Sheela Foam Limited (SFL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Sheela Foam Limited Q1 FY '21 Earnings Conference Call hosted by Edelweiss Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Nihal Jham from Edelweiss Securities Limited. Thank you, and over to you, sir.

Thank you, Janice. On behalf of Edelweiss, I would like to welcome you all to the Q1 FY '21 conference call of Sheela Foam Limited. From the management today, we have Mr. Rahul Gautam, Managing Director; Mr. Tushaar Gautam, Director; Mr. Rakesh Chahar, Director, Sales and Marketing; and Mr. Dhruv Mathur, CFO. I would now like to hand over the call to Mr. Rahul Gautam for his opening remarks. Over to you, sir.

Nihal, thank you very much for coordinating this conference. And I really appreciate everybody else for joining in today morning and -- in probably the most unusual times. Let me just begin with by saying that recently, we concluded our AGM, and this was the first time that it was done online. Extremely good experience, and whatever feedback that I got, both from the shareholders as well as the directors, that this was probably the way to go even in the future. So let's hope that some changes are going to be, which will stay forever. Most of the questions were very focused. There was not too much of gallery play, and therefore, it just went off very, very efficiently. We are all experiencing these COVID times. I think that each one of you would be as informed as I am. I think it's only the conclusions that we can draw from the different happenings all over the world, which is little different. My side topic is that the uncertainty still continues, understanding of the virus is still there. Vaccines, I know there are some which have been announced, and the government of India has also said in the next couple of months, we should have some vaccines, and they have begun to make a plan how to distribute them. But most of the feedback says that it's going to be a while, probably by the end of this year that we would see some kind of a vaccine and then for it to be distributed and everybody to be inoculated and vaccinated. I think we should not see any kind of virus going away before the first quarter of next year or the quarter 4 of this financial year. It's a long haul. But I only wished, and I'm repeating it, I know you -- everybody would be completely fed up of listening to this. But I think the 3 things that people talk about is wearing a mask, washing your hands and the social distancing and just repeating it like what it is done on the MTNL or the telephone line. Since you know that we are present in India, and we are also present in Australia and Spain, let me share with you that both Australia and Spain had onetime peaked and come down, but both of them are having a second wave. Of course, not as bad as the first one. I may not completely measure it by the number of deaths that are happening, but there is a second wave. And in Australia, they have already locked down one city, which is Melbourne, Sydney which is the next biggest city, is also partially locked down. Spain has not yet done that. But we hope that this abates as quickly as possible. Coming back to India, I -- we are experiencing that about 85% to 90% of the markets are opened. We have recently reached our levels also ranging between 80% to 85%. The GST collections in the country are also indicators that the businesses on an average are around that. I mean, if we take INR 1 lakh crore as a monthly collection that the government thinks is normal, the last month was about INR 86,000 crores. We have different sectors. And of course, the different segments or sectors are experiencing different levels of growth averaging to about 80% to 85%. Auto took a little longer time to come up. But now it appears at least, July, it is -- it's been close to 100% in this month, they are expecting it to be even better. Now whether it's pent-up demand or it is something fundamentally changing in the market, we still have time for it to emerge. The other experience that we had was that the smaller towns came around much quicker because the impact of corona was larger in the larger towns. And the organized sector, of course, did better than the unorganized sector. But it is not that the unorganized sector is completely washed out or anything like that, but their recovery is a little slower. At least in our business and in our segment, cash flows have been okay. I have not heard of people closing down on account of nonavailability of money. And I expect and pray on behalf of everybody that anytime between Diwali and the end of the year, things should be back to pre-COVID times, at least on the business part of it. We continue to worry about our people, continue to ensure that all items, all our outlets, all our distributor areas, everything follow a very strict protocol of ensuring that corona is kept away or the virus is kept away. We are aware of -- within our own trade, of companies or complexes, which have been shut down on account of widespread, and we would not like anything like that to happen. I'm also happy to share with you that on the medical coverage of the people that -- who work in your company and the insurance part, both are very well covered. And even in the eventuality that something not good will happen, there is an insurance coverage, which will take care of the family or whoever stays back. Last time, I did mention about the impact of the China factor and that impacting us in many ways. One is all the imports that come into the country from China, I did mention, and I'm repeating, that we -- our dependence on that is very little. But then the other exports -- or the other imports that come into the country, we are looking at areas which can be -- where we can find substitution by our company or the indigenous manufacturing. There are other areas where China was reporting, whether it is to the U.S., Europe or Australia, and we are looking at those areas to see that how India can be developed as an export -- as an exporting country to those areas. The government has also taken steps and identified some 11 or 12 sectors, and at least a sector where we would have a reasonable say with the furniture side, which the government intends to develop as a big cluster and to take care of nullifying the imports and increasing the exports, et cetera. I know that there are laws like labor laws and land laws, which are very state-oriented. And to overcome them is a problem, is an impediment for creating such infrastructures. But the way the government is thinking is to make SEZs like it did before, and you could have the land laws being different there, and you could have labor laws in a manner that they are competitive with any other part of the world. So we just expect that the -- as far as the future is concerned, it should be interesting and should have a lot of potential. I recall our last conversation, somewhere in June, where I did say that the raw material prices are low and steady and should be like this for some time. And I did put a disclaimer to it to say that I could be wrong. And actually, I am wrong. The raw material prices have been going up in the last couple of weeks. Two major raw materials, one is polyol and the other is TDI. Polyol -- both were hovering around INR 110 number. TDI has already shot up to about INR 160 in steps, but very quick steps. How much will it go up to? Very difficult to say, but anything at INR 170, INR 180, some number like that. Polyol is a far more dispersed manufacturing throughout the world, and I would say that it will probably go up to about INR 135, INR 140 number. But we need to look at solutions -- we need to look at global solutions on this, and the company is working towards that, that such kind of quick movements in raw material, how do we kind of ensure that we are far more stable, both on the availability of the material as well as on the price part. One thing more that this COVID has thrown up is the risks in our doing business. So whether it is the IT systems that one uses or any other systems that we use, there are disruptions possible on anything. For example, on the IT thing, post Kalwan, the number is 50,000 cyberattacks on the Indian companies and the Indian systems, which was there. So we are already working towards protecting ourselves, and probably creating that all our standard operating procedures would have now a clause, which will say, if disruptions take place, how do we account for it? Or how do we negotiate the disruptions? Coming back to the -- to our immediate quarter, which is being considered -- undoubtedly, it has been the weakest quarter in the past many quarters, probably from the time that we have invested. We did a number of tools, about INR 270 crore compared to a INR 500-plus crore that was the normal that was there. Fortunately, profit was still there. And fortunately, both our outlying or our companies or subsidiaries in Australia and Spain contributed handsomely towards both the top as well as the bottom line. In fact, in the Indian operations, the profit was only about INR 1 crore. Finally, we ended up with about INR 12 crores. So balance was contributed by Australia and Spain. And in spite of them being impacted by COVID as much as we did. But they have -- the operations they have not closed or never did kind of close. And in fact, the demand has been good and strong. It may be because of the robustness or the less diversity of those economies, it can also be because of the China factor, and it can also be because of the pent-up demand that must have been there or that's there. And both continue to be strong even now. I would like to conclude that an important part of your company is the CSR activities. Last time I had mentioned that we did a quarantine since -- a quarantine center for -- with about 2,000 -- sorry, 10,000 beds that we had contributed. Fortunately, only about 2,000, 2,500 are being used because -- and that's good. It doesn't matter that, that setup is there, and it's working well. So our contribution has held in good -- has held good in even these times. We, as a company, have our standard things of skill development of the Army training and working on emotional wellness. We continue. Of course, physically, not much can be done. So we do that over webinars and over online contracts like most of the other things. So with these words, I would like to close and be open to questions from you. Thank you.

