Sheela Foam Limited (SFL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Sheela Foam's Q3 FY '22 Earnings Conference Call [Operator Instructions] I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, Mr. Sonpal.

Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We have been newly appointed as the Investor Relations -- external Investor Relations representatives of Sheela Foam Limited. On behalf of the company, let me thank you all for participating in the company's earnings conference call for the third quarter and financial year 2022. Before we begin, I would like to mention a short cautionary statement. Some of the statements made in today's earnings con call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The focus of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Let me now introduce you to the management participating with us in today's earnings con call and give it over to them for opening remarks. We have with us, firstly, Mr. Rahul Gautam, Managing Director; Mr. Tushaar Gautam, Whole-Time Director and CEO; Mr. Rakesh Chahar, our Whole-Time Director and Director of Sales and Marketing. Mr. Nikhil Datye, Group Chief Financial Officer; and Mr. Davinder Ahuja, Group Financial Controller. Now without any further delay, I request Mr. Rahul Gautam to give his opening remarks. Thank you, and over to you, sir.

Thank you, Anuj. Thanks a lot. And thank you, everybody else for joining in at 2:00 in the afternoon. I know it's a bit of an odd and awkward time, but thank you very much. As always, 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, productivity and transparency to do business with a smile for customer delight and a commitment to society. Thank you very much. I think no conference or no meeting can start without reference to the current corona which is going on. And it appears, once again as we are going to be done with the third wave very soon. I know the Omicron variant has been rampaging around mostly in Mumbai and Delhi and some of the big accounts. I know it has been highly transmissible. And -- but the good part is that it has been low on any kind of pathogenicity. And if South Africa is any example that we can take, it quickly goes up. Omicron impacts quickly go up and quickly come down. So we are hopeful that the same thing or similar things would happen in India. I know that most of the Western countries and especially one of the countries, which is Australia, where we operate in, that they have taken it for granted that Omicron is going to be with them, and they have to adjust, to learn to live with it. It's yielding good results, except for a short time that it is there. So keeping all that in mind, our expectation is that somewhere end of April or middle of May, we should be done with this variant and we should be on with the economy and with our normal life. Just to add that in all our units and in all the company personnel, we were not very impacted by Omicron. There were a few cases, did not impact the manufacturing, production or selling part of it. And those few cases also got well soon and returned back to work. The other big event which has recently happened is, of course, the budget, where I know that the key word has been the intra push, which the government has given and we are very thankful for that, especially for our products in the country, which are voluminous in nature and are soft in nature and voluminous, therefore, transporting them is a very important aspect or key to our business. And with increased infrastructure, whether it's roads, bridges, connectivities, et cetera, it only helps us to do our business better. The other news which has impacted us or should be impacting us is the announcement of 400 1-day Bharat trains that is the government intends to start in the near future. And since we are suppliers to the railways for the cushioning material or for the cushions, seat cushions and for the berth, we expect that to be good business coming in the near future. The other big announcement was on the 80 lakh Pradhan Mantri Awas' that was announced. And I think that, that is, again, something where companies like us should be benefited because eventually those houses need to be furnished and they have to become livable. As you're all aware, and the last time I had announced that we have units coming up in Jabalpur under a subsidiary, a 100% owned subsidiary, ICG, which will be manufacturing, especially mattresses for the weaker part for the weaker society at large and making them affordable and available. The budget did announce that the time limit for starting production in these units where the concessional income taxes available has been extended by 1 year up to 31st of March, 2024. But I just want to confirm that our plan of beginning production by October 2022 still holds, and we are on track for that. Coming to our quarter 3 FY '22 results. On a consolidated basis, on a quarter-on-quarter, there has been a growth of 12-odd percent. And on a year-on-year, it's been at 30% plus. But just comparing it to the previous quarter, the growth has been -- or the previous year's quarter, the growth has been about 7%, 7.5%. I know it is a bit subdued, but this is primarily on account of reduced discretionary spending. That has been witnessed across segments in India. And we are very hopeful that this trend will change as the Omicron dies away and goes out. Australia product has also been relatively flattish because as I said, that, that country has adopted accepting corona and not doing lockdowns. But at the same time, quarantining people, and therefore, the sentiments have been not the best. And on account of these lockdowns and quarantines, Australia has experienced a little low level of performance. Spain for us has done well, especially on the top line part of it. And I think they accepted the corona a long time back. There have been increases. But again, the low impact of corona has been well accepted by the people and they are doing all right. And as you are all aware that all these 3 geographies: India, Australia and Spain, we have new projects which are coming on stream. For India, there is the subsidiary called International Comfort Technologies Private Limited, starting the unit in Jabalpur, and we expect that to start by October 2022. We have a new plant in Australia coming up too, that is in Adelaide, that will be the second foaming line, again with the new technology, and that's expected to start by July '22. There is also a substantial expansion plan for Spain, and expected to come on stream by October 2022. As had been mentioned earlier, Spain being a very small part of the largest home market in the world that is the European Union has very quickly reached its limit and we need to have this expansion to now look for higher volumes and higher sales. As I said, this Q3 results may have been a bit subdued, but we are confident of ending the year on a strong note, and we are on track for our projections of the group hitting at INR 3,000 crores market by 31st of March this year. As we have -- we all know and we have discussed this many times that our major raw material, polyol and TDI continue to impact us, I won't say positively, but have been -- actually have been relatively adverse in the last quarter or so. Fluctuations continue -- and though the levels may have come down a little bit, both for polyol and TDI, but fluctuations and the quick fluctuations, both in frequency and amplitude seem to be impacting business. And again, we are hoping that as this Omicron stabilizes or the impact of Omicron stabilizes, the raw materials will also stabilize. The new areas that the company has ventured into, which is both e-commerce and exports, I am happy to share with you that we have -- we are going exactly as we had planned. And both are assuming proportions of reasonable percentage of the company's business. And in the coming times, we hope we are expecting them to grow further. So with these words, I just want to close my opening remarks and thanking you once again, would be ready to accept questions from your side. Thank you.

