VALUE PICK FROM INDIAN STOCK MARKETS

At a time ,retail investors are fed up with the current lackluster movement of stock market ,response to GTS -3 was surprising .Received around 2o0 responses in e-mail ,out of which 32 were correct from the following readers.

1) AKHAND GHAI          2) ANANDAMURTHY K     3) ARVIND KUMAR P

4) ASHISH C                    5) BHARTIA C K               6) CHANDANA

7) DEEPAK KUMAR 8) DEVARAJ 9) DHARMESH JHAVERI

10) DIGI DANIEL               11) DILIP NIRMAL              12) DINI DANIEL

13) GAJENDRA JAIN         14) HARESH R.                 15) HARI PRASAD

16) HOLLA K.S.                 17) JATHIN SONI             18) JAYCHAND TATINENI

19) KAMAL BABARIA       20) KISHAN RAVIA             21 ) RAMESH

22) RITHESH SHAH           23) ROOPALI                     24) SAMBIT S.

25) SANDEEP MADDALI   26) SANTHOSH R.            27) SAPANDEEP SINGH

28) SATHISH KUMAR D.    29) SHANKAR                 30) VINOD KASHYAP

31) RAHUL GUPTA 32) RAVI VAKAYIL

Congratulations to all for your time and effort .

===============================================================

                                                    Mr. Shilpan Patel
                                  Chairman & Managing Director of the Company

===============================================================

World over countries are spending crores to reduce pollution and promote environment friendly products in many fields .This small company – Arrow Coated Products ( ACP) BSE CODE - 516064 -is one step ahead in this endeavor from India .This company with self developed technology backed by strong R&D and many patented products is in a unique position in the efforts to save our earth. This knowledge based company possessing 28 patents across the globe for their various products.This unnoticed small company is manufacturing many products for the future and I believe Arrow Coated is a company with unlimited potential and filled with many ingredients to become a multi bagger if its promoters can utilise the emerging opportunities effectively.ACP operating through various strategic business unis(SBU) and subsidiaries. Its major products are Water Soluble Films(WSF),Bio Compostable Plastic,Oxy Fresh Packaging films.Mouth Melting Strips, RFID and Smart Card products..etc..

1) Bio-Degradable Cast Water Soluble Films

This product has unique characteristic of completely dissolving in water at room temperature if it came in touch with water beyond certain time period.. The dissolved film disappears in water like sugar and the ingredients of the film change their appearance but remain present as dissolved solids in water which can be washed or flushed out after use.It is completely bio degradable and safe for environment and with time to come the use of this film not only going to increase but also indispensable because of its bio degradability. Many countries are trying to reduce the usage of plastic and WSF is a good alternative for many uses of plastic. Packaging industry especially Agrochemicals, pesticides ..etc offering large scope for this product in future. In this segment company supplying water soluble pouches for the Agrochemical industry at present.ACP also supplying different variants of this product for industries like Embroidery, Laundry Bags, dyes, pigments, specialty chemicals and consumer goods such as detergents and cleaning agents. Mandatory packaging of pesticides in bio-degradable pouches may even turn as a reality in future. ACP is also in advanced stage to develop some unique products for the pharma industry based on WSF technology.

2) Mouth Melting Strips (MMS)

Mouth Melting Strips is another unique product by ACP which got patent for its manufacturing technology.World over less than 5 companies are manufacturing this product. The technology invented by the company for making Mouth Melting Strips (MMS) is an IP protected innovative technology, which involves embedding actives into or upon water soluble film in any form. Once dissolved, it will release the actives in precise quantity. These actives can be in various forms, like mouth freshening menthols, Active Pharma ingredients etc. The MMS manufacturing technology was invented by Pfizer in 2010 and till date only less than 5 companies in the entire world including Arrow Coated having the know how to produce this product .Even the multinational Johnson and Johnson depending Pfizer’s technology to produced Listerine Mouth Freshener Strips marketed by them .This indicating the uniqueness of efforts and success of ACP ,and because of this reason it may turn as a takeover target even by MNC players. This MMS project was actually scheduled to start in 2009 but delayed due to various reasons including complexity of product..etc.Now the company overcome the issues and decided to set up a plant with initial capacity of 2.8 Cr strips per annum .The amount raised through its recent rights issue will be partly utilized to set up this new manufacturing facility.