[Operator Instructions] We take the first question from the line of SivaKumar from Unifi Capital.

Sir, my first question is with regards to the traction that we are getting to see in Q2. I remember from the Q4 call that in June, you had seen sales to the extent of 60% of the previous year. So how has it been in July and August?

Thank you, SivaKumar. July and August. So July has been -- I think I mentioned close to about 80% plus. And August is between 80% and 85%. So every month or every 15 days, it's kind of creeping up to normalcy.

Right. Sir, in Q1, we see that the gross margin has come down in spite of the fact that TDI prices have been softer on a sequential basis. Any specific reason for that?

Dhruv, if you want -- can you respond to that, please? Hello, Dhruv? I don't know. He...

Okay. Okay, I will answer. I was on -- okay. Okay. So gross margins, Siva, there are various reasons for this. One is that there is a product mix wherein the low price mattresses have been much higher sales. Second is that we had to pay large amount of detention and damage in this quarter because of the problems of the port. This has increased our cost of raw material. Further, since the volume of purchase was much less, we did not get any volume discounts. Also on low production, the yields are lower. And finally, we used to get some GST refund of around 0.5% of our sales in Kala Amb unit, which has stopped in March 2020. So these 4, 5 factors combined together has dragged down the gross margin from 49.7% to 46.3%.