[Operator Instructions] The first question is from the line of Nikhil Jham from Edelweiss.

Sir, 3 questions from my side. First is, if I look at the volume growth for the mattress' business this quarter, while it was showing a good trend over the last 3, 4 quarters, there has been a bit of a dip. My apologies, I think I missed some part of the opening remark in case you've covered it. But just if you could highlight on the same thing.

Sure, Nihal. So I did mention this right in the beginning that the discretionary spending has been definitely low. And therefore, there has been a volume dip on that. And we have seen this across segments, but definitely in our segment we have been witnessing that.

Absolutely. Just if I look at performance of some of the other categories, which are also, say, considered discretionary, at least in terms of how the festive and the marriage season has been, it's been a record of a decent quarter from that perspective for most of them. So from that perspective, are we seeing a different trend? Or are you seeing that you're seeing with other mattress players or that is the feedback you're getting from the dealers also as you're interacting with them?

So we did see and experience the marriage season. But we also know that it was the earlier marriage season, which probably witnesses marriages of more budgetary nature, and those got pushed into this. So the marriages were there, but they were definitely the mattresses were of lower ASPs and the lower value that were sold at this time.

Sure. And does that explain the [ realization ] fall also in the mattress segment, if I look at it, say, from last quarter to this because TDI has increased, I'm getting some part of price increase that played out this quarter. Is it maybe the mix change and people buying lower value mattress?

That's right. That's right.

That's helpful. Sir, the last question was that I see a slight divergence in the trend of our gross margins in the international business has moved, whereas there has been a reduction in the domestic business gross margin despite TDI going up. So -- can I again attribute that to the mix given that the mattress proportion has fallen or anything that you may want to highlight?

Nikhil, would you address that question, please?

Sure. So Nikhil, your question is more on Australia and Spain, right?

Yes. Comparing the movement in Australia and Spain's margin versus our India, generally the trend is similar given the prices of both the raw materials have a parity, which is that this quarter the gross margins in the international segment are similar, whereas the domestic business has seen a fall. So any reason other than mix that is, explain that.

No, apart from mix, what also happens is geography by geography and vendor by vendor, our agreements for prices are also different. So different geographies follow raw material price increases and decreases in a different pattern depending upon -- because it is all demand-supplier relationship. So -- and our Australia Joyce facility has vendor agreement with 3 months lock-in for prices, so they remain protected for a little longer time. [ Interclass ] has also almost 1 month price protection, while in India, the price fluctuations has been sharp and that has been on a much shorter duration. So the raw material prices are at different level in different geographies and their changes are also -- periodicity is different. So that's where you are seeing a bigger drop in India. And obviously, to some extent, mix has also added in the case of India.

