Sheela Foam Limited (SFL) Earnings Call Transcript & Summary

Hi. Good morning, everyone. Hope everybody is safe and healthy. And I think it's an absolute result to host the Q4 FY '21 results conference call of Sheela Foam. From the management, we have Mr. Rahul Gautam, Managing Director; Mr. Rakesh Chahar, who is Director; Mr. Tushaar Gautam, Director; and Mr. Dhruv Mathur, Chief Financial Officer. We at I-Sec like the long-term story of Sheela Foam because of the long-term opportunities in mattress industry with the consumers realizing the importance of good quality mattress and also the opportunity that Sheela Foam has to export its products to U.S. and Europe. We have a buy rating with a target price of INR 2,500 on Sheela Foam. I would now like to hand over the call to Mr. Rahul Gautam for his opening remarks. Thank you, over to you, sir.

Thank you, Kalyan. Thank you, Aniket. And thank you for moderating this call and introducing everyone. As is normal for us to start our meetings, we generally do that with our vision statements. So I will continue with that. Our vision. We will continue to be recognized as a leading organization in quality comfort products while practicing values of integrity, reliability, proactivity and transparency. To do business with a smile for customer delight and a commitment to society. Thank you. Thank you very much. And welcome all the participants. I know it's a Monday morning, and things take their time to start. And most of you are based on the western part of the country where the sun rises a little later than the other places. Times have been changing extremely fast. We are all witnessing that. I remember our last investor meet, which was on 4th of February. And at that time, the corona numbers had started going down or from a little before that, middle of January, they have started going down. I was the 1 who predicted that this is probably the end of COVID-19 and how wrong I was. The second wave is here. And has gone through a huge peak. Now again, we are witnessing that it is kind of coming down. And we are praying that there is no third wave. Though I do recognize, and I do get these feedbacks from that the cities, it has been going down, but the villages, it is still increasing. And the latest is that at least from the western part of Uttar Pradesh, that the number of people getting cured and moving out and the number of new ones that are coming in is the same state. But let's hope that this number keeps changing. Last few weeks or months have been absolutely horrible times. It's almost like a pralay, that's been there. And it appeared as if the government had also lost control for a while, though now it seems to be in better management position. I'm sure that all of us have experienced requests for medicines, for oxygen, for ICU beds, and in rare cases, even for places to complete the last rites. And everyone has lost some near or dear ones. I just request them that kindly accept our deepest condolences, which are definitely not enough. These times will go by, but the people who have gone will probably never come back. So deepest condolences once again. This time, of course, the corona peak is kind of coming down. But when I look at the recovery, I see that it's a little different from the previous one. Of course, we have the vaccine, and we have better control over the treatment of corona. But there is this fear which is lurking. The fear of having experienced near death or death in the family or near-death situations themselves. I know that Indians are resilient and are good at finding solutions for whatever things the state is unable to do, what the government is unable to do. For example, if there was a shortage of power, we knew that we could get a generator and do that small week, large any size. Water was polluted or clean water was not coming through water purifiers came into fashion into vogue. Air has been diluted, and we've got air purifiers to do that. But when it really comes down to mass health needs and requirements. And that too for a disease which is contagious, where no one is spared. And you cannot travel out or you cannot even travel to adjacent areas. This infrastructure is an absolute must. And that has been not there, and that has been a failure. Let's hope that there is better preparation. If there is any third wave or at least for the future that's there. And therefore, that fear is kind of lurking there in everybody's mind. We have seen that some of the states, Haryana and Punjab, where the markets were open for a short while for 3 hours, 4 hours, but the customers took their time to come back or are taking their time to come back. And therefore, I see that the recovery is also going to be. However, we cannot lose hope. And I think that this fear may actually be good because it may -- the opening up may be taking some time, but it may help to stop the third wave. And if we bank on the Indian resilience and the Indian faith in God, eventually, the government also getting its act right with the FDIs and the foreign exchange pouring in. And the basic fundamentals is still remaining intact, which is the political system is there. It's operating. The demographics are in favor of the younger population being there. The economic