Indian Toners and Developers: Value buy or value trap?

The markets are scaling new heights everyday and it is becoming increasingly difficult to find a bargainer in these times. I ran a screen and came across an interesting scrip by the name of- âIndian Toners & Developersâ. The company claims to be the largest manufacturer of toners in the Indian market. It also exports and derives ~ 40% of its sales from the export markets.

About the product and the company

Company sells compatible toner powder which is used as a consumable to re-fill toner cartridges and primarily sold in the aftermarket as an alternative to OEM toners or buying new toner cartridges. The company claims to be the one of the few companies manufacturing toner powder in India (the other company is Rathi- this is also listed) and other players are usually importing stuff and trading it. The company sells the following kinds of toner powder:

  • Chemical color toner-
  • Laser toner
  • Copier/Digital Toner
  • Wide format copier & printer toner

Almost all the raw material (petrochemicals) is imported. The company has 1 manufacturing plant in Rampur and 1 more plant through its subsidiary (more on this later) in Sitarganj, Uttarakhand. The company looks interesting because of the following reasons â

  • Market leadership in a niche space âToner powder looks to be a very niche space, which is also boring. The company has been manufacturing this product for more than 2 decades and has created a name for itself. I did some scuttlebutt, and almost all toner-refillers knew about ITDL. Management interview in an industry magazine, mentions that the company has a very strong focus on quality which has enabled it to stay in the market and create a name for itself. The link to the interview is available here :
  • Strong growth in bottom line-Over the last 5 & 3 years the company has increased its PAT by 31% and 35% respectively. EBITDA margins have expanded sharply ~14% in FY09 to 24.6% in FY14. During my scuttlebutt I got to know that ITDL products are more expensive that others. Usually the difference in prices is in the range of 25-35%. Gross margins have also increased by 2.5 p.points over this time. Another reason for the company for strong bottom line growth is scale benefits as there is a sharp decline in other costs and employee costs. The company also gets some tax benefit in their Sitarganj Plant in Uttarakhand
  • Valuation âThe company as on 31st March 2014 has 35 Crores of cash and cash equivalents. It has profits of 11 Crores in FY14. The current market cap is 50 Crores. Net-net you are getting the company almost for free. The trailing P/E is 4.5 not excluding cash. The company has strong cash flows (19 Crs in FY14) and has also improved its working capital cycle.
  • Export potential-Global market offers a large opportunity size for the company for growth

The bads

  • Corporate governance: The company formed a subsidiary by the name of ITDL Imagetec. This is 51% owned by ITDL and 49% is owned by the promoter family. Now ever since the company started this subsidiary, majority of the growth and profits are coming via this route. My interaction with a company official mentioned that there is no difference in the kind of products that the subsidiary makes. Now this, prima facie looks to be a way of taking cash out from the company as there was no reason why the company couldnât continue selling its products in the holding company alone. Given this scenario, the question of how much of the cash will flow to minority shareholders like us, becomes crucial. The company has a very low payout ratio too.I have tried to reach the CFO over the last few days, multiple times but so far all efforts have been in vain. I spoke to Mr Rastogi in the company and he mentioned that the cash utilization will be towards capex. I will mail my list of questions to them, hopefully they reply.
  • Competition:As per AR and also my scuttlebutt, the market is extremely competitive.End customers are mostly unaware about the goods and bads of any toner powder and price is the only determinant. Most refillers, sell the products which gives them the highest margins, which are usually cheap imported products. The only comfort that we can dervie here is that the company is reporting good financials and growth and is generating good cash flows.

Net-net I find many things interesting in this company- its in a boring industry, seems like a market leader, has good reputation in the market and is extremely cheap. The only thing I am unsure is the corporate governance issue, which is a binary decision for me. I just want to float the idea here and see if someone has looked at this idea before and what his/her views are.Given many things which are interesting here, I want to be sure, before passing on this.