[Operator Instructions] The next question is from the line of Ritesh Shah from Investec.

I have a couple of questions. Sir, you indicated upon the e-commerce and the export opportunity. Can you indicate first on e-commerce, what percentage of our volumes and value will be derived through this channel? Secondly, how do you see the competitive intensity in this particular segment? That's on e-commerce. And specific to exports, which regions are we catering to from India? So I think U.S. is a big market opportunity, which is there. Are you looking at it? Are you already receiving orders or lease to cater to that region going forward? These are the first 2 questions.

Thank you, Ritesh. Tushaar, can you please address both the questions on e-commerce as well as on exports, please?

Yes. Can I be heard? Am I audible?

Yes, sir, you are.

Yes. So on e-commerce, for sure, the last quarter was the best quarter that we've had till date. Within the quarter, the first couple of waves that come on the platform were definitely superior or higher than the third wave. It did taper off as far as the third wave is concerned. I think a lot of it, including the consumer side, what Rahul Ji was speaking about, a lot of this also started playing out with the Omicron wave kind of going across in the country and then people generally getting a bit conservative on their spends and things like that. There was a bit of uncertainty at least in December. But specifically on e-com, we've had the best quarter that we've ever had with growth that are close to double of the previous year. So that side was good. On the export side, the only thing that I would say is as far as customer development, interest in new customers -- of new customers coming in of order books getting filled, all that continues to scale up month after month. We have orders well in hand for the next 3 or 4 months, and that was true for October, November, December as well. In terms of the scale-up of business and it's showing in the revenue, 2 important things to keep in mind. It could have been a lot better than it was in the previous quarter. We had orders in hand, 2 small limitations, which are easing out and are gone. We have a large capacity expansion that came onstream mid quarter in just near our Vapi plant. So that's come on stream, and that will support the growth on the business. The other thing that was still a hinderance is a lot of supply chain issues, both from the customers and from our end as far as the country is concerned, so container availability, transportation costs, shipping availability, all that was still tight in the last quarter, but it's easing out as time goes forward.

Sure. Sir, would it is possible for you to quantify the volumes or revenues through e-commerce. The reason why I stress on this is I think the company has a benefit of being on the omnichannel side, so just wanted to understand some numbers over here and how is that the company actually are leveraging that mode of sale.

Yes. So I mean instead of just a quarterly number, what I'd say is on e-com, we would finish the year close to 3 billion or probably a little higher than that, in terms of revenue with the scale up on quarter after quarter, month on month, still progressing.

Sure. And sir, when it comes to exports, you indicated that the order book is filling up. Is it possible for you to indicate what kind of orders are we looking at? Are we looking at supplying to likes of IKEA of this world? How should one understand this? Or is it more on the B2B side? How should one look at it?

So it's not the IKEAs of the [indiscernible] it's a large mattress [indiscernible] retailers based in the U.S. who also seek products from various parts of [indiscernible]. And they are the ones who have shifted supply business or added an additional supply base and there is enough [indiscernible], both from India and Spain.

That's useful. Sir, can I ask a few questions? Or should I jump back to queue? I have a few more.

Wait. We'll leave it to the moderator.

You can go ahead, Mr. Shah.

Sir, my other question is you indicated that there was a bit of volume decline and you indicated it was a function of discretionary spend. Sir, would it be possible for you to give a color on what percentage of our volume comes from Tier 1, Tier 2 and below? And when we see an element of volume decline, how does the management look at it from a down trading perspective versus a volume growth perspective? I'm trying to understand the mix and where we sell? The reason I ask again is if we are looking at the rural slowdown, then I'm just trying to understand that if one can make more sense to the numbers.

So Ritesh, I do not think that based on the last quarter, we will be able to make too much out of analyzing the Tier 2, Tier 3 towns versus the metros, et cetera. I think we'll have to probably look at the larger time frames. And I think a good way of analyzing this would really be end of the year. So when we are in the next conference, we should be in a good position to making no profit. And if I do have any data which is readily available, we will definitely have a trend.

Sure, sir. Sir, one question specific to the company. The company operates on the distributor and a retailer model, which to my understanding is on a 10, 30 basis. Is there any way in which the company can actually change this -- reduce the number of distributors or directly reach out to the retailers? Is this something which is a possibility? The reason, again, I ask is, I think, a part of the competition is actually doing a few of the regions of the country, wherein they actually get heads up on the pricing part as well, given they eat into the distributor margin. So what are our thoughts over here?