So can we expect that to recover in Q2, sir?

See, it will recover. I think the GST refund impact of 0.5% will never come back. The -- unfortunately, the prices -- the way TDI and polyol prices are going up, to what extent we can pass on to the customer, all that is a function of these 2 things. Other things, I think, with the volumes going up, will come back to normalcy.

Okay. Sir, one related question to the first question that I posed. When you said that the volumes are back to 80% to 85% of the previous year, are you referring only to the mattress segment or are you including the B2B segments also?

Siva, I'm referring to the entire business of the company. And they -- we will break it up into the B2B and then in the B2B, break it up into the auto and the other sectors, it will be different. But I'm talking of the averaged out number for the company.

Right. Sir, and one last question on the export opportunity, which you referred to in the Q4 call. Any traction there? Because you have done some trail shipments during Q4. Have you heard anything from the customers? And can you see some revenue flowing in FY '21?

So I definitely see revenue flowing in, in FY '21. And I would say that all that is in progress, it's work in progress, and it's moving in a positive direction.

[Operator Instructions] The next question is from the line of [ Naresh Vaswani from Sameeksha Capital ].

Sir, I wanted to ask on the opportunity side in the mattress segment in India, Europe and U.S.A., if you can give some color?

Naresh, sorry for intervening, but your voice is coming through -- is not clear. So could you...

Now can you hear me?

Yes, yes, it's better. It's better.

Yes. Sir, my question was on the opportunity side in the mattress segment in India, Europe and U.S.A. Can you just give me some color on how big the market is for you, which you are targeting in the longer term?

I don't think that I'll be able to give you a number. That market is many billions of dollars here. And what we will be targeting and what we can do, I would say that let's just wait for another quarter, and I will give you the number there.

Okay. And secondly, on this raw material prices going up, will we be able to manage this 14% EBITDA margins over next 2, 3 years if the raw material prices stay at higher levels?

So that is our goal that we must maintain this EBITDA margin. When these raw material prices move for a small time, the impact is absolutely [Technical Difficulty] because it takes a little time to pass on everything or redesign products or change our offerings as far as the market is concerned. But once they kind of stabilize, you are able to get that back. So right now, our attempt will be to ensure that we continue with these launches. A quarter or 2 quarters may be negatively impacted. But eventually, it will come back. I mean, eventually, it will be passed on.

The next question is from the line of Hiren Trivedi from Axis Securities.

So once -- 2 questions, sir. I would like to know more on the cost and other manufacturing costs, and there seems to be a sharp reduction. So could you throw some more light on how much of this would be sustainable going forward? And secondly, what would be your outlook with regards to the subsidiaries going forward? That's all.

Okay. So what I'll do is I'll answer the second question first, and then Dhruv will answer the other one. So as far as the subsidiaries are concerned, let's look at the Australian subsidiary, that's good and steady at the moment. It's also moved to a new normal but we have to continue to understand that those markets are saturated markets, and we have a reasonable size of the market. But still, let me just share that what used to be at a level of about $6 million per month is now hovering around $7 million per month. And so we have been able to get a little more market share, et cetera. And I think it will be like that. On the Spanish one, the opportunity is far greater because we have very little of the entire European Union market. And I -- and it's also closer to the U.S. So I expect that the contributions or the turnover from Spain in the coming days will be much, much, much better. Dhruv, can you respond to the cost?

I can. So Hiren, in this quarter gone by, lot of costs are low because of the volumes and some of the costs like manpower cost, advertising marketing expenses costs, which are fixed cost have gone down and there has been lot of strategic decisions, which have been taken by the company to reduce the fixed manpower cost and the traveling cost and other fixed overheads. So the fixed cost will also go down. And we estimate that by the -- for the entire year, it would be in the vicinity of around INR 70 crores to INR 75 crores, plus whatever is the variable costs will move according to the volume.

[Operator Instructions] The next question is from the line of Puneet Saraogi from Hill Fort Capital.

