‘I have always seen 24 Mantra as a people’s movement’

Civil Society News, Gurugram

When Rajashekhar Reddy or Raj Seelam, as he is more widely known, set out to build a business in organic foods, it was with the vision that he could help farmers give up chemical farming and earn more for their produce and also deliver to consumers products that were healthy for them.

Raj Seelam comes from a farming family and interestingly in a previous avatar used to sell fertilizers and pesticides. The way he saw chemicals being used to grow crops prompted his interested in organic cultivation methods. He wanted to change the world and, you could say, that in his own small way he succeeded. He built 24 Mantra into a trusted organic food brand changing consumer preferences in the process. He also persuaded 35,000 plus farmers to go organic under the direct supervision of his company across 12 states in the country.

Recently, 24 Mantra went lock, stock and farmer to ITC which has bought Sresta Natural Bioproducts, the holding company.  Seelam believes that his company, having completed 20 years, was on the cusp of sustainability. Venture capital which had gone into the company clearly thought otherwise and were impatient to get out.

 

Q: We have some idea of how passionately you built 24 Mantra as a business. What happened? Was the decision to sell a sudden one? Or was it long in the making?

A few things forced my hand. First, our investors were not allowing us to raise working capital which we needed to grow the business. We had reached a point of deadlock.

Our investments are not so much in infrastructure as in helping farmers make the transition from chemicals to organic. Preparing the fields and getting certification takes three to four years. A company like 24 Mantra needs patient capital.

We had a problem with certification when the European Union banned six certification agencies. And among them was the largest one operating in India. We, as a company, were meeting all compliances. There was no problem with our products. But we suddenly had to work with a lot of smaller certification agencies. It took us a year and a half to recover from that.

The shortage of containers also set us back because 50 percent of our sales came from exports. The delivery time went from two months to six months.

From 2016 our sales were increasing by 40 percent a year. We were also very frugal with capital. Most consumer facing businesses spend Rs 100 crore for sales of Rs 50 crore. For our turnover of Rs 350 crore we raised just Rs 420 crore in three or four rounds of funding over the years.

Right in the beginning we had to turn to venture capital because my own capital wasn’t enough and banks wouldn’t lend. Venture funds, on the other hand, have investment trajectories of their own. There was always a mismatch between this kind of money and our kind of business in which we are converting both farmers and consumers to organic.

But the problem got really bad after 2011 when we ran out of cash and brought in a venture fund which proved to be particularly a stumbling block. They wouldn’t let us raise working capital nor agree to be bought out. I took them 10 term sheets giving them a margin of 30 to 35 percent, but they wanted more. We were in a deadlocked situation. It seems the last fund that came in wanted to get everyone out cheap.

 

Q: Did you go to ITC or did they make an offer?

We were receiving offers all the time. As I told you, I put up 10 term sheets.

 

Q: At Rs 430 crore would you say you have been valued well?

Everyone has ended up getting less because the earlier offers were not taken up.

 

Q: How much equity do you own?

Somewhere around 20 percent. Employees have about five percent and the rest is with the venture funds.

Q: What happens to the 24 Mantra brand?

It remains intact. They have bought into the brand and the backend.

 

Q: You know, one can value a company on the basis of various parameters. Sales, assets, goodwill, etc. But what about social good as in the case of your company?

I think that is one problem. In agriculture, what we talk of are ecosystem services. That means a farmer is doing organic farming which helps in carbon sequestration, which improves water use efficiency, which improves biodiversity. But does the farmer get paid for this?

So, similarly, I guess we have been providing ecosystem services and making life better for a lot of people. But, obviously, it doesn’t get valued. Finally, what gets valued is your number, bottom line and top line and, of course, brand or whatever. Hopefully, I think some of this will get embedded in the brand.

But in our case, I don’t think we have got a great deal because our investors were in a hurry just to move on in life, because their fun life is over and there’s pressure on them to close their funds. So obviously any buyer — I don’t blame the current buyer — would like to exploit and get a good deal because someone is desperate. And in the process, I think all of us suffered. A lot of our employees are also shareholders in the company.

 

Q: To the ordinary observer it would seem that the organic market is growing by leaps and bounds given the consumer preference for wholesome products.

I think the market has not grown as much as we expected. I would say, today about five million families consume some organic product or the other.  But just 20 percent of them are regular consumers. The rest would be consuming one or two products once in a while.

Before Covid-19, about two million families were such consumers. The number expanded to about five million families buying an organic product, post-Covid.

So that means awareness has gone up. But then I think we need to engage with them to convert them. And this takes time because organic is not advertising-led. It is more of a conviction-led category.

