Sheela Foam Limited (SFL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Sheela Foam Limited Q2 FY '22 Results Conference Call hosted by ICICI Securities Ltd. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bhuwania from ICICI Securities Limited. Thank you and over to you, sir.

Thank you, Faizan. So good afternoon, everyone. It's an absolute pleasure to host Q2 FY '22 Results Conference Call of Sheela Foam Limited. From the management, we have Mr. Rahul Gautam, Managing Director; Mr. Rakesh Chahar, Whole Time Director; Mr. Tushaar Gautam, Whole Time Director; Mr. Nikhil Datye, Group Chief Financial Officer; and Mr. Davinder Ahuja, Group Finance Controller. Now I would like to hand over the call to Mr. Rahul Gautam for his opening remarks. Thank you.

Thank you very much, Karan. Thank you very much for arranging this call and for moderating this call. And as is the normal practice, I will start with our vision statement. 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 very much, everybody, for patiently bearing with me. I just want to start this call with 3 information from the company. One is that our last auditors had finished their 5-year term. And therefore, we have new auditors, which is an international firm called BDO represented locally by MSK, and they have carried out the audit -- the first audit for the quarter that we are representing or that we are talking about. The second information that I just want to share with you is that in the company, we have created the position of CEO for the India business. And Mr. Tushaar Gautam, who is an industrial engineer by profession, also a Masters in Management from Oxford and with 20 years of experience in the company, takes over this position. This should help us in consolidating the India business, which was earlier happening at the MD level. So it will consolidate at a -- one level earlier and therefore bringing in the focus that is necessary for all the kind of decision-making that is there. It will also help the CMD of the company to focus on strategic matters and would definitely free him up for that. The third information that I want to share with you is that the company has formed a 100% subsidiary called International Comfort Technologies Private Limited, and this is to cater to all the new businesses which we are -- which we have already entered or about to enter, businesses like exports, the rural business in India and the e-comm business. Each one of you are aware of the corona situation probably much better than me. All that I can say is that there appears to be an uneasy calm which is existing. And everybody has -- is just thinking and talking about the third -- the so-called third wave. I hope that it just remains as only a talking point. And at least in our company, what we believe is that Diwali should really be the testing point. And post Diwali, maybe give it another 10 days to see if there is any blowup of the corona infections or not. But in the company, we continue to take full precautions. We still have alternate days of working as far as offices are concerned. And I'm also happy to communicate that 99% of the company employees have at least 1 dose and at least 65% and above have a second dose which is there. On -- staying on this corona topic, I would also like to congratulate not only the government, the country, but actually all of you and all of us for really reaching the 1-billion dose number, which is very, very creditable, and I am sure that it is helping in controlling the corona. Coming to the second quarter FY '22 results which have been shared with all of you. I must say that we are still a part of the unstable environment which is existing. Just as an example, generally, if you look at pre-corona times, the quarter 2 always was the weakest of the lot. It was the time when the rains were there and the monsoons were there, and it was the time which was just before the third quarter, which is the festive quarter, quarter 3. But I'm happy to share that the quarter 2 has had reasonably good results. We have done well for ourselves. There has been a 29% increase on the corresponding quarter of the last year. And even if I look at the previous quarter, there has been a 40%-plus increase towards -- over that period. And that's what I said, that the corona has changed these definitions and these frameworks under which we have been working. Of course, the biggest impact of corona has been on the raw material part. It has -- I remember that from day 1 that we have been having the investor calls, raw material has always been a major topic for discussion. There appears to be no respite currently. Actually, our -- the entire supply chain, right from the crude to our raw materials, which are polyol and TDI, had become so complex that it is lending a lot to the instability. Over and above that, we have -- in driving efficiencies, et cetera, cutting back on buffer, making stuff just on time, the whole system has also become very fragile. So with this instability or with this complexity and with this fragileness or the fragility to it, the whole system behaves extremely poorly whenever there is any kind of disturbance that comes in. And then, of course, with a big disruption like corona, the system has gone for a [ toss ], and stability appears to be -- at least to my understanding and my forecasting at this point of time, I would say any kind of stability we should really look at least a year down the line. And to top all this up, our understanding is that China, which used to be more than 30% manufacturers of the raw materials and supplier to the world, has now aspirations which are for global dominance. And to achieve that, they're doing things differently as far as their internal economy is concerned as well as the external impacts are concerned. For example, returning back thousands of containers of Australian coal or clamping down on so-called capitalists within the country, et cetera. So I think these disruptions in China are also going to lend their impact to the instability that kind of remains there. With this in mind, I just want to assure you that we are preparing our best or we're trying to put out best foot forward on this. And there are some things -- some steps that we have taken on a very short-term basis but also on a medium- to long-term basis so that the impact to us and the company are as minimum as possible. Our subsidiaries continue to do well. So Australia, which was impacted for at least 2 months-plus on account of corona, has taken -- had made -- has made a strong recovery. And now that the corona bit is over and the cities are opening up, it is coming back. On -- as far as Spain is concerned, it has always remained strong. It has been growing well. And the corona seemed to have far a lesser impact as far as Spain is concerned. Those people already consider it to be history and to be kind of forgotten. The -- one more topic which I would just want to introduce is ESG, which is something that all companies are talking about, which is evaluating companies based on nonfinancial aspects of the company, the environmental impact, the social impact of the governance aspect. We are also integrating all of them together and ensuring that our other -- our earlier initiatives or earlier actions as far as CSR activities and as far as the safety, health and environment activities are concerned, how we can merge all this together and to make it a far more compact effort by the company in addressing the ESG, the part of it. So with this, I just want to thank all of you for joining in. I know it's a Saturday, and I know it's the afternoon of a Saturday. But you have taken out the time. I just want to thank you for that. And now we would be open to all questions. Thank you.