I have 2 questions. One was that I was a bit surprised to sort of learn about the Spanish acquisition. And in your annual report, you also talk about building IT capabilities and possibly serving it as -- creating a business around that. And to the layman, it seems that the India opportunity is so large, so why bother about these things? So could you help us explain -- could you give us some more sense around why it makes sense to be in Spain and to also think about an IT business, if I read it correctly? And the second is, if you can talk a little bit more about your online brand and how that is doing? It seems that it's scaled up reasonably well, but would love to hear what's the latest on that?

Okay. So I just want to sort of reiterate the question that you have asked so that I have understood it. Mr. Saraogi, you are -- the question is that what is the philosophy behind the Spanish acquisition? Is that correct?

Yes. Exactly. And also the philosophy, I don't know whether I have read it well in your annual report or not, but you talk about building an IT platform business as well and whether that -- so the philosophy around that as well, especially if India is so attractive as an opportunity?

Yes, sure. So as far as the Spanish thing is concerned, you see Spain is really the manufacturing hub of a lot of the western part of Europe. It is still a low-cost economy which is there, but it continues to be part of the European Union. It has -- if you look at the entire European Union market, it has -- at the moment, this company has only 1% or less than 1% share of the entire market. So even if the market was contracting, the opportunity for this one to grow will be huge. There is now the opportunity of supplying from Spain to the U.S. either across the Atlantic. It has the opportunity of supplying to the northern part of Africa. It's also a small little sea and then you are there in Africa. So it is very centrally located. And it's the low-cost economy. That is the reason that we looked at Spain and touchwood for it, it is panning out exactly in the same direction. There are a lot of technologies, which here in India, we have developed, which can now be transferred there and so -- for example, the shoe industry. There are special foams that we make for the shoe industry and that company doesn't do, but it is completely surrounded by the shoe manufacturers in that area. So such opportunities and all these kind of combined together, they was a big potential and that's the reason that we went there and as I said, corona or no corona, corona has only amplified that potential, but that has turned out to be good for your company. Second is the hiving of -- not the hiving of, but let's say, starting IT business that -- and we've named the company as Krakow. So it's been naturally that IT has grown to be a big part of our industry and when we -- all of our company. And as we developed, we developed within the company here, we developed across continents to Australia and to Spain, we learned how to handle their needs and requirements, how to ensure connectivity. We were able to maintain the hardware here, take care of all the licensing issues, everything. And while we were doing this and interacting with the world, we came across many people over either our joint venture partners or our suppliers or vendors or our customers who said that they would want similar levels of IT to be extended. And it was at that time we started thinking, I guess this was about 2, 2.5 years back and then came to a conclusion that there was a potential. I know that India is a monster at supplying IT to the world, and there are big names like TCS and Wipro and all these people. However, for the mid level, for the small level that there was an opportunity. And surprisingly, now that we have done it, the -- there is an opportunity in India too. And we are interacting with the government and with some other companies here. And that company is also beginning to get orders from outside, and it's already showing that it was the right decision to do. Your question #2 was on online brands. So yes, the -- this COVID time has shown that people have -- are far more comfortable in dealing with e-commerce. We were already into it. Our products do naturally take up in spite of being bulky can be compressed, packed into a box and be delivered. And of course, there are already marketplaces like Amazon and Flipkart. So we address that market through Amazon and Flipkart, and we address it through our own brand dotcoms. The last 2 months, I'm -- I don't have ready numbers right now, but the last 2 months have been a good growth over corresponding 2 months of the previous year. So we have it reasonably well covered. And now we'll see that how this market grows.

That's very useful. Just one follow-up, if I may. The whole IT piece on the Spanish basis, if we assume that the management and financial resources are limited, which I'm assuming they are, I'm just struggling to figure out why -- how this adds a lot more value rather than just being focused on India and building that opportunity? So how do we -- if you can help feel the level a little bit more and help me explain the decision-making process about why it makes sense to be there?

Okay. Look, the way I look at it is like this, that we are large players in India. We have large -- even possibilities of growing far more, whether it's on the manufacturing side and then on the marketing side. However, my experience is that an organization, irrespective of how much resources you throw into it, still has some intrinsic capacity to grow. There are hurdles and there are sort of roadblocks which keep coming up. And irrespective of the opportunity, irrespective of the size of the organization in that opportunity, it still has some intrinsic, let's say, level that it can grow with. That's one. The second is that the kind of business, which is our primary business of manufacturing foam. The raw materials are sourced globally. They are supplied to the other places. The way it is manufactured, is same -- similar. There is a value that we bring to companies like the Spanish company that we have acquired. And it's a good way to increase both your top line and bottom line, and what better proof is than what happens in -- from April onwards as far as this year is concerned. That -- just to exist in other realities or other geographies has always been -- is a good idea.