3) Digital Technology based Security Products.

Operations of company in this sector is through a 50:50 JV with Switzerland based Nagra ID S.A.This Joint venture company is named as NagraID Arrow Secure Cards Pvt. Ltd.Due to increasing credit cad fraud ..etc , in future more sophisticated technology based cards are expected to become popular in the coming years ,which will help the company going forward.

More details about this division is available in the website of this company (HERE)

4) Oxy Fresh Film

Oxy Fresh film is another innovation from ACPL .It is a post harvest packaging solution which aims to reduce wastage in vegetables, fruits & flowers caused by deterioration. This technology not only increases the shelf life of vegetables & fruits but also helps to maintain their moisture level by naturally controlling the respiratory mechanism of vegetables & fruits.

More info about this product is available in the following Links

LINK -1

LINK -2

PERIODIC CALL AUCTION

This stock is currently trading in Periodic Call Auction.But it is already recorded a trading volume of more than 11 lakhs shares in this quarter .Hence , average trading volume /day will be higher than 10000 shares and every chance to come out of PCA in next revision which will happen in October.

Conclusion

This company was also in the field of trading of printing machinery till 2009 .Thereafter it discontinued this business and concentrating in its core business.For the past 20 years company spend lot of time and efforts to developed many products having tremendous potential in future.This is just starting to commercialize many of its long waiting only now.Company following a strategy of commercializing a product only after it receives patent for its product in all major potential markets.I believe it is a wise strategy ,considering the nature of business.Now it is looking to utilize all its inventions by signing partnership/joint venture agreements with big companies especially outside India. Now it is a small company unnoticed by market players and equity research firms.But I believe the potential is beyond imagination if the promoters can replicate their success of product development in marketing side too.One thing is sure , it is not a company of ‘present ‘ but a company for future. The capacity utilisation's of its Water Soluble Film division was just 34 % in 2008 which reached as high as 93 % in 2012 ,which clearly indicating what the trend is. Low liquidity risk is also there ,but It may change once more and more investors identify the company in future. On the financial side company reported a turnover of Rs.15 Cr and a net profit of Rs.2.75 Cr and an EPS of Rs.2.40 in FY-2012-13 ( Consolidated) .As in the case of any industry where there is very few producers with patent protection and high entry barrier ,company reported excellent profit margins in this year and back to dividend list first time since the discontinuation of its trading division .

For a comparison of this year Consolidated Result with last year ,Click HERE

One thing is true it is not a stock of today but a stock for future .Enough patience is necessary for big gains but till then you can still enjoy dividend at a higher percentage of yield.

News about recently approved patents HERE and HERE

Company press release HERE and HERE

I believe this is a company deserves some serious study by all serious investors because of its uniqueness and future prospects of its products. For that purpose ,as a first step ,below I am reproducing the Management discussion and Analysis part taken from last year’s annual report.Since it is the version of the company itself there may be many forward looking statements and exaggeration.So take it only with a pinch of salt.But I think it will help you to get some in depth ideas about company’s operations.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

1. Industry Structure and Development

A. Water Soluble Film (WSF)

Arrow Coated Products Ltd is one of the leading manufacturers of cast water soluble film in the world, having world class manufacturing facilities in Ankhleshwar, Gujarat & has one of largest cast water soluble film (PVAL) manufacturing machine in the world. Industry is now waking up to the need of water-soluble film and its packaging advantages. This Wonder Product has got varied applications ranging from Agrochemicals , Chemicals Industries, Construction chemicals, Embroidery,Healthcare and toiletries ( Toilet Blocks), Water transfer printing ( 3D printing) and provides an instant solution to the various problems faced in handling of hazardous material by industries today. All the modern industries are turning to WSF as their primary packaging product.Our Company has developed a wide range of water soluble films especially for the agrochemical industry which dissolves completely in water & meets WHO standards (solubility standards) as per CIPAC method without damaging the environment or causing any harm to humans and has no health hazards.Various NGOs and our own efforts for propagating the use of WSF in packaging of hazardous chemicals like Fungicides, Herbicides and We decides which are exceptionally potent pesticidesand the proper disposal of packaging materials, after the chemicals are dispensed with. The failurewould result in serious health problems to flora,fauna,animals and human beings is now being acknowledged by this Industry. This has also led to the realization to follow international rules of packaging these chemicals in WSF in future.