[Operator Instructions] First question is from the line of Nihal Jham from Edelweiss.

Yes, and congratulation on the result. And also, congratulations to Tushaar Gautam. We are [ looking forward ] to working with you. To 3 questions from my side. First is, given the kind of raw material volatility that has happened, where I think in the middle of the quarter the prices spiked, but on an average, both TDI and polyol ended up reducing versus the earlier and now they're back again, so what are the kind of price hikes we have taken to potentially mitigate this impact? And given the environment that you also say that you see a year ahead of instability in potentially both the RM, but -- how are you going to approach the volatility in raw materials as it keeps coming in the times ahead also?

Okay. Thank you, Nihal. So as far as the approach part of this concern, I will take that, and I will let Nikhil answer on the increase and the impact of that on this. So the approach is definitely to have some more buffers. It is definitely to review all the products to see that are there still layers that can be removed, can we have better products, and to make our offerings better. So these are by and large. And of course, whatever are the relationships that are existing with our raw material suppliers, just to strengthen that deeper view, which is a little more or a little distant view as compared to a bank in India, but a little beyond that. And those are a few things that we are doing. They are having their impact. I would like to talk about it maybe next time or about 15 days or a month after now. As far as the raw material price increases are concerned and the impact that have been there, Nikhil, would you do that and maybe take help from Rakesh C.?