The next question is from the line of Raj Mehta from Raj Mehta & Associates.

I would like to ask you one thing. The foam industry that you sold to B2B in auto sector, how does Mayur Uniquoters and Sheela Foam are different? Or are they two are competitor to the same industry, which they cater to?

So to the best of my knowledge, and I would confess right in the beginning that I know very little about Mayur Uniquoters. This is -- I think the Jaipur based company, right, Mayur Uniquoters?

Mayur Uniquoters, Suresh Poddar company.

Yes, yes. Yes. So look, what they do is to make rexine and what they make is also poly textile, which is a normal cotton web or even polyester web coated with resin on top. And what they do is, of course, they do polyurethanes also. But those are -- the product is completely different. I mean the product is a textile that is manufactured. A product is something which is used then as a covering. So where we would -- we are not competitors at all. But where we could have some similarity is if a bus seat is to be made, we will provide the pusher and they will provide the covering on top. So it's a different industry. We don't do any PU-quoted textiles. They don't make any foams. But that's where the combination will come.

Okay. And my second question is related to the -- maybe after a 5-year period, what are the -- what are your targets with respect to the growth of the company events? Where are you looking for the great opportunity in particular, just like Sleepwell was your brand, which gave tremendous growth in past? So what will be the growth driver for next 5 to 10 years for a company?

So, Raj, we say is that these are absolutely uncertain times. I mean, these are -- our production and our market and sales, everything went to a 0, and we kind of restarted. So for 1.5 months, everything was 0. These conditions are also changing with time. Whether it is work-from-home, whether it is e-commerce, whether it is small cars, whether it is online business, whether it is airline business going to a 0, trucking business, changing. I think this is an uncertain time with a scare. What do I look at 5 years, I may be able to give you some thoughts on it. But these thoughts can also be changing. For example, I would look at e-commerce as a big part of the business. I would look at exports as a sizable part of the business. I would look at subsidiaries outside India as something which is not in advance and maximum, but something that that could be there. The current subsidiaries, their potential to grow that I would see. So I think these are few areas, which is there. Then the most important part is our current business, which is mattresses. And let me say that most people thought in April -- March and April that mattresses would be the last thing to come around because it's a nonessential item. But fortunately for us, the people have -- do not think so. And it may be because they spent a lot of time at home. It may be they understand the importance of a mattresses, et cetera, but it is not a nonessential item. It is an essential item. And therefore, there would be growth and the brands will grow. Organized sector will grow. E-commerce will grow. Furniture will grow, both from the import side and the potential to export. So these are -- this is the area. Now what kind of numbers you're looking sideways down the line, I would take another quarter or 2 for things to kind of settle down and then be able to predict it.

Okay. Okay. And sir, one more thing. I'm just 23 years old, and I am a practicing chartered accountant. So if there will be any opportunity where we can work together. I tried to reach to the company but could not able to convert that. So if at all there is anything, then please let me know.

So Raj, first of all, compliments to you that you're only 23 years old, and you have asked some very relevant questions, and you're already a chartered accountant. I would say that just connect up with Mr. Dhruv Mathur, the CFO, and we can figure out if there is something.

[Operator Instructions] The next question is from the line of Apurva Shah from Phillip Capital.

Sir, what will be our market share in organized market? And is there any change in either some sort of a competition intensity in the last 3 years and our market share as a whole in organized segment?

Rakesh, would you take this question, please?

Rakesh is on mute. Can I take this, sir?

Yes, yes.

Okay.

So the organized sector, is around 35% of the total market. And in the organized sector, we -- our share has been increasing every year. So the large survey that was done, it was at 30%.

Okay. So 30% of 25% of INR 14,000 crore? Right sir?

The organized sector 35%, 3-5, 35%.

Okay. Okay. And sir, is there any change in the competition intensity because of emergence of either omnichannel or maybe some emerging retail giants? So have you seen any change in the competition intensity?

So online definitely, there is a higher growth in that channel. And that is -- I mean, the channel has, even last 2 years, it has been growing by about 30%. Post lockdown, the growth that have been witnessed online are upwards of 50%. So that definitely is growing much faster given the environment. Otherwise, what we feel is that the competition is trying to improve the retail, which people get couple of years back, and they're also improving the display and interactions with the consumer at the point of sale. So that's a good thing for the industry because that's how you kind of make the customer buy the right mattress and the importance of mattress in life of customer goes up. So that's what is happening in the market.

