Indian Toners and Developers: Value buy or value trap?

Any comments about the results?
There is almost no revenue/profit growth in spite of the new plant.
Wondering what to do. The stock was 9% down in the morning.


Yes the Q3 numbers have surprised me as well on the downside. The revenue is almost flat YOY and QOQ with OP and NP down due to higher expenses and taxes. Having said that, the general trend in this quarter by even many good companies is to post not so good numbers. This being a small cap stock still to be discovered by the market remains highly volatile and myopic quarterly number based attitude of the market only adds to this volatility. I don’t think investment decisions should be based on earnings only let alone quarterly numbers. I’ll wait for few more quarters before taking any call. Till then, I’m staying put.

Meanwhile, company seems to have posted new pics…

Disc: invested so views are biased

Thanks a lot Aksh.


ITDL has come out with, as expected, not so good nos.

The bigger concern though is 10 Rs. dividend by subsidiary ITDL Imagetech Ltd.,where promoters have 49% stake, and none by ITDL. CG issue?

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In addition to all the above points:

  • With the cash surplus, they are choosing to buy “current investments” i.e. MFs in equity/debt. Corporate entities in promoter list - namely Alankar Securities Pvt Ltd, Triveni Securities Pvt Ltd - may be the ones benefiting by way of brokerage/commissions.
  • Given that it has 51% holding in subsidiary ITDL, if it just passes on that dividend to the parent company’s’ shareholders they wouldn’t even have to pay a tax! (Refer Double Dividend Taxation law). But then, they would have to share the booty with minority shareholders! :smile:
  • Its not an industry with some tremendous growth prospects - infact it seems to be a declining one. Capex costs are also not too high - especially if its just expansion. There is no reason they should not declare a dividend!
  • Mgmnt must be getting good salaries & perks from ITDL too!
  • Mgmnt does not give any rationale for the decisions they are taking. They are the boss attitude!

Seems to me a clear case of tunnelling away money from shareholders.

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The company has mysteriously removed the pics of the progress at the plant (above link does not work). Profits will be lower in the upcoming quarters presumably, both because of increased taxes and assuming that the market knows more than me (after all why would the price fall to such absurdly low levels?).

Still, the price has been beaten down so much that I’m willing to take a bet on this company despite the negatives. I think the downside from this point is very low and if the new plant is ready and producing then the revenues should go up soon. ~65Cr mcap and an EBITDA of ~22Cr, zero debt, internally funded capex nearly complete, continuously profitable for the last 10 years - a bet worth taking at this price, imo.

Disc: Long

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I am a long term investor in Indian Toners. The following parameters attracted me to invest in this stock:

  1. ITDL is a Debt Free company.
  2. ITDL is generating huge free cashflow every year. FCF for 2013-14 is 17.20 crs and the market cap today is 63 crs.
  3. ITDL is holding almost 45 crs in cash and investments. This comes to around 75% of the total market cap.
  4. In simple calculation, we can buy this company by taking a loan for Rs.63 crs pay Rs.45 immediately using cash and investments and pay balance Rs.18 crs in 1 year using the free cash flow. This shows how undervalued the company now.
  5. Now the consumer trend is everybody is switching over to toner printers from old type dot matrix and inkjet printers.We can take the example of printers used in banks. Around 2-3 years back almost all banks were used dot matrix printers but now they are using Toner printers. Almost 80% of the customers are using refilled toners. This shows the change in customer preferences.
  6. ITDL is very illiquid and no institutional holding or analyst coverage.
  7. ITDL is doing capacity expansion using the internal cashflow generated.
  8. This company is consistently profitable.
  9. Operating efficiency is increasing - visible in increasing fixed assets turnover, inventory turnover and debtors turnover ratios.

I attach herewith the analysis by Dr.Vijay Malik.

What about the following points-

  1. Corporate governance
  2. Dividend pay out
  3. Minority shareholder friendliness

These are hygiene factors before one invests in any company from a long term point of view

Indian toners fares poorly in these. Look at the history, dividends, subsidiary etc…

ITDL looks very strong on numbers and quite undervalued but as pointed out by Vijay and others, there are issues regarding CG, Dividend Payout, Minority Friendlyness etc. Recently, Promoters paid themselves Rs. 10 Dividend through subsidiary but no dividend declared by ITDL. They have been hording cash for a long time and,if I’m not wrong, in the entire history never paid a single paisa in Dividend.

IMHO, In the bull market run though, this is easily forgotten by the investors and if they come out with better numbers, it can easily be re-rated from here on.