Yes, sure, I will do that, sir. Thank you. So Nihal, thank you for those questions. And let's -- while it is important question, it may not have a very straightforward answer. I will break the question into 3 parts. So as far as raw material volatility is concerned, you're right. At the beginning of the quarter 2 raw material prices had ticked up. After stabilizing for some period, it again started rising up. So we can clearly sense that and we see the trend. And this has multiple issues. And there are issues in China, there are global supply chain issues. And while we were expecting raw material prices to stabilize, I think it is still far away from that [ actually ]. And it's not only the foam industry or our mattress business. I think this issue is across the spectrum. And commodity inflation is something which every company is struggling with and every company is challenged with the situation. And obviously, to -- as far as quarter 2 is concerned, we still have taken price increases in our mattress business. In our foam business, we have followed the price graph overall, [ leader ] price graph, and have adjusted the prices. It is very clearly reflected in our gross margins also for this quarter, which is a combination of price increase as well as the softening of the raw material. And that's clearly visible compared to the quarter 1 of FY '22. The gross margins have definitely bounced back. So it's, again, a combination, as I said, of softening of key raw materials and also the price increases which we have taken. The price increase and raw material changes obviously also have some lag impact on account of quantity of inventory we are holding, our forecasting versus in reality what is happening on commodities. But by and large, I would say that we definitely are taking steps to pass on as much inflation back to the customer. But too frequent price changes also shake up the marketplace, and there are limitations to that. But despite of that, all efforts are to continue to protect the profitability. And that is clearly reflected in our quarter 2 results as well.

And just a follow-up on that is that a lot of the recent hikes that have happened, have you taken a price hike to cover our margins?

Yes. Yes, to some extent. I mean you are talking about, I think, the raw material price increases, which are happening...

For third quarter.

Within October?

Yes, in October.

Yes, yes. So to combat that, we already have taken some price increases. And -- but again, the important question is where this inflation will go and stop. So we are keeping a watch on that. Our ability to take price increases is definitely there. But to what extent we should do it and what extent we will also have ability to do it and how much lag impact it will carry. So quarter 3, obviously, is going to be a very interesting quarter because of the volatility.

Understood. The second question was on this CapEx that we announced, I think, at the start of October. You had always dreamt of a plant at Jabalpur. I think the second one is something that is new toward -- we were aware about. But specifically, as we've always understood with Sheela Foam, is that the requirement of the plant is more from a perspective of logistics. So is it anything about these new plants where serving these specific segments, as you mentioned, e-comm, rural and export, that there is a different kind of a product or anything that we are contemplating? That is why we are saying that specifically, this subsidiary and these plants are dedicated to the same? Because I would assume the product profile wouldn't be too different and it can be manufactured in any of our existing plants. .

Well, Nihal, you're right and probably not so right. Both things are happening. You're right, in the past, it has been on account of geography that we have located our positions. And it was always the freight [ with all respect to that ]. But now it's -- there are 2 aspects to it. Number one, there is an increasing complexity in the business. And therefore, it makes more sense to put a few of them together which are of similar nature. Otherwise, the operations become really difficult to handle. The second part is that there are -- some of them are new businesses. So if it is a business which is for export, it has completely different flavor, but it needs to be compressed and tracked and transported. And it needs to be closer to a port to save further costs. If it is a business on e-comm, it needs to be more centrally located where logistics are far better, et cetera. Again, compressed and then kind of transported. And the third part is that as far as Jabalpur is concerned, always said that it's a newer technology which we are bringing in, a new -- completely newer dimension to manufacturing foam which we do not have anywhere else, though we have similar lines in Australia and Spain and, therefore, are familiar with it. But in India, we're not there. So this will have the ability of producing newer products as well as the same products but with better quality.

[Operator Instructions] The next question is from the line of Swati Madhabushi from Comgest.

This is my first time speaking with you guys, so please bear with me. My questions will be basic questions.

Sorry, ma'am, the audio is breaking from your line.

Can you hear me now?

Better.

Okay, sorry. I just wanted to repeat this is my first time speaking with you guys, so my questions will be pretty basic. So please bear with me. My first question would be, what are you doing on, if you will, the top 3 things you're doing to gain market share for your back-end business, that is the B2C business, down in South, where there are other large players and maybe your market share is not as high? What could be the top 3 things that you're doing? If you could help me with that.

Rakesh, you want to take that call, please?

Yes, okay. So we are definitely looking at increasing market share because there also has been a shift which is visible from unorganized to organized. So we are trying to tap that. And in fact, I want to also introduce products to accelerate that. That's one area that we are looking at. Second, we are looking at strengthening the retail, the consumer experience. So that's another area that we are looking at. And the third is we are looking at exports, the opportunity which has come by, and it looks very promising. So that's another area again. And plus also the e-comm. So we have been a late entrant in that. So we see that market growing exponentially. And therefore, the -- we see that also as an opportunity to grow. So that's also the fourth area that we're looking at.

