P. J. Kunjachan, Chairman & Managing Director of Arjuna Natural Extracts Ltd., is a self-made man who charted his own growth trajectory by manufacturing and exporting value-added herbal extracts and nutraceutical products. In an exclusive interaction with the The Dollar Business, he explains how his company manages to export 80% of its produce to 40 countries amidst slowdown in global trade.

Niladri S. Nath | November 2016 Issue | The Dollar Business

TDB: How did you venture into manufacturing of food supplements based on herbal extracts?

P. J. Kunjachan (PJK): In 1977,  I started off with agricultural inputs trading such as fertilisers and pesticides. Then in 1984, I moved to manufacturing and supplying crushed bones to the gelatine industry. However, my brother-in-law, Dr. Beny Antony, who has a PhD in organic chemistry, came into the picture and changed the direction of my entrepreneurial career.

Together, in 1989, we set up Arjuna Natural Extracts Ltd. at Alwaye in Kerala to produce value-added herbal extracts, with an investment of less than Rs.10 lakh. Later, we started focusing on the nutraceutical sector by launching a range of innovative herbal extracts.   

TDB: What kind of market opportunities are there for a company like yours?

PJK: There is an abundance of natural resources in India. So far, we have been able to identify roughly 7,000 medicinal plants, which is only about 10% of the total medicinal herbs available in India. New medicinal plants and their health benefits are still being discovered. Hence, the market opportunity is huge, mainly from the health and wellness point of view.
Consumers are also becoming more aware of herbal plants and their effectiveness in offering permanent relief and cure without the side-effects of allopathic medicines. Also, there is a dearth of reliable and efficient players in the market, who have the patience and dedication for conducting rigorous and time-consuming R&D and product development.

TDB: What challenges did you face in the initial days?

PJK: There wasn’t any major challenge as such because we banked on our available resources. However, the prolonged due diligence process of the financial institutions would sometime test our patience. Well, our industry was new to them so there was reluctance on their part.

Government institutions also took their own time to respond, but we managed to gather funds on our own as our requirement wasn’t much. On the exports front, US was our first destination and there were issues like lack of standardisation in manufacturing. But, we overcame them by using the latest imported technologies for analysis.

TDB: How does your product portfolio looks like currently?

PJK: We mostly offer products made of spices and herbs of medicinal value. Our current products are based on Omega 3 fatty acids and herbal extract-based products such as AmlaMax (for rejuvenation) and AkbaMax (for joint pains), dietary supplements, etc.

Every year, we launch one or two new products. But the process is long. Before introducing them in the market, we conduct intensive efficacy studies with registered animal houses, followed by toxicity studies. And, on successful completion of those studies, we go for clinical trial on humans under the guidelines of Clinical Research Organisation. 

TDB: Did you face any hurdle while penetrating developed markets?

PJK: If you’re professional, systematic and honest, acceptance in the developed markets isn’t a concern. And, as long as you use quality raw materials, the end result will be positive. But, with that said, I must say that selling herbal products is a time-consuming process.
One has to go through several rounds of discussions and analysis with the buyers. We have been participating in various trade shows to establish contacts with the buyers abroad, initiate the process of R&D, etc. So, patience is the key to success in this business.

TDB: How much do you export and what’s the company’s total revenue?

PJK: We export 80% of our production, out of which 50% goes to US and the rest goes to Europe and the Far East.
Only 20% of our revenue comes from domestic sales. The company’s average y-o-y growth is 15%, but exports are growing above 80% y-o-y, so our 80:20 ratio will change soon! About four years ago, our annual turnover was Rs.100 crore, and we expect to close this financial year at about Rs.240 crore. And, at the moment, BCM–95 generates the maximum revenue, which is 40% of the total revenue.

TDB: How do you plan to increase your global footprint going forward?

RJK: In next five years, we want to enter the western Europe in a big way because it’s a new market for us. We have recently opened an office in Brussels, Belgium. In fact, the entire Europe is a very good market for our products. We are also participating in various trade shows in US, Europe, Japan, etc., because interest in herbal alternatives to allopathic medicines or synthetic drugs is increasing globally, and only 15-20% of the market has been explored so far.

TDB: What about domestic market?

PJK: The market is growing, but the pace is slow. It isn’t the lack of awareness, but there is a mental block. For instance, people in India use various herbs and spices, but they’re not willing to spend money on products made of those herbs and plants.   

TDB: What kind of support do you receive from the government?
 
PJK: The support from the government hasn’t been consistent. Two years back, we were getting export subsidies under  VKGUY, but it was subsumed under MEIS under the new FTP. Also, when we participate in trade shows outside India, we have to pay almost 15% business exhibition service tax to the government, which is quite huge for our industry. We made a presentation to the government in this respect.

TDB: What’s your current processing capacity? Where do you source your raw materials from?

PJK: We have one R&D centre in Alwaye, Kerala and two manufacturing facilities – one in Cochin, Kerala and the other in Coimbatore, Tamil Nadu. Our current  per day processing capacity is 42 metric tonne (MT), but we will increase the capacity by another 30 MT next year. And as for raw material, we source them from across the country.

TDB: How are you leveraging the ‘Make in India’ campaign?

PJK: I am not really championing the ‘Make in India’ campaign, as I have a strong reservation to the three-tier tax system which is eating into our profitability. We have to pay 35% tax to the government – if the company is announcing any dividends, we have to pay 18% dividend tax to the government. Even the shareholders have to pay 10% of the amount they receive from the company. So, such a tax system is going against the spirit of ‘Make in India.’ The government needs to remove the tax system which is detrimental to the growth of the industry.

TDB: Do you import any of your requirements?

PJK: We are always on the lookout for  new technologies to strengthen our manufacturing and quality control processes. We import technologies from countries like US, Germany and even from China.

While importing equipment related to research and development, the government allows a 100% income tax write-off on the expenditure for the year in which the equipment are procured. This is definitely a good scheme for incentivising research and development in the country and thus promoting innovation.

TDB: How much do you invest in R&D? And what products are you currently working on?

PJK: We invest about 10-12% of our revenue in R&D every year. We are currently working on enhancing the purity level of our products based on Omega 3 fatty acids. So far, we have completed 85% of the process and the remaining 15% will be completed in the next three months.

We are also working on natural preservatives as they have great  market potential. The segment will mainly cater to the food processing industry and will give the industry a competitive advantage at the consumer level.

Recently, we have ventured into the sports nutrition category with Oxystorm based on Amaranthus extract, and in the next 6-9 months we will launch another unique product in this category. 

TDB: What are your revenue targets?

RJK: We plan to become a Rs.500 crore company in the next three years.