My next question is on like we spent substantial amount on sales and advertisement, so which is like roughly 10% to 12% of our top line. So will we continue with that strategy? Or we will rework on that strategy in the current situation?

Rakesh, can you continue on that, please?

Yes. So see, right now, the expense on sale is more on the customer. There's a shift between the incentives to the trade and to the retailer, to the consumer. So I foresee that as far as mattress is concerned, it's -- I mean, you constantly need some actions. So I foresee that the strengths will be of similar level. But what will definitely go down in the marketing side because the brand has already attained brand -- a very high brand salience. So as the sales grew up, that's an opportunity for expense to go down, not so much on the sales side.

Understood. And sir, lastly, what kind what kind of CapEx we envisage over next 3 years?

Sorry, you are not audible on this.

Sir, what kind of CapEx we envisage over next 3 to 5 years' time?

Can I take this one, or...

Yes.

So normally we incur around INR 45 crores to INR 50 crores to maintain 10 of our plants, plus any greenfield project which we take up. We have bought a land in Jabalpur and in the next 2 years or so, a CapEx of close to INR 50 crores, INR 60 crores is expected in that. So this is a major CapEx, yes.

[Operator Instructions] The next question is from the line of Priyanka Khandelwal from ICICI Prudential Asset Management.

I just wanted to check if the volume number this quarter includes sales to institutional centers or quarantine centers? Or all of it is attributable to retail and e-commerce sales?

Can I answer this?

Yes, please.

Yes. So it does not include the 10,000 mattresses, which we gave as in the CFR activity. But rest of the mattresses supplied to institution on sale basis are included in this number.

How much would that be?

That would be around 3,000, 3,500.

The next question is from the line of SivaKumar from Unifi Capital.

Sir, what is the current share of the online channel in the whole organized industry?

Rakesh?

Yes. So the share of online is close to 4% of the overall industry.

Okay. And what will be our share, sir? Is it in line with our off-line share? In the online channel, specifically?

So no. We are late starters, as far as online is concerned, but catching up very fast. We are already at #2 level on the Amazon. So the rate of growth has been much higher than the industry growth for us in the online channel.

Okay. Sir, now we have bed-in-a-box concept, right? We are also able to supply that kind of product, right?

Yes.

Okay. Sir, and I'm revisiting the earlier question, which I posed, which is basically the export revenue opportunity. I know you said we will see something in this year itself. Will you be able to quantify, sir, as to what can be the number we can expect from that front?

SivaKumar, let me not do that. I mean, there will be why -- absolute why -- because it is still kind of firming up. And even if I could make a guess on the order of it, I would have done that. But it could be large. It could be not so large. So let's leave it for one quarter. Next time, I'll definitely share that.

Right, sir. And I revisit the question in the Q2 call. Sir, I have a particular question to Dhruv sir. Sir, on the fixed cost, sir, can you revisit your trajectory that you had given. You said something like INR 75 crores, right?

That's right. That's right. I said so.

Okay. So INR 75 crores per quarter is the run rate we should assume?

Yes, it will be pretty high in the first quarter, of course because the operations were low. And then I think it would be close to INR 10 crores, INR 12 crores per quarter.

Okay. INR 10 crores, INR 10 crores for the quarter. I mean, there is some -- if I look at the other OpEx this quarter, it was about INR 32 crores, right?

So if you see the other -- I was talking of INR 75 crores in terms of fixed cost only or your other expenses include selling expenses also, freight also, which are all variable to the volume. So please don't go by this absolute number and strength in that because these are -- other expenses are a combination of fixed and variable expenses. And if you want to know more breakup, you can talk to me offline, I will provide you that.

Sure, sure. Sir, and the breakup of the other income?

It's mostly on the money which has been with the company, the investment of that money can be that other income.

The next question is from the line of Pankaj Tibrewal from Kotak Mutual Fund.

One question which I had was, you alluded to an opportunity led by government initiative, which is furniture. And if I read the press, recently, you have introduced bed in that category. Can you just take us through what kind of opportunity, because that's a large sector and that's multiple time of this sector where the mattress industry is in. So can you just share your thoughts on how big this opportunity could be for us? And what are your plans? Would you like to set up your own factory? Would you like to have a small commitment towards outsourcing and then test the market and move on? That's a large opportunity probably -- when we look at it as a layman from outside perspective?