potential also being where it is. There is a lot of people aspiring to buy many more things. We are confident that things will be good, and we should -- all we need to do is to just put our heads down and go along and eventually catch up on the lost time that has gone by. Sheela Foam has continuously been doing its little bit in supporting this, the second wave or the impacts thereof. We have, like the previous times, we have donated a lot of recyclable beds, mattresses and pillows, which are our forte. They've also got caught hold of concentrators from abroad and donated them. Ambulances, medicines, oxygens. In fact, we also ran a small hospital for a while to ensure that people who were in contact could get some hospitalization that was there. And this we have tried to do right from Jammu and Kashmir down South to Coimbatore, et cetera. And we will -- we will continue to do that as the country prepares for better -- for the third wave, I'm kind of hesitating to say, but avoiding the third wave. Getting back to business plans. And for us, raw materials have always been very critical, at least the 2 raw materials, polyol and TDI. The volatility in the world continues. If I pick up from our last meeting, it has again gone through peak and kind of gone down. The interconnection, global interconnections and the sensitivities to anything happening in any part of the world is only getting worse. Though, 1 thing is better than the previous time, and that is the availability. Our belief is that the availability of raw material is going to be better. The impact will be more on the demand side. The other good thing is that the downward trend of the raw material has begun. And for the next couple of months, we should expect it to be on the lower end of the curve. Our 2 subsidiaries, Australia and Spain. They continue to do well. There is growth happening. Last year, there -- I mean, they have grown to the extent of ranging between 30% to 45%, and they have contributed a lot to Sheela Foam's top line. And we see that the future there is good, and therefore, are beginning to invest in facilities there to increase capacities. Our venture, the IT venture, Staqo, is also doing well. In fact, whatever was the target of the previous year, we have crossed that. And for -- and we have an aggressive plan as far as the next years which are to come. See on our CSR activities. We have continued through our Sleepwell Foundation to work on emotional wellness is very much required during these times. Business entrepreneurship programs. Surprisingly, when we made an offer that we could handle 50 people or 60 people at a time, the people who wanted to join in was in multiples of that and therefore, that's fastening, that just shows the effectiveness of the programs. Our army training programs have been also running well. So in spite of a lockdown, the CSR activities have actually been in more than full swing. Exports from the company have also picked up, and that is primarily to the -- it's reflected in the results as time. The only little problems here and there are more on the supply chain part of it, which I presume will get sorted out. In the last year, we did start our initiatives on managing or improving the environment and health and safety parts. So we have decided to do away with nonrecyclable plastics. We are working with companies to even recycle mattresses, which are used and are normally are dumped or there are some problems with them. So that program -- both these programs are on their way, and we will be doing it. Coming back to the financial part of it, you have already got all the results. On the consolidated side, the revenue has gone up 12%, primarily contributed by the Australian and Spanish subsidiaries. And the annual profit after tax has also gone up by 24%. Specifically, the quarter 4, where everybody performed well. I know the quarter 1 was when we had almost about 2 months or 1.5 to 2 months of at least a closure in India, Australia, and Spain were, of course were working. One more point that I just wanted to talk about was that we finished our Board meeting on Saturday, and there was a lot of debate on distribution of dividend. However, looking at the uncertainties, which we are -- as we said, it is the demand uncertainty, which is there, it may take a little bit of time. And therefore, there was a thought to prudently control the cash outflows. We have expansion programs, which is starting the big 1 in India, in Jabalpur. In Australia, we have a full-fledged production facility, which is coming up. And in Spain, there is the expansion program. So all these investments as looking to happen in the immediate future. And the Board was also advised us that in any case, whatever dividend you would be declaring 73% would be to yourself. And therefore, their position was that we should just wait for 1 more year. So with these words, I just want to thank you all once again for joining in. And supporting us in the last year, which was, as we know, not only unprecedented that something like that had not happened in the near past, but it was also unimaginable that something like this would happen, and we are going through that. So thank you very much once again, and we would be open for questions.