Imo There’s a difference between dishonest management and minority unfriendly management. You can never compensate for a dishonest (fraud) management but for a management which is not friendly towards minority shareholders you can have a higher margin of safety. From what I have read and seen so far the itdl mgmt doesn’t seem to be a fraud. They haven’t acted in the best interest of minority shareholders but at this price I think that is adequately compensated for (ie priced in). If the subsidiaries grow at 15% since itdl holds 50% we can assume that itdl grows at 7.5%. The price is well below even this growth assumption.
As regards to dividends yes its a valid point. But the loan to subsidiary has just been repaid. Let’s see what the mgmt does. If they can reinvest in this growing business like they have done in the past, even better!
There are many different flavors of value investing and you can’t apply the same yardstick to every company. For instance Cairn mgmt is famously unfriendly towards minority shareholders but if the stock falls to a tenth of the current price, will it be a buy?
Disc: long

Annual report is out…link here…

have invested a small portion in this as a tracking quantity. Few questions/highlights from the annual report:

  1. Company again mentions the tough competition from chinese products and mentions steps taken to increase profitability but remains vague on what exactly has been done
  2. Since more than 90% of sales are exports, it mentions about increasing exports to increase capacity utilization but again no specifics mentioned as to how this will be achieved
  3. Total asset base of Rs. 61.96 Cr as on March 2015 of which current investments (mainly investments in liquid MF schemes) account for almost 50% (Rs. 30.90 Cr). This was similar to last year (Current investments of Rs. 26.49 Cr on total asset base of Rs. 58.97 Cr). Question is what do they plan to do with this liquid investments. Could not get anything in AR about any capacity expansion except the one planned in its subsidiary.

Disc: invested

I hold investment for more than a year, but management is not investor friendly they not even reply for my mails.
Some observations from my side:
When they declare dividend for subsidiary but not for share holders , in the subsidiary ITDL imagetec where promoters had 51% stake.
Subsidiary sales are double than the parent company.
In spite good amount in cash, company don’t want to give dividend.
Chairman pay hike by 10% in-spite lesser profits this year…

Disclosure : exited recently at 104 levels.

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Upper circuit today, close to 52 week high!
Any insights into why this breakout on upside?
Management action or any big deal?

Disc: Invested at lower levels.

the FCF is not 17 Cr but 17.61cr - 11.27cr (Capex) = 6.34 cr ( March 2015 AR). But yes its undervalued - its earning a FCF yield of 20%+ on the EV of 30cr (74 cap - 45 cr investments & cash)

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I have been tracking Indian Toners and Developers since few weeks. I entered at 100. Increased my position inbetween and doubled at at 130.

I have prepared a rough note. I would like to share.

I recommend you to read Interviews of Management in Magazines before you look at the notes.

Note: I am a newbie so tell me where to improve.

Attachments :
Note >> Note.pdf (207.7 KB)
PL BL >> PL BL.pdf (54.4 KB)
Financial Ratios >> Financial Ratios.pdf (49.7 KB)
Interviews >>

  1. The Recycler Visits Indian Toners, By David Connett
  2. ‘Recharge Asia Magazine’ interviews Indian Toners CMD and President

Great work @mihir23192. Its a good business no doubt, but although, you have mentioned in your analysis that management might not be shareholder friendly and can been seen the way they are growing sales through subsidiary.
My question is on same issue: If dividend policy is a big NO for management, why are they giving dividend to themselves through subsidiary. If I am correct, its subsidiary gave dividend to themselves but no dividend to minority shareholders. What’s your view on that?
Disc: I am invested at lower levels, however struggling to balance b/w business strength vs management quality.

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Was anyone able to attend the AGM?

I completely agree with you on this point.

The management is giving 50% dividend in through his subsidiary so 49% of the Dividend goes to Promoters and 51% comes to Holding Company.

I also have seen this but I kept this thing in mind to ask to promoters wherever I get the chance. I consider it as a redflag and currently an ignorable.

From the management interview and their gesture I believe they are not fraud but little unfriendliness is there. Let’s see how the things unfold in future.

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One more thing, I observed is in Dec-2014 " Individual shareholders holding nominal share capital up to Rs. 1 lakh " was at 9.29% which is decreased to 6.24%.

Promoters holding is standing still it means, major shareholders are selling it at high valuations.

I am not sure whether its a positive or negative.

Indian Toners & Developers posted reasonably good quarter.

The positive for the stock is the management clarified that they are considering merger of Subsidiary into Indian Toners & Developers.

Subsidiary company continues paying out dividends and holding company is silent. As expected.

Next thing to look for is the Terms of Merger.

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