Sterling Biotech Ltd Management Discussions.


Gelatin is a colorless, flavorless, semi-transparent, and brittle collagen product. It is a protein food product generally derived from the several animal sources. It is used in several applications as a stabilizer, thickener, and gelling agent. Gelatin is normally graded into categories as per its quality and strength, and the unit is named as bloom. A greater bloom number signifies a high quality of gelatin. The color of the gelatin product is depended on the raw material type. The superior quality of gelatin are high molecular weight compounds and with better gel strength.

The global gelatin market is expected to grow at a steady rate and post a CAGR of more than 6% and is projected to exceed 480 thousand metric tons by 2022. The increasing demand for gelatin from cosmetics and personal care applications will drive the growth prospects for the global gelatin market until the end of 2021. The cosmetic and personal care industry increasingly uses gelatin as a stabilizing, viscosity controlling, and cleansing agent. The presence of protein content boosts the preference for the addition of gelatin in various personal care applications such as face creams, shampoos, body lotions, lipsticks, face masks, and sunscreens. Due to the high disposable income of the people, the consumption of cosmetic products is high in various developed as well as developing countries such as the US, the UK, Australia, Canada, France, China, India, Saudi Arabia, and Germany, which will consequently fuel market growth.

According to the market research and analysis, Europe was the largest revenue contributor to the gelatin market during 2016. This is mainly due to the presence of dominant manufacturers in the region. With the increasing number of applications in food and beverage products, the sales of gelatin is likely to increase in Europe and this region will be the major revenue contributor to the market in the coming years as well.

During 2016, the pig skin segment dominated the gelatin market and is expected to witness significant growth during the estimated period as well. Due to factors such as the superior quality of gelatin, the short production process, the need for less amount of water in pre-treatment and extraction, the reduction in water wastage during processing, and a less-time consuming pre-treatment process, the coming years wil witness a significant increase in the demand for gelatin derived from pig skin.


Gelatin is derived from collagen which is obtained from various animal sources including pig skin, bovine hides, cattle bones and fish. This type of animal collagen helps to swallow tablets and capsules easily. Gelatin is a form of protein derived from animal sources. This clear and tasteless protein is obtained from the collagen found in the bones, connective tissue, and skin of pigs, cattle and other animals. In old times, gelatin was used as a biological adhesive. But with advancing times, the use of gelatin has changed and diversified. Apart from adhesiveness, gelatin possesses many physical, chemical and functional properties like crystallization control, water binding, film forming, thickening and emulsifying properties. Thus, it has found a large area of application in the food, pharmaceutical, neutraceutical, photographic, cosmetic and packaging industries.

Besides these, gelatin has also established its utilization in combating osteoporosis and arthritis. The widening scope of application has provided a lucrative platform for a swift growth of the global gelatin market which is expected to reach a value of around US$ 4.08 billion by 2024. The increasing application of the product in food & beverage and pharmaceutical applications on account of exhibiting excellent stabilizing characteristics and good binding features is expected to remain a favorable factor for growth over the forecast period.

The product is majorly used as a gelling agent in numerous applications including food & beverage, nutraceuticals, healthcare, personal care, and photography. Increasing demand for convenience foods in emerging economies including China, India, and Middle East countries is expected to promote the usage of the product as a functional ingredient in confectionaries.

Gelatin is also used in the production of a broad range of pharmaceuticals including wound dressings, blood volume substitutes, and homeostatic sponges. Development of the pharmaceutical industry in the U.S. and Canada in light of increasing expenditure for incorporation of latest technologies is expected to have a substantial impact.

Over the past few years, polysaccharides are being increasingly used as an important constituent in healthcare and food & beverage applications on account of providing excellent hydrolyzing enzymatic properties. Therefore, industry presence of polysaccharide is expected to pose a substitutional threat to gelatin market over the next eight years.

Increasing awareness towards microencapsulation in the broad range of applications including food & beverage and healthcare is expected to open new markets over the next eight years.

Application Insights

The food and beverage segment dominated the market during 2016 and is likely to continue its dominance in the coming years as well. The increasing demand for functional food and beverage products such as confectionery, marshmallows, desserts, bakery products, dairy products, pet foods, meat packaging, frosted cereals, cream cheese, cupcakes, candies, pudding, juices, and beverages will be the major factor fueling market growth. Additionally, the use of gelatin in pet foods and other products such as cakes, cottage cheese, ice creams, whipped creams, and cheese spread will also propel the growth of the market in this segment.

Raw Material Insights

Bovine hide-based products are projected to foresee volume growth at 4.9% CAGR from 2016 to 2024. Easy water absorption and significant protein content are expected to promote the usage of the aforementioned raw material over the projected period.The increasing popularity of halal foods in food & beverage industry of Middle East countries is expected to promote the usage of cattle bones as raw materials to produce gelatin over the forecast period.

