I think this company deserves a fresh look. Seems lots of thinks have changed in the company off late.
Key points
-
Recorded record Revenue and profit in Q4 and Q1
-
Contrary to earlier bulk of the revenues are coming from manufacturing and selling (Contrary to patent and license revenues earlier).
-
Have ventured into Mouth Dissolving Strips (MDS) through wholly owned subsidiary Avery Pharma. (The revenues are yet to materialize but seems lot of optionality’s in the pipeline).
-
Bulk of the revenues seems to be coming from Security products (Anti Counterfeit threads, passport security, brand protection etc) . 68 Cr Revenues in FY23 from this segment V/s 23 lakhs in FY 22 .
-
30 patents granted and another 28 patents in India and 8 foreign applications in the pipeline (Many of the patents are available in google patents on a cursory search)
-
Company coming out with a presentation after 2019 for the first time, shows the pic of the plants in Ankaleshwar and Sanand . Avery pharma is actively recruiting . (These were red flags as evident from this thread ).
Its Annual report and presentation is descriptive and concise. Posting the key points in Management discussion and Analysis . The items in italics is my assessment / thought (to be taken with a pinch of Salt )
A. Water Soluble Film (Watersol®):
Arrow Greentech Ltd (AGTL) is one of the world’s leading manufacturers of cast water-soluble films. Water soluble film, the flagship product of AGTL, is marketed under the brand Watersol®. Including optimum capacity utilisation at the Ankleshwar, Gujarat factory,company is focusing on new business development through innovative applications across segments. This shall expand, and strengthen, our growth pyramid for the future. Watersol® films have versatile yet specialised applications across industries,including Agrochemical, Construction chemicals, Dyes & Pigments, Embroidery, Health & Hygiene, Industrial engineering, Water transfer printing, home care and many more.
AGTL’s PVA films are water-soluble, biodegradable, and customisable, making them ideal for various new product development applications. These properties enable the films to be used for innovative packaging for water treatment chemicals, swimming pool chemicals, concrete fibre, construction chemicals, and various inhibitors and repellents for industry and consumer use. AGTL plans to expand its capacity and product base by adding significant capital expenditure (CAPEX) in the coming times. This will activate other new business opportunities across geographies and business segments.
They have a plant in Ankaleshwar for Watersoluble films (WaterSol brand). This segment contributed to 23 Cr revenue in FY23 V/s 15 Cr in FY 22. This business is part of the green vertical and has opportunity to scale up due to the thrust towards enviornment /bio degradable etc.
B. Bio-Compostable Products (Bioplast®):
Plastic made from petrochemicals is not a product of nature and cannot be broken down by the natural degradation process. AGTL’s initiative into bio-compostable business is likely to be a game-changer in terms of alternatives to conventional single-use plastic packaging. Moreover, the machines being used to
produce conventional plastic films can also produce Bioplast (eco-friendly bio compostable) films by making small changes in it.This ensures no operational disturbances to plastic manufacturing company’s set up, assets, and skills.
AGTL has a technology for manufacturing the Bioplast film from Biotec, Germany that is compliant with the European standards -EN 13432 and ISO 17088. The final product is 100% bio-compostable, made from renewable plant resources (potato starch, polylactic acid, etc.), and has a diverse range of applications such as garbage bags, garment bags, industrial and commercial packaging, disposable dishes, straws, and food containers, etc
This product is mentioned as a trading item in the AR in the Notes , so I feel the plant and machines etc are yet to get commissioned.
C. Security Products:
AGTL has an impressive patent portfolio of security products and brand protection. These patents are having an impact on various products—like Anti-counterfeit Threads, Passport Security, Brand Protection, Paper etc. AGTL investments are focused on high security elements related to Currency sector, with the viable option of adapting the technology for high value brand protection. Counterfeiting of high value products, including pharmaceuticals packaging will go a long way in promoting this segment of our company. AGTL has filed several patents and secured National and International grants to rights of claims, for atleast 5 patents, while few are
in examination phase. AGTL has invested in a high technology plant to manufacture Anti Counterfeit Thread and security films. It entails multiple facets of metalizing, demattalising, holography, nano printing, nano security element, functional, coatings, including embedding of machine readable taggants and lamination. Products are being designed to be fully embedded or windowed embedded in Security Papers, Tax Stamps and brand protection of high value perfumes, cosmetics, and pharma-vaccines etc., including track and trace management.