So Swati, just to add to what...

Just one...

Yes. Swati, I'll just adds to what Rakesh C. was saying, I think your question was a little more South oriented and saying that some of the bigger players are coming from there and, therefore, what is our [ strategy ]. So we have put together a program. And it may not be very appropriate to talk about it right now, but with absolutely extra focus, especially on the product side. And I would be happy to connect offline and take this and explain this a little better, more so, as you rightly said, that you are asking for the first time.

Oh, okay, sure. That would be very helpful. And the second question, I also want to understand on the B2B business, right? So yes, we always look -- I mean, by foam, we always look for franchise like moats. I understand even in the B2C business, you are a brand. But if you can help me understand what is the differentiator here. Like you have the largest...

This is the operator. The audio is now breaking from your line.

Yes, Swati, the audio definitely.

Hello? Is this better?

Yes.

Yes, sorry, I don't know what's happening. So I wanted to understand on the B2B business. What is the moat of the franchise? Like do you have the biggest -- I mean you -- I mean, I'm sure you have the biggest scale there. You are the largest PU foam manufacturer, so you would be one of the biggest B2B players. But apart from that, what is the differentiator like key relationships? Is there a concentration risk? I mean from reading your annual report, et cetera, I don't get too much sense on the B2B business. I understand it's a tricky thing to explain. But if you can give me some more pointers there on what makes that business, the B2B business, especially in India, so unique. I understand in Australia, you're the biggest player with 40% market share. But in India, I'm assuming it's more fragmented and commoditized. Can you give me some color on the B2B India part?

Swati, thanks. Thanks. As you rightly said, it is a pretty complex thing, but I will attempt. Undoubtedly, the B2B business is very fragmented in the sense that it depends on the segment. So the shoe segment is different from an auto segment to -- different from a [indiscernible] (44:01) segment to -- different to a toys or a packaging, et cetera. All these segments have a requirement which is a little beyond just -- than the comfort part of it. Foams are supposed to provide comfort, but they have needs and requirements that [ stay ] above that. For example, if we are making foams for the canopies of silent generators, the foam needs to have sound absorption capabilities. If we are making foams for the auto industry, then they need to be fire retardant or flame retardant. And so like this, there -- each segment has a technical need or a requirement which is over and above just the comfort part of it. So I think we as a company, starting from our raw materials to the R&Ds that we can -- we have generated to the manufacturing processes and the equipment that we use, we are able to produce foams with these extra characteristics repeatedly again and again and again. And that's -- that helps us to take it to this market. You did talk about relationships, and relationships take a long time for building, and it's -- they have taken a long time, and they are there. That's it. And I think the third and important part to it is that we have options of manufacturing these products at 5 and now probably going to be 6 different locations across the country, which helps to save on freight costs and also provide just in time to the actual users. I hope I have given some answers...

It's -- no, no. Yes, that definitely helps. But what I want to understand is, that -- is that -- is there pricing power here? Or is there like market-determined pricing and you have the scale? I just want to understand the technical part of it and so like -- that can help you command pricing premium compared to others?

So let's put all those things first which I said, all that together, which is the relationships, which is the variety that you can give them, the quality and the technical needs and requirements and --- et cetera. And beyond that, there are also the research and development capabilities because some of these actual users do want to develop new products as an ongoing thing. They also need and require that your safety, health and environment issues are well accounted for. So putting all this together just make us as a good option for the consumers to continue with that. And, I mean, it's a bit of scale and it's a bit of variety and a bit of this and bit of that, bit of the technical capability to do it. For example, if we look at the shoe business and you look at the [ laundry ] (47:32) business, there needs to be UV-stable foams which do not yellow as far as the sunlight is concerned. So to be able to do that, to be able to do that economically and compete with, if nobody else, at least the imports which are coming into the country, I guess those are the things that give us advantage.