Hi Rohit,

I had a cursory look at the company and looks interesting, especially the valuation. Why even in this bull frenzy it’s available at such a valuation with such a clean balance sheet. Is this an opportunity in waiting or are we missing something here?

some of the issues that I think of are…

  • possible conflict of interest with the subsidiary as you mentioned. Their website also talks about expansion of capacity at this subsidiary by 600 tons.
  • Lack of dividends. Company seems to have generated lots of cash recently but shareholders are not rewarded and company has even failed, at least so far, to generate sufficient return on the capital and that’s why ROE and ROCE numbers are poor. Cash is not coming out…
  • For last two years, company seems to have improved its margins and are at par with long term averages but even with this ROCE is not great, i.e. 24% with 20% margins. Is this sustainable going forward?

If you have compiled and sent the list of questions to the management, can you share the same here?

Hi Aksh,

I agree with all your points above, and thus I think an interaction with the management is key here. I have called the company multiple times over the last 3 days and the receptionist told me that the CFO doesn’t talk to investors. I have bought some shares so as to make it obligatory for them to answer the queries. I am waiting for the shares to hit my demat to ask the questions. I am happy to share my queries here, would be great if folks like you can add to it.

  • What is the domestic industry size and exports industry size? Growth rates?
  • Do we have our own brand or we just sell third party?
    • Which brands lie with subsidiary and which lie with parent
    • What is our sales channel in domestic markets and in exports markets?
  • Kindly explain the reasons for margin expansion for oru company? We further understand that it is driven by our subsidiary ITDL IMagetec, what does this company produce and what are the reasons for growth and margins in this subsidiary?
    • Are the products different?
    • Any difference in pricing of the products?
  • Our sales in the India Toners and Developers (Standalone) has been not growing what is the reason for the same?
  • In the AR, it is mentioned that there are many clandestine imports and this is a major threat, how is the company able to tackle it?How does the company operate in the extremely competitive market? What is our differentation in the domestic marekts and in the exports market?
  • What is our market share in the domestic market- five years back and currently?
  • Our working capital has reduced over the last few years, what is the driver for this?
  • The company is looking to expand capacity in its Sitarganj plant by 600 tons, what is the cost outlay towards the same (will help to uunderstand how much cash the company needs to expand)
  • Who is our competition in the organized market?
  • In FY14, utilization of Rampur plan?
    • Company is planning to expand in Sitarganj as utilizations have peaked at ~90-100%. Knowing Rampurâs utilizations will put things in perspective as to whether management has ill intentions to favour themselves over shareholders?
  • Outlook going forward
  • Utilization of cash and stance on dividend?
  • Reason for low taxes in recent years?

Hi Rohit,

Thanks for the prompt reply. The stock is in my watchlist and seems to be showing positive price movement even in the last two days when sensex was down. Overall, many companies in chemical ind are showing improved earnings on the back of better margins.

Did you manage to get reply from the mgmt? If we get management to answer some of the issues highlighted above and if the response is satisfactory, initial position can be taken for the tracking purpose as the valuation is very attractive.


Hi Aksh,

No I haven’t been able to. Honestly, I am skeptic if the management will answer this question around diverting growth to subsidiary and cashing out profits. But will try, in any-case. Did you try to talk to the management?

The price has not moved much, if the CG issue is sorted, its still attractive.

It is just a 51 crore mcap company, barely 5 cores of profits(too less), already selling at P/E of 10 + Corporate Governance issues, i don’t think its a stock worth spending more time on.


I think you are looking at standalone numbers. Look at Conso. numbers


I’ve not tried to reach out to mgmt so far as I’ve not taken any position. I’ll get back if I’ve any update.


I tried reaching out to IR on the phone numbers mentioned on bse site but they are non existent. Could you please share the phone number, I’ll try again.


Just called up their delhi office. Receptionist replied that Mr.Singhal will be busy this week and I can call next week. I’ll follow up with them, by the time can you shoot a mail with questions to investors at indiantoners dot com. They have to at least respond as you are invested. Let’s see what’s their response. We’ll get some idea regarding their minority investors friendliness.


I called up their delhi office today as well and got good response from IR…was asked to send a list of questions to info at indiantoners dot com, Mr. Singhal, CS will reply it. Could you pls send the list of questions to them? Pls mark a cc to investors at indiantoners dot com as well.

The stock locked in UC today and is already up by 25% from discussion price.