Fish skin, horse hair, and sheep covering are other raw materials which are used for the production of gelatin. Technological advancement for the development of fish gelatin in China is expected to open new markets over the next eight years.

Function Insights

The increasing importance of emulsifying property in food & beverage industry of major markets of Germany, UK, and France is expected to promote the usage of gelatin as a gelling agent over the next eight years. The market is projected to witness growth at a CAGR of 5.3% from 2016 to 2024, in terms of revenue.

Application growth of pharmaceutical products including tablets and capsules in emerging markets of China and India owing regulatory support intended for promoting investments in the healthcare sector is expected to increase the demand for stabilizing agent. Gelatin also finds use as thickening agents in the photographic industry.

Regional Insights

Europe represents the largest market worldwide, accounting for 41.2% of the global revenue in 2015. Increasing awareness towards incorporation of nutritional ingredients in food & beverage industry, particularly in developed economies including Germany, UK, and France, is expected to have a high impact on the market. Also, the presence of a robust pharmaceutical manufacturing base in Germany, UK and Belgium is supposed to remain a favorable factor.

Asia Pacific is forcast to spearhead future growth with the fastest CAGR of 5.0% led by factors such as growing population and robust food production where gelatin is used widely as gelling agent, growing spending on appearance maintenance products among the expanding base of affluent middle class population and the resulting increase in the use of gelatin in cosmetic formulations, and raising prevalence of osteoarthritis and a parallel increase in the consumption gelatin suppliments.

Competitive Insights

Key industry participants include PB Gelatin, Nikita AG, Rousselot, Capsugel Inc. and Sterling. New product development and the establishment of strategic partnerships with buyers are expected to remain critical success factors over the next eight years.Global pharmaceutical market are in the midst of major discontinuities. While growth in developed markets will slow down, emerging markets will become increasingly important in the coming decade. The Indian Pharmaceutical market, along with markets of China, Brazil and Russia, will spearhead growth within these markets.

The Indian pharmaceuticals market has characteristics that make it unique. First, branded generics dominate, making up for 70 to 80 percent of the retail market. Second, local players have enjoyed a dominant position driven by formulation development capabilities and early investments. Third, price levels are low, driven by intense competition.

The Indian pharmaceuticals market is the third largest in terms of volume and thirteenth largest in terms of value. India is the largest provider of generic drugs globally with the Indian generics accounting for 20 per cent of global exports in terms of volume. India enjoys an important position in the global pharmaceuticals sector.

The Indian pharma industry, which is expected to grow over 15 per cent per annum between 2015 and 2020, will outperform the global pharma industry, which is set to grow at an annual rate of 5 per cent between the same period. The market is expected to grow to US$ 55 billion by 2020, thereby emerging as the sixth largest pharmaceutical market globally by absolute size. Branded generics dominate the pharmaceuticals market, constituting nearly 80 per cent of the market share (in terms of revenues).

Indias pharmaceutical exports stood at US$ 16.4 billion in 2016-17 and are expected to grow by 30 per cent over the next three years to reach US$ 20 billion by 2020.


• Opportunities:

As the hydrolyzed form of gelatin, collagen is a highly purified protein that can be easily absorbed in the human body. It is used as an ingredient for nutritional supplements such as protein bars and drinks, weight loss, beauty products, and overall body health. This product is easily soluble in hot and cold liquids. It is also perfect where traditional gelling ability is not required. Our gelatin products have numerous and varied applications in the Food, Health and Nutritional industries. Gelatin is a natural and fat-free ingredient that is both high in protein and virtually calorie free. It is invaluable in the processing of these and many other health products.

The change in the world topography especially in the European countries leading to increase in the ageing population is expected to ensure a stable growth in the global demand of gelatin over the coming years. Further the increasing use of gelatin in Pharmaceutical, Neutraceutical and cosmetic products would add to this stable growth in global demand. The food and beverage industry continuous to represents one of the largest consumer of gelatin.

The general growth in health concerns and the increase in the standard of living of the people leading to greater disposable income has increased the use of dietary supplement and thereby increases the usage of gelatin based products.

As regards the alternatives that meet some of the gelatin characteristics, none is yet available that matches all the functions such as gelling, binding, thickening, stabilizing, film forming, and aerating properties. Thus, no comparable substitute has been developed till date.

The gelatin has unique characteristics that make it especially useful as a film-forming agent for encapsulation of liquids and powders. Gelatin capsules offer the unique advantages of dosage accuracy, ease of swallowing, and appearance. In addition to hard and soft capsules, gelatins unique physical properties allow for the coating and binding of the dry components in tablets. Having no toxicity, and the ability to be easily absorbed by the body, gelatin is an ideal substance to use in medicinal and nutritional preparations. Gelatin is the excipient of choice to provide an effective delivery system.