Sure. And so in Australia, you have a 40% market share. But in India, how fast -- I mean, even if you can't give me your own market share, would top 5 players still be like a good chunk of the industry? Or is it too fragmented?

It is fragmented. It is fragmented. We may be the largest, but it is fragmented. I mean as you go down beyond the first 5 or 6, it just gets very fragmented. And the very reason for that is that you'll need to produce it as close to the market as possible and therefore more and more people. That's one. The other is, of course, our -- besides the B2B business, the general open market, qualities are not that relevant [ to ] prices, and there are ways to make foams which are -- may not be adhering to a certain quality but which can be done on -- very cheaply like [ ketchup ]. But let me just add to what you -- the question that you asked, and this is a thought that is coming to my mind while I'm speaking to you, is that as the fluctuations in the raw material and the high inflation in the raw materials continue, it is becoming more and more difficult for the smaller players to exist and to compete. So maybe if not the next time that we speak but a year down the line, the fragmentation may reduce a bit.

Okay. Understood. I mean last question from my end, then maybe I'll connect with you for the one-on-one. So if we -- if I split the business into 4 parts, India B2C, India -- I mean, B2C, India B2B, then Australia and Spain, which part excites you the most right now with respect to growth prospects and opportunities?

So India B2C for sure because B2B businesses are completely dependent on the user industries, how quick they grow. So it'll depend on the auto industry, how quick they grow, the shoe industry, how quick they grow. But India B2C and Spain. Australia is a pretty stable, mature market with 20 million people, 22 million people and not growing and matured. The market has matured. Everybody has enough of mattresses and sofas. Spain definitely excites because of its location. Very small in the entire European market. Ideally located for U.S., North Africa and the entire Europe. And it has a very small share in the market. And so therefore, the capabilities or the opportunities to grow are big and large there.

The next question is from the line of Arjun Khanna from Kotak Asset Management Company.

Sure. Congratulations to Tushaar for the new assignment. Just a couple of questions from my side, sir. The first one is just on the distribution bit in India. You did mention that things in India are seemingly closer back to normal while we are in a volatile environment. How is the distribution -- or how are our distributors coping up? Maybe you could talk about our exclusive and multi-brand outlets separately. How do you see that actually pan out over the year ahead? Are we looking at addition to our exclusive outlets? And you came up with a number of products for our multi-brand outlets. If you could talk about those 2. I'll come with my second question next, sir.

Well, Arjun, thank you for asking the question. Undoubtedly, the distributors or the distribution channels are facing similar issues as the other businesses. They are under stress. And it is really not the -- at this point in time, it's not really the volume of business, but it's also the fluctuating nature of business. Where -- if the prices to go up and down, that's -- even if there was inflation, at least one can find ways and one can sort of settle down and one can then accept reality and kind of move on. But come the next 15 days and it fluctuates again, fluctuates a bit. So they are all under stress. But we are very hopeful that sooner rather than later, these fluctuations will at least stop and the opportunity for both EBOs and MBOs to grow is large. And as I was mentioning, that if you -- the shift from the unorganized to the organized part, that will take place. The good standard MBOs and the goods standard EBOs, both of them will have a positive impact on that account. And they both are poised -- they're both poised to grow. It's just that the current position is stressful.

Sure. Sure. That's obviously understandable in this environment. Just curious, sir, just on the raw material because we did talk about, I think, 3 to 4 quarters back that maybe you'll look at setting up a larger amounts of inventory by investing probably in particular tanks, et cetera, on the course or tying up with our key suppliers. Sir, has there been any CapEx deployment towards the same?

Well, we have. At least all the arrangements with the suppliers have already taken place. There, we did not need to spend any CapEx, but the arrangements needed to be set up, and that has been done. As far as the CapEx part of this, of setting up the tanks is concerned, that's happening right now. So probably, when we meet next time, you would have some numbers on that.

