Sterling Bio readies Rs 3,850 cr war chest

Sterling Biotech, the country's largest gelatin maker, is building a war chest of over Rs 3,850 crore, to fund its expansion plan. It has recently issued Foreign Currency Convertible Bonds (FCCBs) worth $140 million (nearly Rs 630 crore) and planned to raise $50 million (nearly Rs 225 crore) soon from overseas markets.

The company's shareholders have passed an enabling resolution authorising the board to borrow Rs 3,000 crore. Sources said the company is close to acquiring a gelatin firm abroad. The acquisition, if successful, would make Sterling Biotech the world's second-largest gelatin maker.

Sterling Biotech, which acquired the gelatin business arm of Rallis India for Rs 47 crore last year, is Asia's largest gelatin and is among the Top 5 five gelatin makers worldwide.

Sterling Biotech chairman and managing director Nitin Sandesara confirmed that capacity expansion was on high on the company's list of priorities.

He, however, refrained from giving specific details of the company's acquisition plan saying: "We are looking at various opportunities in the US and Europe and will keep all concerned authorities informed as and when any acquisition takes place," he added.

He said the main reason for the expansion was the company did not have adequate capacity to cater to the world market. Sterling has a combined capacity of 10,400 tonne per annum from its four manufacturing units in India.

The capacity expansion plan includes scaling up of operation at its Vadodara plant, Sandesara said. Industry sources said Sterling's expansion of capacity in overseas markets would be beneficial as the future of the industry would predominantly be dependent on the export market, as domestic demand is negligible.

In the financial year ended December 2004, the company's export grew to Rs 120.56 crore from Rs 88.32 crore in 2003. It posted sales of Rs 389.90 crore (Rs 289.35 crore in 2003) and net profit of Rs 78.30 crore (Rs 45.75 crore).

The bonds of the FCCB issue are listed on the Singapore Stock Exchange and bear interest of 0.50 per cent per annum. The conversion price of the bonds is determined at Rs 184.8694, about 24 per cent premium over the closing price of the company's stock on the pricing date. Barclays Capital was the lead manager, sole book-runner and underwriter to the issue.