The Mumbai-based gelatin major Sterling Biotech is in discussions with Shaw Wallace group to buy the latter’s gelatin arm, Narmada Gelatins. Sterling, which is currently in a capacity expansion spree, recently acquired the 2200 tonne gelatin unit of Rallis India. The present capacity of Narmada Gelatins is 2,500 TPA and if acquired, the total gelatin capacity of Sterling Biotech will be about 12,700 TPA, which is 75 per cent of the total market requirement in the country.

According to sources, Sterling is currently in the advance stage of negotiations with Shaw Wallace. However, both the companies declined to comment on the talks, which are going on since sometime now. Sources claimed that Sterling would also be in negotiations with players like India Gelatins, Kerala Gelatins and Raymond Gelatins, who have a capacity of 2,000 tonnes each.

Sterling Biotech, the largest manufacturer and exporter of pharmaceutical gelatin in the country, bought over the gelatin business of Rallis India (2,200 tonnes) in an all cash deal of Rs.47 crore. After this acquisition, Sterling’s capacity increased to 10,200 from the early 8,000 tonnes.

Players like Rallis and Shaw Wallace have chemicals and breweries as their core businesses. It will be easier to focus on their core competencies if they sell off their not so lucrative and unfocussed business like gelatin. “Gelatin being the non-core businesses of Shaw Wallace and Raymond, Sterling is likely to clinch a better deal with these players,” said an industry observer.

Gelatin being the only business of Sterling Biotech, the acquisitions strengthen its dreams to become a dominant player both domestically as well as globally in terms of capacity and market share. Sterling is also in talks with companies abroad for possible acquisitions.

India has a cost advantage for the product, which finds applications in food, pharmaceutical and photographic industries. India accounts for 5 per cent of the total global production of 272,300 tons/annum.

However, there is an irony to the side as despite the cost advantages, gelatin is not that lucrative business for Indian companies. Gelatin manufacturing, being highly capital-intensive business, results in huge debt for the manufacturers. The Rs.35 crore-India Gelatines had a low profit of Rs.84 lakh in ‘03, while the Rs.50 crore-Narmada Gelatines ended up with no profits. Overcapacity in India, and resulting price pressures, are the main reasons for the downfall.