Distributor costs are of the order of 9%, 10%. And I think your question is that can we -- can we get away from that. Is that true? Is that the right question?

Yes, partly or completely.

Okay. So I think the value that is being delivered by them appears to be pretty matched whether it is there because we are dealing with voluminous items. And we are dealing with the SKUs, which are used in numbers. Therefore, warehousing, storage, relationship with the retailers, we have almost about 5,000, 6,000 retailers across the country, maintaining supply chains, et cetera. And I mean, I know that there can be an improvement on that. But at the moment, I would say that it's pretty well balanced on the value and the costs out of it. That would be our view at the moment.

That's useful. And sir, one last question. How should one look at the margin profile for the company on the longer-term basis? It's a fantastic product. There is a brand recall. But when it comes to pricing mechanism, given the volatility what we see in the raw materials, how should one look at it? Is it something like one can be on the MRP or on the discount structure? Is there a better way to understand this?

Look it's a bit future-oriented question. But I would just say that the picture that will emerge will be completely different as soon as some stability comes in on the supply side. We don't expect these kind of fluctuations. And I mean there is nothing which, let's say, confirms that these fluctuations will continue forever. Actually, the fluctuations would impact and we should see much better margins than as soon as the back end business stabilizes.

[Operator Instructions] The next question is from the line of Pankaj from Kotak Securities (sic) [ Kotak Mutual Fund ].

This is Pankaj Tibrewal from Kotak Mutual Fund, not Kotak Securities. On the margin side, just to extend to what Ritesh asked in the previous question, and as old observer of this company, we have seen that once you see the margins getting impacted by raw materials, once it stabilizes, you guys bounce back quite fast. Do we expect the sale because now it's almost 4 quarters where on a gross margin on a controlled basis, we are less than 40%? Rarely it has happened in the past. So can you just help us understand how as we move ahead, those corrections, which have been made on pricing or product mix will help us come back both on gross and operating margin side. That would be my first, and then I will follow up with the second question.

So good afternoon, Pankaj, and thank you very much for this question. And now this looks like the mother of all questions. And you're quite right that for the past 4 quarters or a couple of quarters, we have been -- the gross margin has been kind of [ somewhere ], right. I just do not get ahead of the meeting that it's really the fluctuations part, which, in fact, we have seen stabilizing of that happening. And somewhere or the other -- all these things have got related to the pandemic that is kind of going on. What the pandemic brought and to the raw material side, its straightaway impact was the wild fluctuations and availability getting hampered and the prices remaining high, et cetera. But what took its time or is taking its time to change is the front-end part of it. And whether it is B2B business, whether it's B2C business or it's even the direct-to-consumer business, it is -- the way that price has changed there, we have been pushing for it, we have been learning how to do it. And I must say that we are wiser from 4 quarters back. And today, it would not be the same. So all I can say is that this is a very undesirable situation. We are trying to change that, but at the same time hoping that this back-end instability kind of goes away. And we should be in a much better position in another quarter or so, or another 1 or 2 quarters. Definitely, we've been far better.

Great. Great. Glad to hear this. The second question is on the demand side. You alluded to the fact of a bit of a volume decline, which seems to be quite surprising when we look at some of the other companies in the same -- and it's not in the same space, but driving the demand from real estate, driving the demand from home improvement and stuff, which are sales styles, which have reported quite a bit of good revenue growth and volume growth. Where do you think there has been a departure on that side, whereas we see the unsold inventories in real estate at 8-year low, but that is not translating demand perspective in our end? So any color on that would be helpful because it seems to be slightly different from other building materials companies.

So two points from my side, Pankaj, on this. Number one, that the volume drop that we are comparing it with the corresponding quarter about a year back. At that time, there was a pent-up demand that was being catered to and because the country has been on a lockdown for almost a year and suddenly kind of opened up, that was the quarter 3 of last year. So we are comparing to that, that did very well, and therefore, it has that little denominator impact as far as this quarter is concerned. The other point that we have analyzed at our end is that the real estate market definitely has looked up and saw us selling. But the furnishing of material inside, it does take at least 3 to 4 months or 5 months before that begins to happen. So we are -- as I said, that we are looking at now and the images future to be catering to all those needs and requirements.