As a rich source of protein, Gelatin finds application in numerous end-use sectors including pharmaceuticals, food and beverage, photographic supplies, cosmetics, explosives, electroplating, dyes, papermaking and printing, among others. Rising standards of living, easier access to healthcare services, increase in disposable incomes and rapidly aging world population represent key factors driving growth in demand for gelatin. Improving lifestyles in developing economies of India and China are also expected to promote market expansion. Lack of availability of competitive substitutes in the market makes gelatin one of the most indispensable feedstock in various end-use industries.

Consumption in the pharmaceutical industry remains high driven by rapidly ageing demographics, rising incidence of chronic and lifestyle related diseases, and growing health consciousness. Growing focus on preventive healthcare amidst mounting healthcare costs represents another important growth driver. Rising popularity of nutraceuticals is also expected to benefit gelatin consumption in the near term. Gelatin encapsulated medicines and gelatin-based dietary and health supplements are expected to witness strong demand in the coming years.

As stated by the new market research report on Gelatin, Europe represents the largest market worldwide, followed by Asia-Pacific. Asia-Pacific is also forecast to spearhead growth with the fastest CAGR of 4.9% over the analysis period. Growing GDP, rising standards of living, increasing disposable income, expanding healthcare access and robust gelatin demand from end-use industries represent key factors driving growth in the region.

Demand is driven by the worlds aging population, increasing awareness of health issues, and end-use industries including pharmaceuticals, nutraceuticals, and food and beverages. Demand in emerging markets such as India and China will also fuel expansion, along with rising standards of living and the availability of vegetarian gelatin options. Obstacles to industry growth include consumer concerns regarding the potential health threat in using products derived from animal body parts. (Global Industry Analysts).

Whereas the pharma industry meets around 70% of the Countrys demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals & injectable. The domestic pharmaceutical market is expected to register a strong double digit growth of 15% on the back of increasing sales of generic medicines, continued growth in chronic therapies and a greater penetration in rural markets.

• Threats:

Despite the bright outlook, consumer concerns related to the safety and social aspects of using products derived from animal body parts continue to haunt industry prospects. The industry, over the years, has borne the brunt of tightened regulations and legislative riders governing the use of gelatin in supplements.

In spite of OIE clearance for India as "Negligible risk" country for Bovine Spongiform Encephalopathy (BSE), the USFDA refusing to acknowledge this rating and place India in the Undetermined category which could affect export. Sales and realization of DCP suffered a minor setback.

Environmental regulation continue to become more stricter and strengthen on account of which there would arise a need for larger capital outlay for achieving revised standard as well as higher operating cost for the treatment. Raw Material namely crushed bones availability has been short and thereby prices are at historical highs.

Central Government has also formed a 14 member committee to pursue vegetable grade capsules leading to uncertainty for pharma grade gelatin manufactured from bones.


The Company is engaged into manufacturing of Gelatin from animal bones. Gelatin is primarily used in pharmaceuticals industry for making capsule caps and in food industry. Company has developed world-class technology for gelatin by establishing state-of-the-art facilities. The Companys plants located at Karakhadi and Ooty employ the latest innovations in technology for the production of gelatin.

The Company produces pharmaceutical product meeting global quality standards, viz. Lovastatin (Cholesterol lowering drug) and Oncology/Other Pharmaceutical products. Sterling, as of today, has highest Lovastatin manufacturing capacity with required regulatory approvals. The fermentation facility of Masar plant is one of the largest fermentation facilities in India.

The company has increased its focus on Lovastatin and other Cholesterol lowering drugs as well as Oncology products which have a very bright future in Domestic & International Markets.

Brief overview of Pharma and Oncology products manufactured by the Company is as under:

Anticancer Products :

• DOXO Rubicin is an anti-cancer chemotherapy drug and is classified as an anthracycline antibiotic.

• IDARUBICIN is an anti-cancer (antineoplastic or cytotoxic) chemotherapy drug. This medication is classified as an anthracyline antitumor antibiotic.

• Daunorubicin is used to treat acute lymphocytic and myelocyticleukemias.

• IMATINIB is a drug used to treat certain cancers.

• EPI Rubicin is an anthracycline drug used for chemotherapy.

Other Products :

• Lovastatin is a cholesterol-lowering agent that belongs to the class of medications called statins

• DACARBAZINE is used to treat Hodgkin disease and malignant melanoma

• Temozolamide is an oral alkylating agent used for the treatment of Grade IV astrocytoma

• Simvastatin is a lipid lowering drug used to decrease heart problems in those at a high risk


Along with production of Bone gelatin, the company continues to focus its attention on Pharmaceutical products, Oncology products and Hydrolised Proteins for its future growth. The Research and Development activity of the Company intends to have focused and continuous innovationto secure a sound future. Expansion of the product portfolio and cost control through long term contracts with suppliers and tightening of expenses continues for improved margins.