[Operator Instructions] We have a first question from the line of Nihal Jham from Edelweiss.

So 3 questions from my side. The first is, if I look at your segment-wise growth, what is interesting is that we've seen a strong growth in the foam core business. And I would assume that the mattress business also should ideally see a similar growth based on the past. So the shorter that may be a divergence in the 2, if you could explain. And related to that, we've always said that foam core is a business that the ideally want to see a lower contribution of coming into the future. So is this growth more an opportunity that exists in the market that we've tried selling? Or we expect that this is a business that will keep growing in the future.

All right. So Nihal, thank you very much. Now for the question. Let me just say that, yes, you're right, the foam core side has grown. But I think it is only reflective of what has been happening in the market. And I do not see that this will be the trend forward. You would see more and more of finished products happening and finished mattresses happening. On the other part of the question, Dhruv, will you respond to that?

Yes, he has only asked whether the foam core business is going to increase like this, and I don't think you already answered it. It's not going to alike that. So what else, Nihal, you can go proceed for your next question.

Sure. But Dhruvji and Rahulji, any reason why foam core has seen such a big divergence or matters, ideally the foam core is also something that in a way becomes an input for the other players to use those mattress. So that's what that why is that the end product sale and the foam core sale has such a big value then?

So Nihal, I see that. As I said, I see that as temporary. And 1 of the reasons being that during the last year, there was a lot of shortage of raw material, and we were the few who could sort of garner that raw material. And therefore, the form that we were producing, besides going into [ earthing, ] there was also a reasonable demand outside for that. And that is why that ratio would have kind of changed. But otherwise, I don't see any reason. It is just a temporary thing.

Sure, sir. That's helpful. I move on to the second question. This is most on the prospective of a subsidiary in Australia and Spain. So compared to the last quarter, there has been a contraction in the margin. I would assume that's because of the hike that happened in raw materials, and we would have used the higher price one. But any discussions on taking price increases in that category which you'll see margins normalize ahead? Or anything you want to highlight?

So both the places, there are regular price increases which are taken. In fact, in Australia, all our major customers have a rise and fall clause, which is related to the raw material part. There is -- as you rightly mentioned, there is a lag between taking that price and or give passing on the price increase. And therefore, it's just a question of time that they will get settled basically. As far as Spain is concerned, we've also been regularly taking price increases. It's a little more erratic as far as Spain is concerned because we are a very small player and we operate in a very large market. However, at least, I know in the Spanish, Portuguese area, the Iberia area, we are always the first ones to do that. And now that the raw material has started moving in the other directions, that position will get reflected in a different manner or will get reflected in the opposite manner.

That's helpful. Last question for my side is that, just any comments on the increase in the debtor and inventory for this year?

Can I take this one?

Sure. I would have asked you too. Thank you.

Yes. So Nihal, inventory has gone up by INR 63 crores, primarily because the raw material cost of polyol and TDI have gone up. And the second reason is that when you see the monthly sale, monthly sale for the current year is around INR 170 crores as against INR 146 crores of last year because this year, there have been only 10 months of operation. So we all confirm that there is no increase in the number of days of holding of the inventory. So this inventory has increased only because of these 2 reasons. As far as receivables are concerned, they have gone up by INR 37 crores. Now this is because, #1, the sales has also gone up, monthly sale, and there's a March phenomena also. In this March, we are -- we have sold worth INR 196 crores of worth of sales. Whereas in the previous March, it was INR 135 crores because you are analyzing the position as on 31st March, the number of days, again of debtors have not gone up. It is only the sales, which has gone up, and hence, the receivables are up. There is no other reason. Thank you, Nihal.

The next question is from the line of Shiv Kumar. K from Unified Capital.

Sir, I missed the opening comments. Can you update us on the present status of the prices of TDI and polyol? And how do you see them fluctuating over the near-term?

Shiv, I can tell you the current prices, which is polyol is about INR 205 or INR 204, and TDI is about INR 180. They have -- each one of them has gone up right up to INR 250. This is a downward trend that that is happening. You asked me a question that how do I foresee them? Honestly, I foresee them as fluctuating, but definitely moving down up to at least July end, for the next 2 months because those are the lean periods, everywhere in the world. But beyond that, I will not be able to hazard a guess here.

Okay. Sir because Q3 is our key quarter, do you think by that time, there should be some sense in the prices of these 2 raw materials?

Should be. Should be and at least as far as the other world is concerned, they are stabilizing. They are -- I mean, whatever are the number of ways that have already happened there. They're stabilizing. India should be stabilizing. And but I have been wrong, almost 80% of the time. So I will not hazard a guess as to what the prices would look like. But to my mind, they should hover between INR 152 or INR 175 to INR 200 level, yes. That's where it should be.

Right, sir. Sir, and can you throw some light on the emerging export opportunity due to the China plus phenomenon? Has there been any progress on that front?

So there has been progress. There has been considerable progress. But these things do take time for switch overs. And for capacities to be built in India. And then there is the supply chain part of it, which also needs to be taken care of. Availability of containers and ships and shipping lines all these things are being garnered. We are doing, both from India and Spain. And if I talk of the year that has gone by, there has been a lot of progress. And subsequent to, also, that progress has continued. I would not be able to speak the numbers. But it's in the right direction. The pace may be a little slower.

Okay. And we'll see some traction in FY '22 itself, sir?

Yes, yes, so. Sure.

Right. Sir, and 1 question to Dhruvji. The other OpEx was on the lower side this quarter because typically for INR 500 crores, you typically record some INR 130 crores, INR 140 crores of other OpEx. But this quarter, we only saw INR 100 crores. So is this sustainable?