Okay. And last question, if I can squeeze in. On the capital allocation side now with Jabalpur coming in, what are your thoughts on incremental capital allocation in the business? It will be really helpful to understand that part.

Nikhil, would you respond to that?

Yes, sure. So Pankaj, for capital expansion, both or at all the 3 places, we are doing capital expansion Spain, Australia as well as in India. It will be a combination of internal accruals and external borrowings. And obviously, we would take some external borrowings considering the rate of interest are at low levels. So the leverage port and the combination of 2 will be used. So does that answer or?

No, I was not going on the absolute numbers. But what I was interested in the direction where the company and the management is thinking about the incremental cash flows to be deployed, either in M&A or organic business post Jabalpur and Spain expansion, where would the incremental cash flows be deployed in the business?

Yes. So obviously, the accruals will be used first for CapEx. We are also always working on some acquisition opportunities and some cash has been [indiscernible] for those opportunities as and when they materialize. So definitely, that's on the cards. Timing will be difficult to predict, but that is one of the outlays for which it will be used. And third will be, we are also evaluating how do we utilize it for dividend payments. So those are the broad 3 outlines for deployment of cash reserves.

Okay. I wish you guys all the best. I'm sure we will emerge much stronger post once the raw material volatility settles down.

The next question is from the line of Devesh from DS Investments.

My question was a little bit mid to long term. I wanted to get your thought process in terms of how do we see from here to 3-plus years. Broadly speaking, the way I was hoping is that we are looking at 4 engines, right? One is B2C and second is B2B Indian for consumer facing an institution. Then we've got Australia and Spain, right? In your thought process, which would be the engines, which would be more stable or mature relatively -- which would be the engine that would grow faster and where an incremental push would be higher from our side? Just wanted some long-term thought process.

Thank you, Dinesh. So in a 2, 3-year time frame as we are looking at, let me just spend a minute each on all of them and on all 4 of them. As far as Spain is concerned, we've always been of the view that it has an extremely small share in the largest market in the world, which is the European Union. Our market share is close to about 1%. Therefore, and we are in a low-cost manufacturing economy. Therefore, the opportunity to increase and grow from there is large. Besides that European Union market, we are ideally placed for exports to the U.S., it is just across the Atlantic. And then there is also the -- on the southern side, the North Africa part that's there. So Spain, I see a lot of growth, let's say, 2, 3 years' time should really be looking at about now 50% of -- upwards of 50% as an increase will be same part that we are already investing there to increase the capacity. Australia is a fairly stable, mature market. We see that maybe 5% per year kind of growth there that would be happening. But one thing that the corona thing has definitely done there is that what they were outsourcing a lot from outside, those products will now be manufactured or at least assembled in the country. And therefore, I do see that the standard, 3%, 4%, 5% kind of growth will change into probably double-digit in the coming 2 to 3 years' time. And we are preparing for that again with another unit there in Adelaide. We had a primary unit in Sydney. Now we have one more coming up in Adelaide, which will be able to sort of cater to the extreme west side and also cater to some new customers that will come in. As far as the Indian path is concerned, both B2C and B2B. B2B, we are -- of course, we are dependent completely on the receiving industry. So whether it's a shoe industry, the helmet, the furniture, the mattress, sound absorption filter, those -- the growth depend completely on the requirement of the growth of that particular industry. Those industries are all poised to grow. We've seen those kind of sentiments in the past few months and more so after the budget, and therefore, we would be participating in this. On the B2C side, besides the standard growth of -- in the market that we are operating in, just to sort of step back 65%, 70% of India still sleeps on some kind of dhurries, chatais or kind of cotton mattresses. And the modern mattress market is only about 30%. And the organized mattress market is only 10% of -- or 10% out of the 30% then that's the area that we operate in. Of course, there is a movement from the unorganized to the organized that is regularly taking place. But going back to the 65%, 70%, that is what we intend to service post Jabalpur coming into operation, both from perspective of -- prospects of availability of the product as well as the affordability of the product. Those have been the 2 gains for these kind of products ready to grow, and that's exactly what we answer. And so in 2 to 3 years' time, we expect that to be a large business. And that's generally our overall picture that we see in 2 to 3 years' time.

