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Weekly Insights #16- Indian Toners; From Deep Value to Growth

The strongest framework for multibagger returns is finding an opportunity that goes from being deep value to a growth play.

And the reason why it works is that, deep value bets typically trade at extremely low multiple of single digits and are highly cash rich. Once the growth comes back, the earnings expansion is quite non-linear given that there is a clear operating leverage due to increased scale of business and on top of it, you have some major re-rating.

One such opportunity we came across recently was Indian Toners; given the very small size of the company & lack of liquidity, we could not recommend the same in our research service, but had shared research to our members on the Knowledge Base.

Following in an excerpt from our post written for members in Dec’22-


Indian Toners & Developers is a manufacturer of inks/toners for printers for the after-market segment. It is the largest player in the domestic market.

Indian Toners is a typical value bet wherein you have a slow/non-growth business that is highly profitable & cash rich available at a very cheap valuation of sub 10x multiple.

However, there has been an interesting development for the company. India has imposed an anti-dumping duty on black toner power from China, Malaysia and Taiwan for 5-years starting Aug’20.

This is big for the company given that the products are commoditized in nature with a matured market and thus sensitive to pricing. Anti-dumping duty allows domestic manufactures to compete better and thus this is a tailwind for the company.

Snippet from ARFY21-

Indian Toners has started growing at healthy double-digit rates on the back of this and as the overall market has come back post covid led lockdowns.

Considering this development, the company is expanding its capacity by 33% from 3600 MT to 4800MT in FY23; first capex after 2017.

With growth coming back, there is a good case for re-rating here as the company moves from non-growth to healthy growth. The stock is currently trading at ~9x its TTM Earnings. Based on new capacity expansion and improvement in profitability (reduced impact from cheap imports) we believe that the company can generate a PAT of ~30 crores in near term and could re-rate to mid-teens kind of multiples. So broadly a quick double from current levels.

Another interesting aspect of the company is that it is highly cash rich with ~85 crores of cash & investments (~40% of market cap). In FY21, the company used its cash to buyback a massive 17.56% of its total shares for Rs37 crores. We cannot rule out another such big buyback going ahead as well.


The company has reported strong growth of >25% since then with improvement in margins-

Company is now looking for further expansion of capacity from 4800MT as of Jan’23 to 5400MT by Jun’23; which takes the total capacity expansion (including FY23 expansion) to 50%.

In summary, setups of deep value company moving into growth phase is a rare but extremely good investment opportunity.

Note: This example has been shared only to highlight the framework, it is not a recommendation. Underlying stock is illiquid and thus has its own risks.

That’s it for this week, new insight coming up next week. So stayed tuned!


Disclosure: (here in referred to as Surge Capital) is a domain owned by Ankush Agrawal. Ankush Agrawal offers independent equity research services under SEBI (Research Analyst) Regulations 2014. SEBI Registration No: INH000008941.

The above blog and examples given are in no means a recommendation in any manner and should be used for educational purposes only. We might have vested interest in the examples shared above either personally or through our research service.

Stock specific investment disclosure:

Indian Toners- Invested. Traded in last 30 days. Not an active recommendation in Research Service.

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