No, no, this is a very deliberate attempt from the part of the company, where if you go through our results, you will find that the gross margins have contracted quite a lot. From 43%, they have gone down to 39% because of the raw material price increases. Now this was a deliberate attempt on our path to reduce our advertising expenses and selling expenses. So if you see the mattress sale is also lower in this particular quarter. So we contracted our expenditure on various fronts, whether it was traveling, whether it was advertising or selling expenses, only the variable expenses to sales were increased. And in the sale, which has gone up with the foam core, there's hardly any selling expense or advertising. So that was the main reason for contract of other overheads.

Okay. Sir, and are you seeing any drastic slowdown in the technical foam business again? Or is it flat compared to last year's volumes?

Rakesh, would you take that question, please?

Yes. So technical business last year has fared reasonably well, especially the automobile industry, which has actually not only covered for April and May lockdowns, it has also grown in volume and in value, both. And we -- and in fact, the China factor is also ticking in, and many segments, which either direct export or the manufacturers who are making auto components, white good components they're also getting more inquiries from both U.S. and Europe, which erst while you're going to China. So it is looking very promising in the coming year.

[Operator Instructions] We have a next question from the line of Gaurav from Axis Capital.

Sir, my first question is with regards to like what you see the sharp decline in SG&A this particular quarter. I do understand that there will be RM prices have been volatile. But as a long-term strategy, would the company consider absorbing some of these price increases and 2% gaining volume market share in the near-term or there will be a range of margins that the company has bias to make.

So thank you, Gaurav, for the question. We will be looking at -- whenever there is a need and requirement, we do look at price increases to improve this gross margin. But there is always a time lag between the time that you take a call and before it's kind of implemented. And as I have said many times before, that the 2 major businesses that we do which is 1 is the foam core business. The other is the mattress side. On the mattress side, whatever price increases happened, they don't come down ever. And therefore, 1 is a little more prudent in that and increasing. But then as prices keep coming down, that balancing begins to happen. On the foam core side, I've said that, of course, we have sold more foam cores last quarter. It's the question of time lag that is there. And it will play the reverse way when the direction is southwards.

Sure. And sir, will you be mentioning the kind of price increases that have been taken during this year in the mattress segment particularly?

Sorry, I didn't follow that. Can you just repeat it, please?

Yes. So the price increases that have been initiated during the year in the mattress segment. What's the components of the sale?

Right. No, no. So they have already been implemented, and they will continue to be where they are. We don't increase -- we don't decrease the prices ever, we have not done that as of.

Sure. Sir because generally, you take a 5% to 7% price increase every year. So this can fill in content this year.

So there are generally 2 -- twice a year that we look at them. One is around the beginning of April or the end of March for the coming 6 months. And the other 1 is somewhere around November, December -- sorry, October, November around the Diwali time. So we would review that position and see. But if the raw materials continue to go down, maybe we'll skip it. But we will have an eye on the gross margin and then take a call.

Sure. And sir, my second question is with regards to -- generally, we have seen in other industries, where in, there is a sharp increase in the RMs such the organized or the large player generally tends to increase -- gain market share. Has there been a similar trend that has been noticed by us as well in terms of market share gains from unorganized players?

So as far as share from the unorganized players is concerned, definitely, that has happened. And it's just that the size of the organized market has grown. And our presence in that has increased. Would I be able to quantify? It's probably not. We do have -- in the industry, we do have a regular survey, which is done 1 since 6 months. Rakesh is it once in a year or once in 6 months.

Yes. Once in 6 months.

Once in 6 months. And when was the last 1 done?

It was done in January, in fact, because of the lockdown, it has not happened for some time. So it was done in January. So now it is due to start again.

So when this will happen, it gives a deflection of, but our internal assessment is that the unorganized has contributed to increasing the size of the organized market. And our presence in that is as the numbers of mattresses so has increased.

Sure, sir. I would just like to place on record the sincere gratitude to Mr. Dhruv Mathur for all these help during these years. And also would like to welcome Mr. Davinder Ahuja.

[Operator Instructions] We have a next question from the line of Rahul Ranade from Goldman Sachs.

Just a question actually to an earlier reply of yours in regarding the question of mattresses and furniture core foam kind of growth rates. Even if I look at it for the full year numbers in terms of volume growth, your degrowth in terms of the furniture core foam is lower than the degrowth in mattresses. Whereas if we had a strategic advantage in terms of procuring raw materials, just trying to think wouldn't our branded business would have kind of grown ahead of the foam core business? Or how should we think of that, given the lower or the scarcity in RM shouldn't we have grown the branded business in sale of the foam core.

