Investor presentation
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Question to all the longs here -
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Somebody has mentioned that they have pricing power (25-30% more than competition). They have been delivering good results/operating margins which is a reflection of this strong moat. My question is how sustainable is this moat?
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Stripping cash of ~ 72 cr (Mar17), stock trades at ~25x Mar17 FCF or ~22x last 5 years average FCF (~11 cr). Mar17 was a record year. Assuming 15% growth in FY18 (in line with 9M results), the multiples still looks high for a small sized company. i.e. there is not much margin of safety in the price here. Does anything else provide margin of safety here? i.e. Any other moats to justify this high valuation?
Disc - Have a small tracking position.
ICICI Management meet update(Bit outdated- Mar 18)
http://content.icicidirect.com/mailimages/IDirect_IndianToners_MgmtNote.pdf
I’m never really impressed with Shashank Kanodia’s reports, but I was surprised to learn about the diversification possibility. I wonder what the time line and opportunity set looks like.
I’m sure the company will be able to find something to make in the specialty chemical space but their lack of R&D might limit any kind of long term growth.
This report if true is not something that I would look at kindly. Per the company presentation the estimated market size is ~2,25,000 MTPA and their capacity is 3600 MTPA. At this capacity, they believe that its better to diversify instead of investing their core. If a company truly has a moat, it will find it profitable to keep on investing in their core and not to incur the risk of venturing into new areas.
This report is truly bearish from my point of view. Ofcourse, there are more experienced investors in this forum, and I have but limited experience.
There is no moat in this business. In fact I barely believe it qualifies as a specialty chemical company. From my understanding the company has been able to exploit a tiny space in the market that larger players do not find worthwhile. The key driver of the company’s growth will come from market expansion and not market share expansion.
I have not been able to find definitive industry statistics, but I suspect that the figure on the company’s presentation is the market size of the toner industry in general and not specifically the after-market toner industry.
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The diversification will most likely be in color toners and not other specialty chemicals.
If the management is not able to invest in the existing business they should return back the reserve to their shareholders in the form of dividends, reinvest to increase markets or buy back their own share to create value. Or else toner business is high return business supposed to command higher valuation.
FY19 Q2 Results:
Seems like revenue increase this quarter was due to partial pass through of input costs. Not based on any extra information, but on google searches related to price increases of ink.
Comments or further inputs from boarders?
At today’s valuation of 117 Cr this business seems ridiculously undervalued. Cash and Bank Balances + Investments as on 31st March 2019 total nearly 90 Cr.
The business is available for Rs. 27 Cr, having generated Cash from Operations of 13 Cr in FY19 and 18 Cr in FY18. It seems like almost a no brainer that the promoters should use the funds of the company for a buyback at this price.
It would be great if some more experienced members could please shed some light on why the stock is so beaten down?
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I don’t know the intricacies of the valuation but have some idea about the sector. There is no pricing power and differentiation among the players. You can start a toner company with Rs 5 lakh, literally. All toners get imported in bulk, everyone put their labels and market them. Market is sensitive to even 1 rupee price variation.
Moreover tier 1 companies are also reducing the cartridge price sharply and increasing the volume of toner per cartridge. On top of that, compatible cartridge prices have touched the bottom. Check price at Amazon to get an idea.
So it’s a double whammy as value conscious customers are shifting to either originals or compatible cartridge and the leftover Xerox wallahs change brand with a slight margin change.
Disc.: Neither invested nor interested.
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Wondering if the company will become net beneficiary of reported move by Govt to bring in BIS standards to curb low quality imports from China. In past company has complained of such competiton.
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Hi,
Can you please elaborate on the decision of the government & also can you please share the source/ link of the information.
Here you go -
As per current valuation the company is available at 108 Cr and as per balance sheet, Cash and Bank Balances + Investments as on 30th Sep 2019 is total nearly 112 Cr…it means you are paying nothing for this financial asset and also getting additional operating assets…!!
I have recently read once up on wall street by Peter Lynch and as per his such companies comes under asset play. Isn’t there a huge margin of safety ?? The risk is minimum as the down side is low but upside is high with any positive news in future…sorry for my english…i am a novice investor…thx
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