So you're right that the furniture industry is far huger and far bigger compared to the mattress industry. But furniture, I say, if you were to define it, also has items which are so many of them starting from our beds to a table, to a dining table, to cupboards, to sofa sets, to all those things, which are clubbed together as furnitures. It's also a very unorganized industry as far as India is concerned. Majority of manufacturing, majority of selling will be by very, very small kind of players. Now that's the reality. That's a fact on the ground. There is -- it's also true that there was -- or there is a large set -- large imports of furniture, which were happening mainly from China but also from Malaysia and Vietnam that were coming into the country. In fact, of the organized sector, even upwards of 60% was -- is being imported. There is another dot, which is that there is a large export of furniture from all these countries from the Southeast Asia and China to the western world that is happening. Now looking at this entire thing, you see that where India kind of fits in. The government of India decided on or identified furniture as a segment, which is to -- which can be used both for cutting down on imports into the country, increasing exports and for growing the local market. As far as our play in is concerned, definitely, the cushioning part of the furniture, we are already into it, and we do a reasonably good job. And the ability to compare and make foams, which are comparable to any or in the needs and requirements of any of these western countries, whether they acquire retardant ones or high resilient foams or which are anti-allergy kind of foams, et cetera, we have all that capability that we can do. Where do we now fit in into it? I think at the moment, we have all the ideas and thoughts and at different levels. There was a time when we thought that we could start by even outsourcing from within the country. But came corona. And what it has done is, one, the manufacturing units have suffered on their own. The second, they are also experiencing large orders, et cetera, which are needed now for catering to the country and for exporting. So that capacity seems to be also not available at this point in time. This is -- these are the facts of this. We could -- we have looked at setting up a very large facility, fully automated, with best of the inputs into it and tooling. But the sheer diversity of the furniture, the sheer way that it is sold, I think we still need to get some handle on that. We are in a learning mode as far as that is concerned. If a big structure or a big complex for making furniture comes up from -- by the government of India where everybody would sort of pull in, we would be happy to be able to supply foams and different kind of foams to it -- into it. Now have I answered your question? Probably not, but I just opened my mind and my heart out and put it in front that teaches all the present conditions, which is uncertain. But let it evolve and then we should be able. But on the intermediate part of the furniture, we're already there, at least on the foam part of it. We are testing by introducing beds and some beds which are revolutionary or which are different from what is existing today. And that part, we will continue to test and find out. A bed is a very normal thing that can happen in a showroom where we are selling mattresses. A sofa may not be that normal. So I think we're still just looking at all those areas and will revert back in due course here.

The next question is from the line of Vinod Malviya from Union Mutual Fund.

Sir, I just had one small question. That was regarding the IT business, which you all plan to start -- which all have started actually. Like has -- I mean, can you just provide me what kind of a capital have you all kept aside or how much capital you all will be deploying in that business over the next 1, 2 years to fund the operations? Any number to that?

Virtually 0. We already have with these -- I mean, whatever will be, it will be only in terms of operating expenses for space, et cetera. We don't need it for connectivity. We don't need it for any equipment. We don't need it. And it will be self-sustaining. We have not put aside any capital.

Okay. So I was coming -- yes because I was just looking at this company, it has almost like 200 employees right now. So business will take its own time to come. So there will be some operational losses, which would be fund -- which need to be funded. So any like number, if you can help me, on the operational losses, which the business will incur over the next 2 years?

So that part of it, I mean, whatever it is hybrid or if it's a separate subsidiary, but those people, those employees were already a part of the company. I mean, that expense we were doing. So there is an arrangement between the principal or between the parent company and that whatever we were spending on those employees has -- we are giving as monthly charges to them. And therefore, they don't require anything. That expense was already happening.

Okay. So it's just part of your parent company, now that gets shifted to the subsidy?

Exactly. As the jobs are coming in and as the projects are coming in, the people would be added. And that would be like one step after the other. There will be no step for expenditure on -- we have space, there is no problem. We have enough space in our corporate office, and the infrastructure is there. Everything else is there.

We take the last question from the line of Abhisar Jain from Monarch AIF.

Congrats for a good performance in Spain and the Australian subsidiary. Sir, my question is related to your opening remarks where you mentioned that organized is doing better than unorganized. So unorganized is not as such, completely washed out or completely closed. So just picking a little bit in terms of the company's outlook here that organized sector, sir, do we have some internal projections that what it could be in the next, say, 3 to 5 years from a 35% level that it is today? And whether the current increase, which might be -- we might see in these times in the organized sector that then can be retained or built upon by the organized sector as such? So if you can throw some light, it will be helpful.