We didn’t really spend big money on advertising at all. I don’t think we needed to. You have a choice. You can stay very small as a boutique business. Or grow, for which you need capital. You don’t have to become a huge company. You can become self-sustaining. We were doing Rs 350 crore worth of business. If I didn’t have the problems that we faced I could have taken the turnover to Rs 500 crore and we would have been self-sustaining.

It was possible to come this far because of the committed team we have. They are committed to the cause. Of course, we pay reasonably well. Though it’s not that we pay the best salaries in the market. All my team members, if they left, would earn at least 40 to 50 percent more.

 

Q: The challenge for a company like yours is to drive a value proposition rather than just make any proposition. And that’s costly too. That is the challenge for a business like yours?

Correct. Yeah, that’s true. It takes a longer time.

 

Q: A business on a slow fire.

I guess more than whether it has to be like this, it has happened like that. And I guess that is how the journey is likely to be in these businesses because we are pioneers trying to create and educate stakeholders all around. So, it's taken a long time.

 

Q: When you told people you wanted to do it, how many said it was a good idea?

I remember those early days when I came up with this concept and got a few people into the room to do some kind of a survey.  The feedback I got was, ‘What is organic?’ The general opinion was that it was going to fail.  But I had this gut feeling that perhaps I might be a little early, but hopefully not too early.

I sensed people were getting more health conscious and that this might be their kind of thing. But having said that, this has taken much longer  than I thought it would take. So, I think the journey has been difficult and long, but I guess it has been satisfying.

From 1992 I had stopped consuming stuff grown with chemicals. When I was selling fertilizers, I could see the way they were being overused. The idea of 24 Mantra was taking shape right back then. Then my father died of cancer. My initial forays into entrepreneurship were to do with light engineering products and security number plates. Which I sold and with the modest capital I had I decided to build a business in the organic food space.

I come from a farming family and one of my goals was to improve the livelihoods of farmers. I also wanted to give consumers safer and healthier products. And, third, I wanted to do my bit for ecology.

 

Q: How many farmers do you reach?

We have reached 35,000 to 40,000 farmers.

 

Q: What has been the impact? How many hectares have you converted?

I think directly we would have done about 200,000 acres. But there is also the indirect impact of at least some practices getting adopted more widely. The indirect impact is always difficult to assess, but typically you could say it would be 10 times the direct impact.

 

Q: The kind of impact you would have had is 200,000 acres multiplied by 10. What does it take to get farmers to switch to organic farming?

They get better prices. The cost of inputs goes down. Chemical fertilizers and pesticides push them into debt.  You have to win their trust and confidence. Convince them that organic is healthier for them.

 

Q: This outreach is entirely in-house, is it?

Yes, it’s absolutely in-house. Done by our field team. We have about 150 people in the field.

 

Q: These are skilled people?

Mostly from farming families with a degree. So they know about farming. Then we train them through our training programmes. The supervisors are typically agriculture graduates. We also started using mobile apps to register farmers, geotag each and every farm and record the area every season to see if they have implemented our package of practices. So we had a small technical team. They developed a lot of organic practices. The approach was to use whatever science supports this natural organic farming. And, secondly, farmers themselves are great innovators. I think we have been able to compile a lot of successful practices by farmers.

We found it very useful to work with local NGOs who were definitely very helpful in mobilizing farmers. But then I think making sure of organic integrity and training farmers was a different thing.

As a result, all our projects are directly managed by our staff, because we need to train them and guide the farmers on the technical aspects and the buyback. We are now in 12 states.

 

Q: What changed for farmers?

The risk has come down in terms of production and finance. I think farmers make about 15 to 30 percent more net income. And then there's also the sense of doing the right thing.

 

Q: What about the attrition rate with farmers? How many drop out?

There has hardly been any attrition. We have definitely not been able to buy whatever the farmer produces. But a lot of these farmers see merit in organic because, one, there is reduction in their cost of production. Secondly, in particularly bad years, drought years, etc, the organic farms perform better because the soil is much better. And, third, farmers realize that their financial risk is low because they don’t have to borrow money for fertilizers and pesticides.

I think farmers who have adopted organic practices find that over a period of time they don’t fall so sick because exposure to pesticide and other things does cause problems both for children and adults. Over a period of four or five years, seeing these farmers, others joined in. I think we have developed a capacity where if there was demand, I would be able to add about 60,000 to 70,000 acres every year easily. That is the expertise and trust with farmers that we have developed.

 

Q: Is it an emotional moment for you to be selling out after 20 years?

Yeah, I think we took this call after discussions with my family about 12 to 14 months ago. It has taken that long to close the deal or come to closure. And then there’s just numbness.

 

Q: It was something you just wanted to get over with?

Initially it was a sense of release. Now, I’d say, a lot of sadness. When a company does well, a lot of the time people suddenly become shortsighted. And in the process, everyone suffers, the ecosystem suffers.