my doubts that most of the profit is intentionally routed through subsidiary where promoters seem to have major interest.

Disc: Exited Fully


(vishwa.bhat19) #53

Hi Mihir,

Good Day!!

I am very new to this forum and hence kindly forgive my ignorance. About the above text I have a few doubts which I have detailed below. Kindly advise on these.

Disclosure: ITDL forms 10 % of my holdings. Buy Price: 146

  1. The above text says the following: All the shares help by the company in the M/s ITDL Imaegtec Limited shall be cancelled. Isnt this kind of a loss to us shareholders? Since even we did own the subsidiary through the shares of ITDL? Hasn’t our stake in M/s ITDL Imagetec Limited kind of written off here?

We should have had an increased stake in the company post merger and not just the promoters? This feels like an instance of the minority shareholders being cheated out of a stake in a subsidiary.


(vishwa.bhat19) #54

THE ESSAYS OF WARREN BUFFETT - Mergers and acquisitions - “If your family owns a 120-acrefarm and you invite a neighbor with 60 acres of comparable land to merge his farm into an equal partnership-with you to be managing partner,then your managerial domain will have grown to 180 acres but you will have permanently shrunk by 25% your family’s ownership interest in both acreage and crops”

I feel this merger with the subsidiary should have been done with cash.The current merger has just lessened our interest in the overall business. Also this has been done cleverly with no impact on the promoters.

Valuing the parent company around 110crores based on the market cap and the sales for FY16.

Consolidated earnings : 10913
Standalone earnings: 3504

The subsidiary seems to be earning more than the parent through the business in the Domestic market.

Also the parent seems to be paying 100 shares for every 1028 shares of the subsidiary. Valuation seems to be very fair to the parent company which is also currently trading a bit above its intrinsic value.

But the point still remains that the minority shareholders’ interest have been diluted.

But I am still confused if this will actually be for the greater good since the subsidiary actually brings in most of the revenue. Need some pointers from the seniors here.

Also the company seems all set to do this same thing again, this time with a new subsidiary in USA:

““In order to cover the untapped markets of North and South America, your Company has decided to incorporate a Wholly Owned Subsidiary of the Company in the State of Florida (USA) with an investment of up to $2,50,000 only.””

I am really confused with this merger.Once the consolidated balance sheet becomes available I think things will become way clearer. Kindly do give me a heads up if anybody is already aware of the net assets, liabilities etc of post merger ITDL.

Thanks guys :slight_smile:


(pradeep n k) #55

hi vishwa bhat19, glad to see you on board… indian toners board is usually a dull board and seeing you being an active member makes me happy…I have been invested in indian toners from Feb 19 2016, having tracked all the corporate actions of indian toners these days one can make out that they are not the same old management… they have been quite opaque in corporate governance before but now they are rectifying those things… indian toners USA company is a 100% subsidiary which was not the case with itdl imagetec, they have hired Mr Allan kronstat who is an industry expert having managed AQC and AQC LLC for a very long time… as per their announcement merged entity after amalgamation with Indian toners will have an equity of 13 crore with promoter holding close to 70%… off late we have been witnessing increased trading activity in indian toners with volumes ranging above 17,000 for last few days, is this a signal of something good yet to come…I will keep things updated…


(vishwa.bhat19) #56

Thank you so much Pradeep. It feels so good to get the first reply on my post.

Just a general question here,this is not just related to ITDL but to all stocks in general, when evaluating a business with respect to the benefits it provides to the minority shareholders.

I am new to investing and hence have doubts ranging through various degrees of ignorance.Kindly forgive the same.

The essays of Warren Buffet, Finance and Investing, page 104: Point 5

(5) The certainty with which Management can be counted on to channel the reward from the business to the shareholders rather than to itself;

ITDL pays no dividend and a buy back does not seem to be in store in the near future.

Assuming that the business does very well, is the increase in book value per share and also the increasing capacity of the business enough to raise the share price levels in the Indian share market?


(pradeep n k) #57

Hi vishwa, thanks for reverting back… Indian toners as known by many in
the past, is a company which hided many things from minority shareholders,
was very opaque in corporate governance, deliberately expanded its
operations through subsidiary instead of routing growth through parent and
declaring hefty dividends thereof to subsidiary but not to parent…yes
there were those flaws from promoters and they seem to be correcting with
their corrective measures off late… what makes me say this is merging of
itdl imagetec and other subsidiaries with the parent indian toners, where
they valued indian toners appropriately when compared with itdl imagetec
even though most of the revenues were from itdl imagetec… second thing is
they have been professionalising Indian toners by forming subsidiary indian
toners USA company where they own 100%(not like itdl imagetec where they
owned only 51%) and concentrating on new export market USA. They have
appointed Allan kronstat to manage US operations who is a thorough
professional and has vast experience of having managed AQC and AQC LLC for
a very long time (reason why he left AQC and AQC LLC is company was closed
otherwise he would not have left, and thus was a bargain for indian
toners)…third point is they have been expanding capacities without
diluting equity and through internal accruals(there will be equity
expansion only because of merging of itdl imagetec and other subsidiaries
with Indian toners, where promoter holding will rise to 69.37% and
resulting equity will be 13 crores paidup) is also a good step in value
creation… last but not the least is they have been very careful in
reducing expenses( this is because they have conducted their agm in company
premises, installed solar panels to reduce power costs) which also helps a
lot in increasing margins…if you can enquire somebody with knowledge
about toners then they would certainly give you a thumbs up about the
quality and demand of indian toners… I have heard from many that managing
director himself goes to seal high value orders… these are certain points
I found compelling about indian toners which made me anticipate a turn
around in the business and stay invested… I might be biased but lot many
things look promising to make it a great business…


(pradeep n k) #58

my previous reply was quite an elaborated one and pardon me for that… yes dividend policy ensures a lot of comfort for minority shareholders and my recent experience regarding the same was with apcotex industries, I purchased apcotex 3 years back at 140 rupees pre bonus and split. They were giving impressive dividends of 7 rupees per share which yielded me 5% I was more than happy… management integrity can be measured greatly by dividends but it can also be a cause of concern for smaller and emerging companies where they will be rapidly expanding their operations and capital retained by way of not declaring dividends will only help a lot in reducing capital cost and aid growth… growing companies after attaining saturation will definitely reward shareholders handsomely with a greater increase in stock price and later followed by dividends…historically in stock market smart money has always chased growth rather than dividends which were to follow…


(vishwa.bhat19) #59

Thank you for the both replies Pradeep. Very informative and very detailed. Helped me a lot and they do make very good read. I do agree with your point on the dividends too. Once again thank you :slight_smile:


(pradeep n k) #60

You are most welcome and new inputs are always welcomed to keep this board active… Do give a thought of an investment in indian toners and you’ll be handsomely rewarded thereafter… wish you best of luck…