Patent blitz likely to pay off for Arrow Coated products; shares jumped 3000% in 2 years

ET Intelligence Group: The shares of Arrow Coated Products have spiralled 3000 per cent — from Rs 15 to Rs 490 — in the past two years with the company beginning to ‘monetise’ its patents.

A maker of water-soluble films, the company has so far monetised 3 out of 30 patents which will expire after 20 years. Its turnaround has been dramatic: the stock fell to a tenth of its value between 2005 and 2010 after machinery import division shut down while the business of water-soluble films took a long time to pick up.

Some investors even wrote off their investments, recalls Shilpan Patel, chairman and managing director. “Writing a patent and registering it is one thing while research and marketing is another. It takes time. We were patiently registering one patent after another across countries,” he said.

The stock is now factoring in the returns from three patents and the possibility of more products paying off in future. The films go into the making of high security papers used in passports and currency bills. It’s also used in making pizza boxes and coffee cups and covers for capsules, tablets and injections.

Monetization of three products has pushed up total revenue from Rs 4 crore in FY13 to Rs 50 crore in FY15. “We expect revenue growth to be around 25 per cent for the next five years from the three patents. We will also try to monetize the remaining patents over time,” said Patel. Arrow’s margins are as high as 64 per cent and return on equity is around 65 per cent — as a significant part of the upside from deals to license out the patents adds to the bottomline.

On a revenue of Rs 50 crore, the debt-free Arrow generated operating profit of Rs 31 crore. With most of the R&D work done, Patel expects the margins can be sustained.