It's quite helpful. Just a slight deep dive on the Spain bit, like you called out, it's a good opportunity. And I believe with China exports coming under some taxation from U.S. and -- do you see the margin portfolio of this export as well as the EU side of things being similar profile to India B2C business?

Definitely, I see that as improving. Nikhil answering another question before he did mention about the way these raw materials change. So if you would -- I mean, if I just reiterate, Australia, the raw material prices are stable for a quarter. They change once in a quarter. For Spain and Europe, they change once a month. In India, they change once a week almost. In the -- when I look at the last couple of years or many years in Spain or Europe, see the prices have changed about 2x a year or maximum 3x a year. And that's precisely what the consumer or the customer is also used to. And if here, we had prices changing 12x a year, it's extremely difficult to start even talking to the customer and say that now I am going to change it every month. And that has been the pain. These will stabilize. There is no reason why it will not because the supply and demand is pretty well matched now and for the next 5 years. The new capacities that are coming in and the demand that is existing or will extend to. Therefore, the fluctuations kind of going away, this margin will definitely increase. It will definitely go up, what you see, I think it's been of the order of 24%, 25%, while we have hovered around 35%, 40%. And that's where close to that, that's where it should be.

The next question is from the line of Dhiral from Phillip Capital.

As I was listening to your con call and you stated that we are expanding across the region. So what is the overall CapEx that we are incurring and how much this will help to increase our capacity? And what will be the potential revenue that we may -- that we may touch from the overall capacity expansion?

Nikhil, do you want to take that question?

Yes, sure. So Phillip, as far as India is concerned, so it's a true manufacturing facility, and that is being built to address white space, which Rahulji talked about, mattress for every Indian. So that's a bit as -- that's going to expand our sales category for the mattress for every Indian. And it's a huge opportunity available. He was talking about unorganized market and accessibilities and ease through. So I don't want to put a number to it yet, but this is one of the largest manufacturers we are putting and that will cater to this whit space. And you will see once the capacity is full and our sales plan starts holding, it will be a good revenue booster for the overall Indian business. As far as capacity is concerned, obviously, around 30% capacity expansion will happen. And that will cater to the demand. Currently, we cannot fulfill because of capacity constraints. And Australia, to some extent, is a mature market, but the new capacity to create [indiscernible] additional facility availability then we model through this. So that's the way I would expect these three capacities to pan out.

And sir, actually your line was breaking in between. So for Australia, how much capacity expansion that we are incurring in terms of percentage? How much we are increasing the capacity?

So it's a new plant that is being built. And the objective of that plant is one, to create a BCP [indiscernible].

Mr. Nikhil, we cannot hear you, sir.

Hello?

Yes, Mr. Nikhil.

Am I audible now?

Yes, sir.

Okay. So what I was trying to explain, Phillip, as far as Australia is concerned, Australia is a matured market. The additional capacity will help us as a business continuity plan and capture additional market share from the competition. It's going to be a similar size of our existing capacity.

Okay. And so what was the overall CapEx that we are incurring for the 3 plants?

So that would be in the range of around INR 300 crores.

Okay. And so what will be the asset turnover that we are expecting from over INR 300 crores?

It would be in the range of -- I mean, it will have its own maturity curve. But in the steady-state environment, it would be anywhere between around 4-ish will be the turnover, capital...

So around INR 1200 crores?

Yes.

Okay. And sir, what kind of peak margin that our business can achieve maybe in long run?

I think, Rahulji, in his earlier comments answered that, once we have a stability in the commodity prices. I think margins will definitely bounce back. And we are sure that in a couple of quarters, that should happen once supply chain side of raw material stabilizes.

Okay. But sir, over a period of time, sir, we have seen some single digit to now almost mid-teens kind of a range, okay. So do you believe that there is again a room to improve further from the FY '21 level of 15% that we have achieved?

I mean, yes, it is doable, and it will be a combination of gross margin going up with stability of raw materials and also economy of scale coming in. So as we grow in our sales, we will have leverage from our fixed cost also. So that will leave that additional bump-up for the net margin. So I believe that, that is for that to do the same and the ambition is to go in that direction only.

Okay. Sure. And just last one question on the working capital side. Sir, in last 2, 3 years, we have seen maybe a decline in the working capital days, deterioration in the working capital days. So any guidance maybe in coming years to bring down to a particular level?

So when you say decline in the working capital days, in the sense?