B. Bio-Compostable Products

Arrow has been propagating Bio-Compostable plastics and other composites as an alternative to petro-plastics. Arrow has succeeded in developing a low cost Bio-Compostable plastic which can be used for daily uses like shopping bags and garbage bags. We have started trial of commercial production of non soluble Bio-Compostable plastics made from Potato starch. This technology is in collaboration with Sphere S.A., France.

C. Oxy Fresh

Agriculture is the backbone of Indian Economy and more than 60% of population is directly or indirectly dependent on agriculture for livelihood. India is second largest producers of fruits and vegetables in the world with more than 325 million tones of production every year.Arrow Coated Products Ltd. introduces a revolutionary packaging technology called OXY- Fresh films - a post harvest packaging solution. A unique technology aimed at reducing wastage in vegetables, fruits and flowers caused by deterioration. This technology not only increases the shelf life of vegetables and fruits but also helps to maintain their moisture level by naturally controlling the respiratory mechanism of vegetables and fruits.

D. Mouth Melting Strip

This technology is a relatively new development, which allows small quantities of active ingredients to be delivered in a user-friendly format. Adapting existing products such as oral sprays, liquids or tablets, or exploiting entirely new opportunities, Arrow MMS works closely with clients to create the most effective thin film product and process solutions.

E. Digital Technology Enabled Products

Arrow moved forward to sign a Term Sheet to form a Joint Venture Company owned jointly by NagraID Switzerland and Arrow. NagraID is the world leader in Smart Cards and has several patents in this field. Nagra Smart Display card is a rage in the credit card market as one of the most secure credit cards in the world. This technology was introduced at the French show Cartes IT. Our joint venture is aimed towards National ID card project, which is yet to take off, while Driver’s License and E-Governance projects have moved ahead in several states in India. This will create demand for Smart Cards, NagraID, is part of Kudelski Group, which is a Blue Chip Company on Swiss Stock Exchange (SWX).

F. Security Products

Arrow has been in the business of security documents and its components. This year Arrow intends to enter into a more volume business phase of brand protection. Taking cue from our experience in designing security products for high end security, this SBU has been divided into two separate divisions. Brand protection division shall handle medium end security products and Govt. Business division shall handle high end security products. As IPR becomes important, brand protection will gain importance and Arrow will have to be in the forefront to offer sharp solutions. Arrow has several patents in this security cluster and intends to create revenues in the coming years.

G. Patents and IPR SBU

IPR is an important revenue stream for any Company. Arrow has spent reasonably heavy amounts of money in R & D and filing of patents in the last couple of years. We have been granted three more patents in India this year. We have also filed 22 patents Nationally and Internationally. Some of these patents shall change the way many Detergents, Pharma and Agro chemical products are being packaged and delivered. We are pleased to announce the commercial launch of Self Destructive Irreversible Security Packaging Water Soluble Film. We are in discussion with companies on various patent revenue models. Intellectual proper is one of the things that sets the Company apart, with rotected core technology in the form of patents one has nuggets of wealth at the centre of the business. The patents are value creators for the companies as they can be licensed, sold, mortgaged, assigned or cross licensed so having a strong patent portfolio enables a Company to be royalty earner than royalty payer.The patent rights are territorial in nature, so one has to file and seek patent grant in all the countries separately where one wants to protect his invention. The filling of patent applications all over the world is an expensive task but once the patent is granted and various revenue generation streams come in to effect, it’s a WIN-WIN situation for the Company.

H. Arrow UK Activities

Arrow UK purchased stake in Advance IP Technologies Limited, a UK based Company. This Company is jointly owned by Arrow and Israel based promoters. Advance IP specializes in generating revenues from various IPR (Patent) created by both the partners. Arrow is a Joint Patent holder of a block buster Patent in health and hygiene and the same has been assigned to Advance IP. This Patent has been granted in UK and is being examined in Europe, USA, Australia, China and India.