Rahul, thank you very much for this question. Interesting question. But when you think of the organized side, when you think of the branded side, everything to increase overnight doesn't happen. Because you need distribution, you need placement, you need the retail site to be in there. You need the consumers to be coming and all that process to be in place. It takes years to build it up, but it also generally happens in incremental stuff. On the other side, as far as the foam core business is concerned, that is because there is the shortage. That's -- it's a little lower than branded stuff, if that doesn't matter what the brand is. And therefore, the volume can increase overnight a lot and can also decrease overnight a lot. So that's primarily the reason. But on the branded side, it requires many more steps to be done, which take their time to happen.

Okay. I'd like...

Rahul, can you speak a little louder. Your voice is very low reaching us here.

Hello.

Yes. Better. Thanks.

Yes. No, no. I think there was someone else replying, sorry.

Okay.

No, I was saying -- I'm Dhruv. I was just saying that in mattress segment also, when you compare the absolute number of 593,000 mattresses as against 508,000. Please remember these 593,000 have been sold in 10 months. So there is almost 35% to 40% increase in the volume of mattress segment as well.

Okay. But even for the home core would be the level of activity would be for 10 months, right?

That's right.

Yes. So I'm comparing like-for-like then. I'm not in a mistake of comparing it. Okay. Okay. And just on the current activity levels, if you will kind of give some flavor of mattress stores? How are the walk-ins looking like? And how many of the stores are actually kind of even open and in the open stores, what are the walk-in looking like?

I don't -- number one, it's not a very good situation to talk about. It's -- I would put the stores as what -- Rakesh, would you help please, say 30%, 40% of them open on an average or 25%, 30% open and also open partially.

Yes. So I think the first 15 days of April, I mean we had, except for Maharashtra and Chattisgarh, we have most of them open. But if I see from, let's say, 15 April till now, so not more than 20% would be open. And rest of them are either open partially or they try to give delivery through their godowns, but that too trend is kindly. So there is no walk-ins as such. There is no business as such, but if there is any kind of a old customer who wants a mattress, I mean that kind of -- 1 is to 1 approach and then the dealer servicing the order, that's what is happening.

[Operator Instructions] We have the next question from the line of Binoy Jariwala from Sunidhi Securities.

My question is -- I have 2 questions. One is on the capacity expansion plan that you've outlined that we are adding capacity at Jabalpur. So could you just elaborate a bit what products will be manufactured? How much would be the CapEx? And when this capacity will come on stream?

Okay. So it's a full-fledged plant that would be catering to the existing markets and plus some new markets. And it will be -- the work has already begun on planning, et cetera. Which should be -- look, construction should be starting in the first week of October, soon after the rains, and we should be in operation by the middle of next year. That's the target. The total investment is of the order of about INR 100 crores here.

Okay. And with this CapEx, what would be your distance to the market? Because as I understand, the freight cost in this business is fairly high. And therefore, you need to have multiple brands across various -- across the regions. So is there any measure -- by any measure, have you worked out the distance to the average distance of the market?

So average distance to the market is always an important criteria for doing it. It's not only the distance part of it and the cost of freight. But it is also availability of a product in its local flavor, which is important. And I can -- what I would suggest is that if you could just send your mail identity, I will -- we can -- we can work out a little synopsis of that and send it. Otherwise to probably go through it might be long at the moment.

Sure, sure. Second is on the distribution reach. If you could help me with the number of EBOs, MBOs as on 31st of March? And whether Sleepwell as on date is also majorly distributed only through the EBO network?

So Sleepwell is distributed only through the EBOs network. There may be some exceptions here and there, but the attempt is always on the exclusivity part. As far as the number is concerned, Rakesh please respond to that.

Yes. So EBO, we would be close to about 4,500, and MBO would be about 6,000.

So Rakeshji, have we rationalized a bit of this network? Or this is just in the normal course that it's fallen due to lockdowns and...

So it has not fallen, but there is a certain amount of pruning that is done on 2 accounts on nonperformance and also on exclusivity violation. On the other side, we also continue expanding. In fact, despite the lockdowns and adverse conditions, we were able to meet our expansion targets. So as now, the total number I've just given it a round figure, but it will be closer to about 4,800 or so. And MBOs are about 6,000. So there is no contraction as such. So there would be incremental if you see on an overall basis on the EBOs.