All required certifications in terms of quality obtained by the Company gives the company better position in the International & Domestic Market. With expected future growth in pharma sector with the use of gelatin as raw material for manufacture of capsules, demand constraint will not be there for the Company in coming years.


Statements in the Managements Discussion and Analysis describing the Companys projections, estimates, expectations or predictions may be "forward looking predictions" within the meaning of applicable securities laws and regulations. Actual results may differ from such estimates, projections, etc., whether expressed or implied. Factors which would make a significant difference to the Companys operations include achievement of better quality and good market price in domestic and overseas market, changes in Government regulations and tax laws, economic conditions affecting demand/supplies and other environmental factors over which the Company does not have any control. Stringent regulation/norms required to be followed by slaughter houses for meat exports to EU countries, increase in cost of power & fuel due to increase in the price of furnace oil & increase in other fixed/semi variable cost due to overall inflationary pressure are also the matter of concerns.


The company has adequate internal control systems to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and the transactions are authorized, recorded and reported correctly. The internal control is designed to ensure that the financial and other records are reliable for preparing financial statements. The Company has in place documented procedures covering all financial and operational functions commensurate with its size and complexity. The Company has also taken required measures to counter the demand issue viz. improvement in marketing set up, tightening of credit control, Diversification of products & cost control measures.


R&D facility at the plant is equipped with all modern analytical and process equipment including HPLCs, GC, GCMS, IR, Spectrophotometer, Autoclave etc. and is under strict controls & restricted entry

Sterling Biotech undertakes research & development activities at its in-house R&D centers which look after at specific areas of improvement of product quality, process improvements, cost effectiveness and elimination of waste in the systems. The company also carries out R&D work on fermentation products, API and intermediates.

The company has invested significant amount of resources on Research & Development and has set up a state-of- the-art R&D facility in the name of "Sterling Biotech Research Centre" at its Masar plant in Vadodara, which is engaged in development of complex and niche generic active substances for leading generic players from Europe and other regulated market. For company, the R&D is an integral part of process and product development.

The Company also has a microbiology laboratory which is equipped with all facility to handle culture maintenance, inoculums preparation and propagation, in - process batch analysis, shake flask trials.


The company continuous to have the following quality certifications in accordance with its policy to achieve and maintain the highest standards of quality -

Sr. No. Certification Purpose
1 EDQM (European Directorate for Quality of Medicine) This certification denotes that the product is in compliance with the European Union pharmacopeia.
2 IFANCA/MUI This certification is required for Halal certification, which certifies that the gelatin is manufactured using Halal-defined processes and can be used by the Muslim population.
3 KOSHER This certifies that the Jewish population can consume Sterlings gelatin and that the inputs used for gelatin production are in accordance with the religious standards of the Jewish community.
4 HACCP (Hazardous Analysis and Critical - Control Point) This certifies the manufacturing process with the highest and most consistent quality and safety of product. Also ensures the availability of fallback measures in case of unfortunate events.
5 ISO 9001 This certification denotes that the production process is in accordance with standards laid down by the International Standards Organizations.
6 ISO 14001 This certification signifies that the environment management system is in compliance with the Environmental Management System Standard.


The highlights of financial performance during the year 2016-17 are as under:

• The company achieved a turnover (including other income) of Rs.40,417 Lacs.

• EBIDTA from operations is 1,655 Lacs.

• The finance cost is Rs.36,980 Lacs leading to Loss before tax of Rs.61,680 Lacs.

• After reducing the deferred tax, the loss after tax is Rs.41,245 Lacs.

• Net worth as at 31st March 2017 stands at Rs.127,609 Lacs.


Sterling believes that Human Resources always pay a very key role in the future growth of the company. It recognizes employees as the most valued asset. By providing on job and off job training, continuous development and learning initiatives for improvement in professional competencies, the management aims to achieve high standards of human resource development.

The Company has strength of 801 Employees as on Balance sheet date.


Way forward the company looks forward to improve in marketing set-up to reach to wider range of customers world-wise, diversify product portfolio of pharma products through in-house research and to capitalize on the increasing demand. The Company also looks forward to take corrective actions on the effluent discharge issue and tightening of quality norms to meet the global standards, putting in place the cost control measures with the help of better negotiation with the material suppliers, improvement in and tightening up of cost control system for various semi variable expenses, etc. Various steps are taken by the Company to reduce its finance Cost and look forward to reduce its bank loans/debts. The combined effect of all these factors are expected to be favorable for overall operations of the Company in the next few years.

For and on behalf of the Board of Directors

Place : Mumbai Nitin Sandesara Chetan Sandesara
Date : May 30, 2017 Managing Director Jt. Managing Director
(DIN:00255496) (DIN:00255671)