I. Export Division SBU

Exports of our products have increased but there is an unlimited and untapped potential world wide. There are only 3 major players in cast water soluble films and Arrow is one of them. All of us have unique methods of production of these films and have earned patent protection. Arrow UK has generated excellent inquiries and all this need special care. This year we segregated a new division specially to address to Arrow UK and other export markets. This should give a positive impetus to our export sales this year.

J. Arrow Pharma Foray

Taking advantage of the patented technology, our Company is in the process of securing partner(s) in the field of Pharmaceuticals and Nutraceuticals for entering into this highly lucrative and IPR sensitive field of saving human and animal lives. In future, Arrow would like to enter crop protection using a different version of this patented process and patented product. As India starts it’s foray into providing food grains for the world population, the need for low pesticides residue will be very important. These are long term revenue generating fields that your Company is targeting using our Patents and knowledge acquired over the years. Both these ventures will mean additional Capital expenditures and your Company is planning this ahead of time. Arrow’s Pharma foray will be limited to the use of its Patented drug (Active) delivery system, using edible Water Soluble Film.

2. Opportunities and Threats

The report of Intergovernmental Panel on Climate change, released recently in Spain, is a grim warning of the state of our planet. IPCC has articulated the threat to environment due to greenhouse gas emissions in much less uncertain terms than it ever did previously It said that the earth may turn unliveable far sooner than we presumed, unless the carbon emissions are controlled and rationalized. About India, the report said that the country would become the third largest carbon emitter in the world by 2015. That would be a major slippage from its present slot of the sixth largest. One thing is clear, despite the fact that the developed world has conventionally been much more serious offender in polluting the planet, countries like China and India cannot wish away the unpleasant reality coming out of such reports. A recent Accenture survey found out that 90% consumers worldwide would switch to energy products and services with lower greenhouse gas emissions. In fact 97% of respondents in emerging countries, including in India, favour such buying practices compared to 73% of respondents in Europe.Consumers are even prepared to reward the providers of green products and services by paying a higher price to benefit from products and services that help reduce the level of carbon emissions.64% of the respondents said they would be willing to pay a higher price – a premium of 11%, on an average-for products and services that produce lower greenhouse gas emissions.Need for non-soluble Bio Compostable Plastics is gaining attention now. The threat of flooding has resulted in the realization that Bio-Compostable Films as preferred material to save the cities from flooding. The need for Bio-Compostable film and Bio-Degradable film to save the environment is now present universally and environmentally conscious people of planet earth are looking at various ways to improve the quality of life.With new restrictions of maximum ceiling on exports of garments on China being imposed by EU and USA, along with anti dumping duties this business is bound to come to India and neighboring countries. India meanwhile has built huge capacities in composite garment manufacturing units, and the demand for our Embroidery film will show an uptrend in the future. Distribution channels for exports have been further widened by appointment of agents in Sri Lanka, Bangladesh, Thailand,Malaysia, Indonesia, Cambodia, Vietnam and Myanmar. These are the emerging garment business hubs along with traditional markets like Africa, Pakistan, and Turkey. Arrow’s embroidery specific Water Soluble Films save time, money and environment.Introduction of Schiffli embroidery film will replace the chemical lace fabrics (which are environmentally harmful) and will result in more demand for our WSF.Threats include non-specified materials (like blown films) from China, compelling us to keep our prices low and resulting in inability to make higher margins.

A. Bio Compostable Products :

Increase in oil prices, has naturally resulted in acceptance of our Bio compostable materials are made from renewable resources like potatoes.100% Compostable, 100 % Degradable & 100% Eco Friendly Arrow has offered the environmentally responsible packaging solution to eradicate the toxic waste of plastics. Arrow products are high performance, completely degradable with unparallelled performance characteristics. Conventional plastic has brought convenience to human life for decades;

however, that convenience has come at grave cost to our environment, pollution and toxic emissions,

and a depletion of our natural resources. Our products are manufactured from potato starch. If our products are placed in an open or turned landfill they will decompose at the rate similar to the other biodegradable materials in the same manner. The sewages and pipelines which were clogged due to Petro Plastic films will get composted and breakdown due to action of the organisms present in the sewerages.