Fair enough, fair enough. My last question, if I may squeeze in. Most in this year, in FY '21 we've seen a sharp increase in the raw material, and that reflects on the gross margins. Now this gross margin has the contraction in this gross margin has been counterbalanced by lower other expenses, mainly coming from lower selling and marketing expenses. Rahulji, once the situation normalizes, our network is operational. Assuming this, where do we see selling and marketing expenses settling down?

So my thoughts on that are this that when you bring anything down by some extent or by some sizable extent. You always find that there are areas of slabs which were existing. You could have increased your efficiencies, could have made those improvements because as you contract these expenses, you also look for efficiencies of operation, et cetera. And then when you are going to go back to them. So all I can say is that the effectiveness is not going to reduce. Effectiveness will probably only increase but the costs may still remain low because we would have learned to do more with less. And whatever is needed in the markets as when they open up will be done and will be there. However, we may have the advantage of organizational learning for -- from a cost perspective.

So is there any -- is there a number that we worked out with regards to that x percentage of the cost has been pulled out of the system? And this was -- this will be away from the system and not -- even when we return to normalcy, I mean it won't come back in the system.

So I won't be able to give you a number. Yes, sorry. Dhruv, do you want to expand on that?

Yes, yes. So our normal advertising expenditure is 5%, and we have budgeted for around 4% this year. And the selling expenses, which were around 12% on normal scale, we have budgeted 11%. So of course, in this quarter, they are much lower. So this is the percentage we are going to work in a steady period.

So we have the next question from the line of Hiren Trivedi from Axis Securities.

Sir, 2 questions. One is what would be the CapEx for FY '22, given the investment in Jabalpur, Australia, and the expansion in Spain? And second is with regards to the raw material for -- raw material costs for FY '21. So would it be possible to share the percent -- in percentage terms, the TDI and polyal cost out of the raw material cost for the full year?

Dhruv? Take that question.

Yes, sure. So as far as CapEx in India is concerned, out of INR 100 crores, this year, we will be incurring around INR 70 crores on Jabalpur. For export, we are going to incur around INR 30 crores and the normal CapEx is going to be INR 45 crores. For India operations is INR 145 crores. For Australia, the total CapEx requirement over a period of 1.5 years will be around AUD 20 million. And Spain, initially, it will be around EUR 2 million, EUR 3 million only. And subsequent expansion will be taken care of next year. And as far as your question about TDI and this constitutes around 20% to 25% of the net revenue. But it's very difficult to say because it used to be one fluctuating so much. For example, INR 100 to INR 250 they've gone. So this percentage keeps on varying. But on an annual basis, you can take a ballpark figure of 20% each for polyol and TDI.

We have a next question from the line of Avinash Nahata from [ Vermi ] Financial.

My question is, what is the internal assessment of the management team as far as the finished products contribution over the next 2, 3 years, I mean, the finished products, how would they contribute to the company from now onwards over the next 2, 3 years.

So I mean, the direction is absolutely towards increasing that percentage. And if I would look at 3 years down the line, I would say they should be constituting about 75% of the turnover and 25% would be in the other stuff.

We have a next question from the line of Radhika, an individual investor.

So I have 2 questions, first around your online sales. If you could throw some light on how much the online sales contribute to the overall revenue and how is that moved from FY 2021? And my next question was around your low-price mattresses, Starlite and Feather Foam. How much would that contribute to the revenue?

Okay. Thank you, Radhika. Rakesh, would you take both the questions please.

Yes. Yes. So as far as the e-com is concerned, last year, we grew by about 70%. And we have aggressive plans for the coming year also. And as a percentage, I mean, it's the recent kind of start that we have done in the e-com area. So on Indian operations, the current contribution would be close to 3%, 3% to 3.5%, but it is rapidly going up.

Understood. The margins in the e-com business will be higher.

So not really because e-com, that market, especially in the marketplace, the product pricing is very competitive. And so the selling expense relatively are lower, but the selling price is also less. So the gross margin at best would be similar, if not a little lower than the offline. So that is the current state. That is the current state. Hello?

Yes. Am I audible?

Yes. Yes.

Just one question on that, then what's the pricing concept with the offline sales?