Sure. Perfect. My final part is if you look at freight costs, they're up dramatically. For some destinations, it's almost 10x-plus. Given this situation, how does that really change your outlook on the export business? I would assume even freight rates from China to U.S. also would be up dramatically. So essentially, if it was outsourced out of India or China, it shouldn't move the needle as much. But probably, nearer sourcing would be a lot more remunerative in this environment given that these are bulky products, even if you do bed-in-the-box. Just your outlook, sir. Does that mean that our export expectations have shifted maybe a year down the line?

So again, this 5x, 10x bit is hopefully temporary and it will go away. The other thing is that exports are viable only because products can be compressed and packed. And then the relevance of the freight becomes less. However, I mean, I will not say that the prospects of exports would go down in the future but may not remain as remunerative as they should be. That's all I can say. But maybe 3, 4 months down the line or 6 months down the line, we would exactly know. I mean as I hear today, already compared to the last month, the situation from India is easing out, is easing out. And it's also dependent on import-export kind of parity, which, undoubtedly, when we were in the corona period, the imports had dropped considerably. And therefore, the availability of containers was a problem, right? But now as the economy is picking up, the imports are pretty much back, and they're comparable to the exports. And the availability of the containers have become easier. And therefore, exports will have their say. Quality impacts to China, you see they're -- they have been primarily an exporting country. Their need for containers is far more than the need for containers when they are importing stuff. Plus with this geopolitical impact that's only worsening, where -- this is my understanding, that China's kind of clamping down, and therefore, it will go through a tougher period. And for India, it will be -- become easier only as we go forward there.

So that's really heartening to hear, sir. And in terms of our outlook for exports as a company, we had estimated a few hundred of crores in the next 2, 3 years. Are we on track towards meeting that?

Absolutely. We're on track. We're on track.

The next question is from the line of Suraj Fatehchandani from Compound Everyday Capital.

Sir, my first question was on the line of ESG, which you talked in the introduction section. And also, I was trying to understand that from the existing products which -- in which you use TDI and polyol kind of chemicals, and so -- and also, when there are new products like the non-toxic mattresses, which use just the cotton ball or latex, so do we have any plans to expand in this area considering you're also focusing on the ESG?

Well, listen, I don't think that cotton and latex are nontoxic. I mean that's a very vanilla statement to make about that because what we are not appreciating is all that goes in to produce them. So if you will look at our cotton -- or what goes into -- whether it's the land use which goes into manufacturing that or the fertilizers going into it, et cetera. So, I mean, to really think in terms of organic cotton and to look at -- I -- may happen but probably will happen at least 2 decades down the line as far as India is concerned. I don't think that -- there are patches that I'm aware of where organic cotton is grown. But by and large, this is how it is and whether it is any less toxic or more toxic than using TDI, polyol, et cetera. And TDI, polyol also, let me just show you that the manufacturing of polyurethane foam is an absolutely [ nontoxic process ]. There is -- there are -- there is no energy that is used in that, very little energy just for some mixing and pumping and stirring processes or maybe a bit of a temperature control. But there is no heating required for the chemicals to react with. There is no pollutants that kind of come out, whether solid, liquid or in the air that is there. At best, the reactions generate miniscule quantities of carbon dioxide. Probably a full, long across 2 hours of foaming process produces the same carbon dioxide as 2 vehicles or 1 vehicle moving around. There is no liquid waste that is there. So it is -- if this sounds that it is derived from crude and therefore it is plastically urethane. But as a process, it is extremely safe, environmentally safe with virtually no pollutants. But I can tell on that maybe not on this call, but we can -- I can -- if I -- we can prepare a little note and also have extensive [indiscernible].

That would be -- yes, yes. So the explanation was really helpful. Sir, my second question would be -- so we saw a 12% growth in FY 2020, and that was a really great figure. So -- and the factors contributing to the growth were from international subsidiaries with Australia and Spain. So would you be able to elaborate those factors? And also, are those factors sustainable going ahead?