Overview of the products:

* Certified Compostable material.

* Once discarded in the soil or compost, it will decompose 100% in few months.

* Arrow films have no adverse effect on human health or plant life.

* It has resistance to high and low temperatures and superior strength.

* It is certified by the international Standards such as EN 13432, DIN V 54900. ASTM D 6400- 99.

* Can be coloured with master batches.

* Printable: Graphic imprint to present your design and message.

* Arrow Bio Compostable Products for General Applications

* Short life bio degradable products for single use disposable fast food packaging.

*Thermoformed products are also made like trays, bowls etc.

*Agriculture Products

* Packaging

* Shopping bags

B. Oxy Fresh

Approximately 25 - 35% of the fruit and vegetable production in India goes to waste due to poor post harvest systems.OXY Fresh Film has been incorporated with Nano-particles that create micro cracks which allow the exchange of gases. These micro cracks respond to the environment within the pack. For

instance if the temperature rises slightly the respiration rate of the product goes up and so more gas and vapor are produced. This produces a slight pressure differential causing the film to expand and the cracks to increase in size and hence increasing permeability. The internal pressure will reduce and again form equilibrium. The basic concept of Oxy Fresh Films extended freshness packaging, uses the ability of fresh produce to adjust its respiration rate via its biofeedback mechanism. In sense the produce does the work so as to ramp its metabolism down from high rate at packing to much lower, steady rate in storage and distribution. Arrow Oxy Fresh Films provides higher gas permeability so as to allow greater inflow of oxygen and greater outflow of carbon dioxide from the packaging surrounding the produce, thereby allowing the produce enough flexibility to modify its surrounding air so as to survive in a state of reduced metabolic activity i.e. suspended animation. The standard Arrow Oxy Fresh Films covers most produce over their normal packing, storage and distribution temperature ranges with the one formulation. Problems generally only occur when storage protocols are violated, as would happen with any other life extension packaging, particularly with increased storage which greatly increases the produce’s mechanism.It maintains firmness, acidity and sugar content of the fruit. It also maintains original colour of fruits and vegetables reduces the loss of chlorophyll, decreases the respiration rate of fruit and vegetables, there by reducing weight loss and shriveling of the skin.

C. Mouth Melting Strip

Arrow’s fast dissolving and absorbable film delivery mechanism not only facilitates the development of innovative new products, but also represents a significant opportunity for our commercial partners to extend their existing brand products using our film technology.

D. RFID and Smart Card Products, Services And Technologies

Nagra Arrow collaboration in production and marketing of Smart Cards for various enduses,including National ID cards, Logistics, Bank Credit Cards will be products for future revenues for our company.NagraID Arrow Secure Cards Pvt. Ltd, (NASC) is a joint venture between Arrow Coated Products Ltd, India and Nagra ID, Switzerland. NASC is based in Mumbai and focuses on RFID and smart card products, services and technologies.NASC is presently involved in marketing sophisticated security smart cards for several applications,including Government sector applications and Banking. NASC is an active member of the Smart Card Forum of India (SCAFI).

Business Strategies:

The primary business strategy of the Company is focused on enabling its customer organizations to leverage smart cards and RFID technology for significant business and operational advantage and thereby become more profitable. The principal elements of this strategy are –

Growing the business organically and through select strategic partnerships:

The aim of the Company is to be among the top 3 players in the smart card industry in India. In addition to organic growth, the Company will evaluate potential strategic partnerships with leading government agencies or overseas manufacturers and distributors of similar products that offer the opportunity to grow business or expand its capabilities.

Market focused Growth Strategy to Drive Revenue and Margin Expansion

NASC’s growth strategy seeks to leverage its solutions, technologies, and high end products to expand its share in the high potential government sectors, and commercial sector markets. Applications of RFID and thus NASC’s products cover increasing number of areas such as supply chain management, secure banking applications, food and animal tracking, fashion, pharma, retail and asset management.