Interesting company. Prima-facie seems to be a very good value pick. It satisfies all the required parameter for a value buy. Zero Debt, Low P/E (even after 6x increase in 12 months), and presence in a very boring industry (demand for its product will always be growing). However, two things need to be checked to invest in this company. a) Why subsidiary have been created which sells the same product as the parent? and b) If the company is generating cash why it has not paid even a single paise as a dividend ever since its existence.

Few more points to research before investing isa) Size of the industry b) performance of listed global players (if any) along with their valuations and margins and the most important c) moat - what is the thing which is keeping the company making such kind of returns and will it be sustainable for a long period.

P.S.- There is a 8-pager PDF report (anonymously) circulated in the market (many google/yahoo groups) with a heading “Multi-bagger pick”. In the conclusion it states 50% upside potential in next 1.5 years. Due to this I am bit skeptic about this company. Definitely still doing the research, before giving it a pass.



Could you get any response from their CS?

Please share.


In this bull market, looking at the valuations of this company with few triggers already in place this seemed to be a screaming buy but before jumping in I had a few concerns on which I got the IR to respond as follows…

The company has been sitting on lots of cash, why no dividend is declared all these years? What is the dividend policy going forward?

It’s for the board to decide on dividend matters so I can’t say much but I think company wanted to conserve reserve for expansion first for new 1200 tons plant at Sitarganj, Uttarakhand which is already fully functonal and now for a new 600 ton capacity which is coming up at Sitarganj. Let’s hope the board decides to pay dividends going forward.

Why did you choose to come up with a new 1200 ton capacity plant at Sitarganj, Uttarakhand, that is also through a subsidiary, instead of expanding at the site of Rampur,UP? What’s the difference in product offering at these two plants?

Uttarakhand is a newly formed state and the state Govt. there was offering many incentives so management decided to set up a new plant there with a subsidiary. There is no difference in product offering at these two plants.

How are you going to fund current capacity expansion by 600 tons at Sitarganj? By when will the new capacity functional?

The total expansion will be funded though internal accrual. The new capacity is expected to be functional very soon.

Can we expect some revenue from the new capacity in the next quarter?

Capacity is expected to be functional very soon. Wait for the quarter result to be announced.

Overall, He sounded very positive with regards to the future of the company.

Disc: Invested

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Q2 result is out…

Sales is down, expenditure is up and OP is down. if exceptional item of Rs. 160 lakhs gain on MF investment sales be adjusted for, NP is down by good points.

I think, the price has run up quite a bit in few days in the expectation of better Q2 results and overall market sentiments and with bad Q2 results, short time traders and punters getting out, It might correct going forward.

are you talking about stand alone results.But consolidated are more important in this case. There is growth of 15% in sales as well as in operating profit. They are interseted in expansiion of capasity.

Liquid assets held by the company is almost 50% market value. the problem is management intensions are suspept. Even then the valuations are not stretched @CMP

Yes. I’m talking about standalone results. Consolidated numbers are good comparatively but it means that majority of sales and profit is coming through subsidiary where ITDL has only 50% shareholding and rest is with promoters. If you exclude exceptional item of 160 lakhs gain in MF sales, Net profit is up but nothing sort of great while the price, in expectation of bumper results, has run up from 70-75 to 100 in just few days.

While I’ve not done detailed analysis of the results yet but it doesn’t seem to be great so, in all probability, price might correct going forward as short term traders and punters make exits.

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Actually the results are not bad at all, they liquidated the MF holdings to fund the expansion activity.

As commented in my earlier post, the price corrected quite a bit from the highs and consolidated for a while, giving long term investors an opportunity to load it up and since then stock seems to be moving up slowly and steadily which I think is more sustainable going forward.

The company has focused on export market for last few years from where most of the revenues are coming from now which is the reason for better performance in last few years, wherein the sales are growing and margins are expanding contributing to much better bottomline. The expansion project seems to be progressing well which is expected to be functional by end of current FY.

Latest update is available here:-

Disc: invested so views are biased

One more interesting thing I noticed is the new entries in latest SHP for more than 1% shareholding…

Mehta Equities Ltd - 2.18%, Vijay Kumar Agarwal - 1.05%

Results on 9th Feb, waiting to see and decide