This segment seems to be the reason for a huge turn around in the company is the last year. This segment contributed to 68 Cr revenue from virtually nothing in FY 23 . While they are talking about plant was not able to figure out the same . Need to dig further …
D. Patents and IPR:
Arrow has always upheld the belief in securing our markets through strategic filing of Patents in India and abroad via the PCT route. We maintain dedicated Intellectual Property Cells in Arrow India and in our various subsidiaries for this purpose. We are elated to inform you that our commitment to Innovation and excellence and our contribution to our country’s GII advance, has culminated in recognition by CII and DPIIT (Ministry of Commerce, Govt of India). Arrow has received the National IP Award,every year since 2019 barring year of Covid—2020 (i.e. received the National IPAward in 2019, 2021 and 2022 from CII.)
The patents and IPR seems to be a real strong point for the company . Most of us will be skeptical (and rightly so) that this is unlike a 500 Cr company. But these claims are verifiable. They seem to have a won accolades and some of it was listed in google patents portal.
F. Water soluble edible film – Mouth Dissolving Strips (MDS):
AGTL has invested in its wholly owned Subsidiary Company namely, Avery Pharmaceuticals Private Limited (“Avery Pharma”) for manufacturing of Mouth dissolving strips (MDS). Avery Pharma is a specialty pharmaceutical company bearing prestigious approval of WHO-GMP and other accreditations with GLP, FSSAI, ISO 9001:2015, and ISO-22000 Certifications. The manufacturing facility has a state-of-the-art manufacturing facility & German-designed machines to undertake dedicated
manufacturing of patented Mouth dissolving strips technology. MDS are fast-dissolving films that release API quicker than the other formulations like tablets, capsules, oral disintegrating tablets, chewable tablets, and liquid dosage forms. These films are formulated to self-dissolve upon contact with saliva, omitting the requirement of additional fluids for consumption. MDS are quick in action by releasing drug instantly. The strips ensure quick absorption and instant bioavailability of drugs. MDS is highly suitable for geriatric, pediatric, mentally challenged, bedridden,
mucositis, Dysphagia, veterinary. MDS offers irrefutable benefits like self-administration ease, without-water usability, Quick onset of action, non-invasive dosing methodology & patient convenience.
Avery Pharma has entered long-term collaboration and started commercials production for leading MNC with a novel & unique patentable combination of product for the Brazil market and is working on to launch multiple products in other markets. Avery
Pharma is also working on clientele-patented new product Development project under the Contract development and Manufacturing model (CDMO). At present Avery Pharma has 40 + products are approved under FSSAI and 10 + products approved under Rx. Avery has applied test license for more than 20 Rx products and soon will be completing with development phase for these products. Avery Pharma
has already filed a patent for two innovative products that are being commercialized in the market and few more innovative products are under the pipeline for patent filling. The research lab has also successfully developed a combination of API in MDS technology, loaded higher doses of drug above 100 mg surpassing the limitation of MDS technology. New developments are underway for sublingual and Buccal MDS technology.
Company is talking about tie up with MNC for Brazil market. Need to find out more . They are also talking about CDMO opportunity in MDS and even listed approved products . (40 products under FSSAI and 10+ under RX). They revenue from Arrow pharma is not added in FY 23 revenue. This can be a big addition going forward.
**Revenue break up for FY 23 **
92 Cr revenue from finished goods
10 Cr revenue from traded goods
2.66 Cr revenue from Patent income
Finished goods : Water Soluble films, Anti counterfeit products
Traded Goods : Bio degradable resins, Cleaning products
Valuation (Back of the envelope )
Market Cap : 550 Cr
Trailing P/E: 21
ROCE: 21
Price : Rs 358
** If they can sustain current quarterly run rate of 10 Cr then forward P/E ~ 14. **
With optionality’s of Avery pharma , Bio degradable plant etc coming in along with PE expansion this can create wealth.
Additional work to be done on
- Patents /IP monetization
- Customers and market for anti counterfeit products. Reason for sudden jump in demand.
- Reading Old ARs to understand the reasons for lull in 2017-2022. Perceived or actual governance issues.
4)MNC tie up for Avery MDS and CDMO opportunity. - Market for Poly Vinyl Alcohol films : Is there a tech advantage for watersol or its just a commodity . (Lots of WSF quotes available in Indiamart ).
- Research more on the high tech plant , products ,USP and markets for anti counterfeit products .
Disc: Not invested , tracking , might invest if building more conviction.
Apologies for a longish post
Subscribe To Our Free Newsletter |