So it does. So we have a brand SleepX. So we operate in marketplace through SleepX. And we have brand.com, where both for SleepX and for Sleepwell. So there, we have the regular products of Sleepwell that we present to on the website. So as such, there is no conflict, but the retail going forward, the retail is also, I mean, seeing this emergence of online sales. And so there would be new models of distribution, which would be emerging. And so as the industry, the industry is finding the right way to strike that balance. So I would say that we are not still really matured enough to get to a -- I mean, let's say, a free movement of products and price across the channels. So but it is -- it is in the -- it is like work in the process for the industry. The industry is trying to find the best way out. So currently, yes, you're right. I mean, you'd often get into conflicts with the offline. On the question of Starlight and Feather Foam, they are tracking well. So now they're being distributed mostly on the MBO side. And so therefore, the potential is very high. And last year, let's see, if I only talk about MBO business, so we would have grown almost about more than 40% on the sales to MBOs of Feather Foam and Starlite. So that's another very promising area in the coming years also.

We have a next question from the line of Pankaj Tibrewal from Kotak Mutual Funds.

My question is that in good companies, we have seen that prices have a little base state.

Your voice is not clear.

[Foreign Language]

Can you hear me now?

Better, very better.

So Rahulji, what I wanted to know is that in any comfort company, prices is always an opportunity. I just want to get a sense from you that how you guys are looking at this crisis in terms of driving the growth for the next 2, 3, 4 years? And once this thing starts subsiding, and what form and shape can we expect your company to announce? It could be both on domestic, it could be on export, it could be overseas. So some color and flavor that how you guys are using this prices would be helpful.

Thank you, Pankajji for asking this question and completely agree with you that all prices generate opportunities. And in fact, the bigger the prices, I think the bigger is the opportunity. So -- and what we have seen in this is that whatever are the strengths of the company, they get accentuated and you can leverage them better. And in fact, whatever are the weaknesses, they also get bigger. And therefore, when we analyze it internally, we see if you look at the strengths, which are the brands, the widespread manufacturing, the distribution, the R&D capabilities, the multinational nature of the -- or the multinational presence that we have these are all strengths, which we see flourishing on which we see coming to our aid and to our help as we move ahead from this crisis. The other side of it is really the weaknesses. And we constantly, look, we are a little over critical about that as far as the weaknesses are concerned, which happens with any mid- to large size or a mid-sized organization growing, which is complacencies and bureaucracies and the slowness that kind of comes in with all decision-making, et cetera. So we have a program going on, where we analyze each one-off. We are analyzing each 1 of them and finding ways to remove these weaknesses just to ensure that the sense we are able to harness them and sort of potentialize them as much as possible. The environment or the scenario, which is going to change. And I will just take a few examples. This is a subject. We can spend a lot of time, and I would request a separate call for this. But for -- 1 is the opportunity, export opportunity, which is the U.S. exports. Primarily going from China. Today, China is no longer the preferred nation, and therefore, that opportunity has come to India. How much is a country and as a company will be able to potentialize that is a bit of a question mark. But already begun opportunity large. The second thing that this thing is the sourcing of raw materials. The raw materials and the ability to get them, make them available and get them at the right prices. It needs work, but the direction has already set in, how will we improve this capability. Third is on the issue of people preferring brands compared to just buying anything. And we have our program, which has laid out, of course, at the moment, sort of contained because of lockdown position. But the -- growing the brand, it will be something that will be seen as soon as we have some semblance of order that is happening. So these are few things which we have done. And then, of course, on the removing the weakness inside of it, we do have programs just to make us more robust and more quicker maybe have the mindset of a startup, while still having the advantages of a large company of a big company. On our outside subsidiaries, Australia, touchwood, is very well-established to increase whatever the extra opportunities that have come by. And we are growing the capacity there because the current 1 is just not capable of handling. So -- and business from order of $60 million is already at a level of about $80 million that's been happening. On the Spain side, as I said, we didn't have enough time to integrate the company. We got acquired it in October 2019, and then certainly from January onwards, there was the onset of corona. So set integration process, same ARP system, meetings and all that kind of things that they are happening, but they are not up to the mark. That's 1 area, which is of a large market, we just have 1% share, and therefore, it doesn't matter even market shrinks a little bit, the opportunity to grow from there will be large. But we can, on a separate call, we can talk a lot more about it, how we are doing and what will the company look like in about 3 years' time.

[Technical Difficulty]

[Foreign Language]

Can you hear me?

Now better. Yes. Yes. Go ahead.

One thing which has been missing in this call compared to the previous call has been your furniture story. I mean you always have alluded as 1 of the growth drivers. But somehow of this time, no mention of that. Can you help us understand that?