Can you please repeat the first part of your question, please, Suraj?

So sir, actually, the revenue from operation growth in FY 2021 was around 12%. That was a good figure. I was just trying to understand, what are the factors contributing to this? I read the con call and the factors contributing to this were international subsidiaries. I was just trying to understand, what were those factors precisely and how sustainable are those?

So [ international ] subsidiaries are absolutely sustainable. Spain, I just now mentioned when I was answering to Swati, I mean, I said that I see a great potential for growth. It's already on a line of almost 45%, 50% over the previous year. If we look at the year that has kind of concluded, Australia is steady, still positive compared to the previous year. And India is also positive compared to the last year. So as far as those growth numbers are concerned, I think we should be well ahead of that, well ahead.

So then, is our growth sustainable, seen sustainable?

Absolutely. Absolutely. So if you're -- I mean, if we draw any numbers in the first half that has happened, I would assume it should be more than 20-odd percent there.

That's great, sir. That's great. And sir, lastly, also, would you be able to elaborate something on setting up a tank amidst that? And also, your CapEx guidance for this year.

Setting up of tanks, you're asking?

Yes, sir.

Okay. So they are -- I mean, but it's not so expensive that they would substantially impact on the CapEx capabilities. I mean at best, maybe about in the thousand crores, about INR 8 crores, INR 9 crores, INR 10 crores, something like that. Tushaar, would you have a number on it, I mean, of the quantity that we are setting up? What would be -- my guess is about INR 9 crores or so.

I mean that's correct. No, nothing more than that for sure.

Okay. And that would be for storing raw materials, right?

Yes, that's right.

Understood. Understood, sir. So -- and full year CapEx guidance, is it -- can you provide?

Nikhil?

Yes. In terms of full year guidance, it will be for consolidated entity. As you know, for Jabalpur plant, we have a CapEx proposed a full CapEx to the goal of around INR 150 crores to INR 200 crores. And we also will have a maintenance CapEx of around INR 30 crores, INR 40 crores. So half of that should get spent in this year.

Understood. Understood. And the rest would be for Spain expansion program, if I'm not wrong?

The Spain expansion program, so it's under review. And the commitment to that will happen towards the end of the year. And it will get spent probably in a time span of 12 months.

And they would have the capability of raising themselves there, which may be the best thing to do it.

The next question is from the line of [ Anil Nahata ], individual investor.

My first question is that over the last couple of quarters...

Mr. [ Nahata ], sorry to interrupt you. Please increase the volume of your device. It's very low.

Can you hear me better now?

Thank you.

Much better, yes, yes. Thanks.

Okay. My first question is with regard to the increasing numbers of foam core. Over the last couple of quarters, I have heard the management sort of say that we want to move more towards the finished products. And we are still seeing that the foam cores business is increasing substantially. So just wanted to understand, like, is that a directional move? Or is there some tactical thing in the marketplace?

So [ Anil ], I would say that this is a bit of a lag -- lease kind of a situation. It is not intentionally. But as we see the shift happening from unorganized to organized, this is the first thing that will happen, that the cores will be the first thing that will happen and then next will be -- but our aim is to do a complete finished mattress to supply it the market.

So you mean it's a normal transition process? But first, you will move to foam core, the unorganized to organized, and then it will go to mattresses?

So I'm not saying it's a normal transition process, but I'm saying it is definitely a transition process. Whether this is normal or not, I may not be able to say that. But definitely, it is a transition process.

And just to add on to that, even mattress business is growing very strongly. So -- but on top of that, wherever there are opportunities in foam business because of this transition from unorganic to -- unorganized to organized, obviously those opportunities we are tapping out. So I would request, even suggest that mattress business is also growing strongly.

Definitely. My second question was about selectively like lower profits or the -- on the international business. Is it primarily due to the raw material price differences? Or is there some other reason there?

Nikhil, do you want to answer that question?