The Company plans to work with its customers to take their smart card / RFID projects from conception to completion, so as to improve flexibility, yield and profits.

Expanding into new growth products and markets.

The Company will continue to expand its product range with new and innovative products in the area of RFID, such as smart loyalty cards, smart tickets, and secure financial cards.
Marketing and Promotional Activities:

The Company has been actively participating in major RFID trade shows, expos and conferences to acquire new customers thereby expanding its customer base, and consolidating its position in the market.Revenues from Patents and exploiting of our patented products have also a bright future for our Company.Expansion programme includes production of edible films, using our patented technology to enter new fields of Pharma sector and other personal hygiene sectors, is being planned. This is a mid term plan of our Company and effects of fruition should be felt during the coming years.

E. Patents

Acquisition of Shares of Advance IP Technologies Limited (UK) by Arrow Group.Arrow Coated Products (UK) Limited, a Wholly owned subsidiary of Arrow Coated Products Limited have acquired 51% Equity Share Capital of Advance IP Technologies Limited (UK) as on 31-03-2010 and this acquisition shall facilitate the marketing of various patents granted to the Company.Revenues from these Patents and exploiting of our patented products have also a bright future for our Company.

2. Future Outlook

A. WSF and Biodegradable SBU

The future is very bright for this product as new grades and products are being patented and formulated. As the world becomes conscious of it’s responsibilities and vagaries of monsoons keeps reminding us about the need to be eco friendly, this division will continue to grow at very high rates.

B. Oxy Fresh

India has the potential to be food basket of the world and Global retail giants like Walmart,Tesco are entering Indian market to take advantage of the same. Oxy fresh films are designed to increase the profit margins of retailers, distributors and producer’s by preventing wastage, retaining freshness, extending self life and enhancing product appearance.

C. Mouth Melting Strip

It has never been seen on Indian market and gives stiffer competition to competitors using sugar based candies in these segments.

D. Digital Technologies

i. Digital technology in infrastructure projects: Though new to the business the concept is well known to Arrow.As airports and private retail sector will open up, the need for paid parking space will increase. Arrow has the right solution to this problem by enabling their skills in digital technology. Example: Remote Controlled V. H.F., RFID active labels etc. ii. Logistics: As supply chain management will get more and more sophisticated the RFID solution with software enabled by digital technologies will get importance. Arrow will gain as suppliers of Arrow RFID tags, cards and readers.iii. In the Digital field we intend to start production of secure ID cards and access control cards to cater to the anticipated demand. For this we will need to build a secure and dust free, class 10,000 factories. This will be part of our expansion programme. Exploring new markets like Vietnam, Malaysia, Bangladesh, Pakistan,UAE, Turkey, Thailand, Spain, Switzerland, Germany etc shall mean catering to the needs of embroidery and garment manufacturers.

E. Security SBU

This SBU will handle the National ID card project. This project has now been proclaimed as a priority project and pilot project is likely to be completed shortly.
F. Expansion Programme

We intend to expand into the above mentioned skills as majority stake holders in our subsidiary companies viz SP Arrow Bio-Plast Private Limited and NagraID Arrow Secure Cards Private Limited.

G. Research and Development & Patents

Research and Development is an ongoing process at our Company. This year we are concentrating

on manufacturing and marketing products based on our patented process (es). We have filed 19

patents, which includes 2 joint patents filed with our partners in UK and Israel.We are also looking at increasing our revenues through our UK offices and partners by doing R & D and compatibility tests of materials packaged in WSF, thus increasing revenues and avenues for our marketing department.Research and Development is also being done on barrier coatings primarily on WSF as well as on other substrates. Incorporating our experience in security field to WSF will add to our product variants and will add to our revenue steams.Arrow received grants for three of its Patents in the field Barrier Coated Films, Active embedded Water Soluble Film and Digital Printing.

Some more info available in the slides posted HERE

Link to Company Website HERE

Stock is currently trading with a 7.5 % dividend @ Rs.12

Requesting all my readers to share your findings about this industry/product/company as comments which will help others too..