Yes, sure. So it's not a forgotten thing. But the step was that we decided to be in 2 segments of it furniture is a very large -- very large segment and very diverse ranges from cupboards to beds to sofa sets, so everything is there, which also are sold differently. So we have identified 2 areas. We have made our -- based on the properties that we want to offer to the market. We already have the prototype study. Waiting for a pilot to happen. It should have happened a couple of months back when it was slated. However, because of the lockdown, we signed into it. From the moment the lockdown opens within a month, we would have sort of started our pilot, which will be at a good scale. And taken our feedback to decide what they want to. It's not forgotten. It's there. But we just wanted to be 100% sure of what and how we want to offer and the way it is. But all the designs and everything they are ready. Pilot is ready to take off, and we're just waiting for the opening up.

[Operator Instructions] We have a next question from the line of Avinash Nahata from [ Vermi ] Financial.

My question pertains to export opportunity from Spanish facility. How does the unit economics work in terms of exports, lead distance from Spain to the rest of Europe and to the United States?

Tushaar, would you please take that question?

Sorry, I was on mute. So I think the Spanish opportunity is in a bit of -- not, I would say, up and down in business terms, but up and down in terms of how we are feeling about it from a comfort standpoint, it's just straightaway post the acquisition, all the lockdown and travel restrictions and the pandemic related sort of issues took over the whole world. That's been happening for the last 12, 18 months. So on the 1 side, the business, Touchwood, has done well. It's done well at a local level. It's also done extremely well to start and start to scale up the export opportunity to the U.S. It's ahead of India in that sense and the visibility of foam orders to the U.S. market is only increasing as the weeks go by. On the other side, we would like the business, the people, the organization to start integrating into the larger company a lot faster as thing gives out. So little more travel, the ERP, and the IT systems being the same, more integration on gross learnings, on things like that. So those pieces have been slower than we would have liked. Naturally so. And I think it's been a bit of crisis, managed crisis, management has been, let's say, a raw material shortage. We've been able to support constant conversations over phone or Zoom, on Google Meet and those kind of things, but a little better integration into the organization over the next months and years. As far as the U.S. business is concerned, it's done well and it's only going to improve from here?

Sorry, my question was more to understand where the destination market is U.S., people exporting out of Spain and the local competition from United States. So how the unit economics and lead distance work?

So Spain, in general, Spain is from a transportation, of course, better than India. I think the unit economics, the fair comparison would be from China and not really from local U.S. producers for various reasons. I think local, that market already or that obstruction already shifted outside the U.S. many years ago. Part of it might come back as the entry restrictions and trade war and all of that's happening, but we don't see too much of that. Customers are very comfortable outsourcing. They are just looking for a second base. And in that sense, I think not so much to us, right? It is quite surprising that [Technical Difficulty] is overall able to compete. It's not a very high cost particularly in any sense of management. It's fairly competitive. The only yardstick we have is we have target customers for prices. We have what they were buying at from China, and we are very able to profitably supply that and compete. So yes.

Okay. A small add-on is -- so U.S. as a market. So the outsourcing, China contributes to what percentage? And what is the rest of ex China?

So mattresses, to the best of our knowledge is about a $6 billion to $7 billion annual industry in the U.S. and approximately $1.5 billion was getting imported.

As there are no further questions from the participants, I would now like to hand the conference over to the management for closing conference.

Thank you. Thank you very much. I just want to -- once again, thank you, thank you all to be putting up great and very incisive questions. And like always, they are a learning for us, and we can put that -- those into use. I know that we have passed through terrible times or actually are continuing to do that. But to look for better times soon. And a lot of players and expectations not only for corona kind of going away, specifically for our industry for the normalizing to happen for EBOs and MBOs to open and people to start. [Technical Difficulty]

Your voice is gone. Hello? Hello?

Yes. Prakashi, maybe you can fill up?

I think his line is also not there Rakeshji.

I mean maybe we can wait for some 30 seconds. So what is the process? You'll have to call them again, I think.

Yes, that's connecting and reconnecting.

Yes.

Please go ahead sir.

Sorry, this got kind of locked out. So I just want to say that we would be getting foster in our responses and quicker and probably not so much of 0 price, et cetera, and time to line stuff that normally creates in. So we will be -- we are getting better. We would be a better company, taking full advantage of the opportunity that is some. We, of course, didn't want corona to happen. However, it did. But whatever are the opportunities we will take full advantage of them. We'd also look at India as a continuing advantage, not so much impacted by what has happened in the recent past about shortages, et cetera, of health care. But I think these are now issues of the past. So with those words, I just want to thank you once again, and look forward to meeting you somewhere in between or definitely at the next investor call. Thank you very much.

Thank you. Participants on behalf of ICICI Securities, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.

Thank you.

Thank you.

Thank you.

Thank you very much.