Okay. Thank you for this question. What I mentioned in the opening remarks was that the -- from the time that everybody came to a 0 to starting and getting back to a normal level, it is that trajectory. In that trajectory, the unorganized sector is trailing behind the organized sector. That's all I said. Now whether it will reach up and catch up or not, there may be a little bit of a difference that may happen. But barring this COVID times, whatever was happening earlier would continue to happen, which is shift from the unorganized sector to the organized sector, and which may entail that some of the unorganized sector goes out of business or it may entail that some of the unorganized sector becomes organized and become a part of the organized sector. So I see that happening. And so what is currently, we look at this 35% of the market. I expect in about 3 to 4 years' time, this should be close to 50% plus of the entire market, the organized sector.

Understood, sir. Understood. That's helpful. And sir, do we also aspire or have a target in mind that, within that organized sector, we need to be much higher than 30% that we are today? Or will it be too much to ask for or difficult to achieve?

I don't know where -- that we are 30% of that -- of the organized sector. And aspirations for store, and I think the basic building blocks and the fundamental foundations are already there. And if there is any slip or anything else, which the other players in the organized sector have, we are there to fill that up and take it up. And definitely, the aspirations are to take that 30% to 35% or to 40% for sure.

Right, sir. Right, right. Sir, I mean, sir, that in terms of distribution also, we'll have to make much more efforts to achieve this and also lead this unorganized to organized shift? Will that be a right way to think about it?

Yes. I guess, when we go up each of the -- each part of the value chain will lead to our [indiscernible] will definitely need to do better than what it is. So whether it's the distribution channel, whether it is the number of people coming to the showrooms, whether it is the conversion that is happening of the people into buying or purchasing or it is the upselling that is happening, all that will need to improve. And the distribution part of that you said, for sure, the supply time to the distributors, the stock that they need to carry, the fulfillment that they will be providing to the consumer or customer needs to be quicker. All that will definitely happen.

Right. And sir, last question on the online channel, which you mentioned that is seeing a very, very fast growth now. Sir, so do we have any further strategy around it? I know we have a SleepX brand, which we sell there. But considering that the growth is so high, so would we have a further advancement of strategy or broadening of the strategy to get more benefit out of this channel?

I think we did already talk about this in one of the questions that was asked. And we see this as an important part. It is growing very fast. But please also remember that the base is very small, and therefore, the growth rate appears as very fast. We have the Sleepwell brand. We have the SleepX brand. We have their brand dotcoms. We are participating in the various marketplaces. And therefore, all -- I would say that all the courses are covered. Now we'll continue to do -- to keep improving on whether it's supply times or it is some products which are to be added to it, et cetera. So I mean, on the sheer coverage of the market, we're there.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.

Thank you. Thank you very much everybody for joining in. And as usual, the questions were intransitive, they were very pertinent, and they continue to be a learning exercise for me and for the entire team. I know that some of the questions, one was not very certain or one appeared as not very certain in answering them. But that is because of the uncertain times. We couldn't have made it. There are -- the change from end of March or the 23rd, 24th March to now, which is in August, the change has been extremely huge. And as I said, we -- the operations have come to a complete standstill, and then we have ramped up back to about 85%. So it does bring in a lot of uncertainty. It does -- the geopolitical situation has been changing across the world. The China factor has been playing out in many ways. And therefore, the answers may not have been to the point. I would say that the coming one -- or I would say, the coming 2 quarters should really be far more affirmative and far more certain as far as the outcome is concerned and the sharing with you are concerned. I do expect, like most of the world, that between the time of Diwali to New Years', we should be back to the pre-COVID times, if not better. At least some other geographies are showing that we could be better. And in the meantime, I make our earnest request for everybody that please stay safe for you and for your family. And if there is one input I can give you, it is only that if there are symptoms appearing on any day or at any time, do not neglect them. The first 1 or 2 days or 3 days are extremely crucial. If attended to, people get well in about 5 to 6 days' time. If unattended to for 4, 5 days, then they worsen, and there are cases of the lungs not -- continuing to have some scars, et cetera. So with those words and praying and hoping that everybody remains safe, and we bite this time, learn from it, make whatever changes that are necessary and look at all the opportunities. Thank you very much, once again.

Thank you. On behalf of Edelweiss Securities Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.