Indian Toners & Developers Ltd.

20th November 2006 - Why we think you should buy Indian Toners & Developers Ltd. (Abstract)

Current price - Rs. 28

Potential price - Rs. 70.
ITDL is quite a find, if I say so myself. It's a company that is in a vertical with a fairly limited number of serious players - they make toners for printers, photo-copying machines etc. In fact, it is one of the largest in India. They also have a global presence - they currently have offices in UAE, Singapore and USA. They are planning a presence in China. They currently export to 29 countries across the globe.

Already, they can produce 1200 mt of toners a year - and in a couple of years, that capacity will be doubled.

Now, the numbers. The first thing that made me smile about their balance sheet was that ITDL is a debt-free company. This means that they can be more agile and risk-taking than similar companies that do have interest costs and associated operating risk. With a trailing EPS of Rs. 5.66, the trailing PE of the company is only 5.1 - this is excellent - definitely so when compared to the absurd valuations of companies like Hindustan Inks (Micro Inks). Next, they have a free-cashflow to enterprise-value ratio of about 4 - very attractive. Also, it has cash, reserves and cash-equivalents of about Rs. 8 a share - giving it a real price of only Rs. 20 a share.

Finally - some valuations. From a discounted cashflow point of view, if we assume a conservative growth of only 10% a year - this company is worth closer to Rs. 72 per share. If it grows even at 15% then this number is closer to Rs. 100 per share. This essentially means that the stock price can go up two to three times from its present value! Medium to long-term investors can start accumalating the stock right away.