I will. So if I get your question right, are you saying that the growth is real growth?

Well, I think that the question...

No, my question is not about the growth. My question is about the profitability of the international.

Yes. Okay. Okay. Nikhil, let me answer. Let me answer it. So, I mean, let's just probably put it in simpler terms. The EBITDA percentage in Australia and Spain is much lower compared to that of India. So in India, we have to appreciate that we are integrated right up to the consumer, and we have products which are branded and which we sell, et cetera. As far as both Spain and Australia are concerned, we manufacture foam, and we supply to other -- to mattress manufacturers or to brand owners who, in turn, sell it to retail chains, et cetera. While here in India we're integrated there. And that's the reason we have far more control over our destiny. But those are mature markets. They operate under probably far more disciplined conditions. And therefore, it's not that there's chaos there. But principally, because of our being closer to the consumer here, our EBITDAs will always be better.

Correct. I appreciate that, and that is quite understandable. My limited point was that in the Spain, the EBITDA for the quarter was INR 12 crores and -- compared to INR 20 crores of corresponding quarter. And similarly in Australia, it fell from INR 21 crores to around INR 8 crores, and there is a INR 5 crore explanation given for some change in accounting standards. So my question was limited to that fall in EBITDA corresponding to the previous quarter. That's about it.

So Anil, I will only request you to look at this a bit on a longer time frame because at this point of time, the fluctuations that are happening on a monthly basis or a fortnightly basis are too hug to lock. And unfortunately, or fortunately, our accounting periods are per quarter. And therefore, whether you would fall just on the time when you're catching a wave moving up or a wave moving down, it will just impact because you have a cutoff date and you just stay on that. But as you look both things, as you look on a longer time frame and, at the same time, as there is more stability that kind of comes in both these places, it would -- you would see that the picture is prettier than what is appearing now.

I mean I understood that's a -- it was basically the interim raw material price movement and you are caught in the transition. I understand that part.

Right. Right, right.

I wish everybody a happy Diwali, and we hope you have a great sales time in this quarter.

Thank you, [ Anil ]. Thanks a lot, yes. Really appreciate it.

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

Sir, in your remarks, you had mentioned about the China's aspiration of global dominance in the manufacturing of the raw material and you are preparing to address the impact on the business. So could you specify the steps that you are taking and whether it is in terms of procuring raw verticals from other suppliers or locally? Or what exactly are the steps to address it?

Hiren, thanks for asking this. I may not have very precise answers for it. But as I said, whatever are the relationships existing at this point of time, just to strengthen them is one part. Second, we definitely served out the suppliers which are tucked away in areas. And they don't have -- I mean, they don't have international connect to supply, we would -- we are on the lookout for that. Third, we are looking at increasing the stocks or the buffers that we carry so that there is some stability we can bring in. And little -- not little, but big waves can be dampened and anticipated. And the last of all would, of course, be on the front-end part of it. You'll see that what we can do. So let's say we have products where the impact of raw materials or the fluctuating raw materials is reduced to some extent. So I guess it will be a combination of all these things. They are all in progress, and I would say that you would see their impact in times to come here.

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

Thank you, Karan. Thank you once again. And thank you very, very much for handling it so well. And like every time, I confirm that it's been a learning exercise for all of us. We do pick up, especially from newcomers who have joined in. As a confirmation -- or not only a confirmation, but it's something that we deeply experience at this time, which is the instability in market. I just repeat that it's not only the inflation, but it's the -- the worry is the up and down, up and down kind of point. And we are making our efforts to ensure that we can dampen that part. So with those words, I just want to wish all of you -- sorry, by the way, before I sign off, I just want to request all of you and with the other people who you're connected with to visit our new website, which has been launched actually today. And we would appreciate feedback on it from all of you. Before I sign off, I just pray along with all that there is no third wave that comes in and we all have a happy Diwali to you and to your families and to your friends. And above all, I wish you all the luck for the upcoming cricket match tomorrow between India and New Zealand. Thank you very much.

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