So I was talking about -- there is some kind of a deterioration in the overall working capital cycle. So maybe in FY '18, '19, the overall working capital days was between 35 to 40 days. But as I see in FY '21, it went up to 70 days.

Yes, that's predominantly because of the increase in the raw material prices, in terms of quantity of inventory, what we used to hold pretty much the same, but the rate has almost doubled.

Okay. Okay. Okay. So this may again normalize?

Yes.

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

My couple of questions here. The first question is on the 9-month revenue and the profit after tax, particularly from outside of India. While the revenue has increased by around 20%, the PAT has almost declined by 50%. While I understand there could be some gross margin pressures. But as you explained that in the prices of the raw material is quite stable in Spain and Australia, then why are we seeing such a huge decline in the PAT?

Nikhil?

Yes. So your question is referring to the -- to any specific company? Is it Australia or Spain?

Yes. Outside India, because in the segment results you have given outside India is consolidated. You have not given separately Australia and Spain.

Okay, okay. So for Australia entity, there are some changes in accounting because of which there is a decline. And also, as we are expanding the capacity, some rentals have gone up and finance cost also has gone up. So if you look at independently, the business outside India, that is one of the reasons that PAT has gone down.

Okay. So I mean, that is one part. And Spain, is it also gone down or Spain, is it stable?

Let's see, in terms of Spain, there is not that kind of decline. It's more of Australia.

Okay. My second question is on the growth part of the story. In your annual report, you had mentioned that the spring mattress business is probably the highest-growing segment. I just wanted to understand what is our play on the spring mattress? What kind of market share we hold? And how are we poised to like address this opportunity of higher growth in the spring mattress compared to the rest of the market?

Rakesh, can you please take that question?

Yes. So you're right, spring is a high-growing segment, but it is growing more in South and West. In North and East, it is still not acceptable as alternative mattress. As far as our play is concerned, we have reasonable presence in the -- in terms of the product portfolio. But our main focus is on the foam side. So because we have ABOs, we have exclusive outlets, so our main focus is on the promoting foam mattresses because we believe that -- I mean, in Indian kind of condition, especially when the sizes are multiple, a foam mattress is far more adaptable than a spring mattress. So it's basically when the consumer comes in, consumer doesn't -- is not fixed on a material and is looking for guidance for the right mattress, so generally we promote foam mattresses. Is that good enough?

I understand one part of that, that our company believes that foam mattress is a market to go after, but that addresses North and East as you said. On the South and West, spring mattress is a higher growing thing. I mean, won't we be losing market share if you don't go after the segment in a more aggressive manner?

So we are doing that. So in South and West, we -- our portfolio of spring is stronger compared to North and East. So we are doing that.

Rakesh, I will just add to what you said. You see spring is the fastest-growing undoubtedly, but it's also on a very, very small base. And therefore, what it adds every year as a volume to it is still extremely small compared to what is added on the foam side. And from the percentage of growth may be lower, but the quantum is quite large. And therefore, our natural affinity being more towards that side we tend to go after it. Of course, we have spring in our portfolio and a -- but it is on a very small base and therefore, any kind of growth looks big on it.

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

Yes. Sir, I just had one clarification. For the e-com revenue share revenue, what figure that we mentioned?

Tushaar?

So e-com, this financial year, I said will be closing a little above 3 digits, which would be above -- well more than double of the previous year.

Sure. And this is all mainly SleepX? Or it is...

Yes, mainly SleepX.

The next question is from the line of Ritesh Shah from Investec.

Sir, you touched upon the path of affordability and availability as focus areas on the B2C side. Just can you highlight 2 things. One, how our distribution plays? And what is that we are planning on incremental because we have shoppers, galleries and malls? How does mix can actually change the [indiscernible]? So one was on distribution? And secondly, when you stress upon affordability and availability, you indicated that it would be a large business going forward. How should one look at it from a margin standpoint? Is downgrading [indiscernible] here? I think it won't be the case given it is something which by design we are doing it. So how should one understand this variable?

Ritesh, I must confess I'm unable to hear you clearly. I don't know if it's a connectivity issue. But is there a chance that you could...

Yes, I'll repeat the question. Sir, you touched upon the part of affordability and availability incrementally. Specifically, you indicated on the Jabalpur expansion. So 2 relevant questions over here. One on the distribution side, we have shoppers, galleries and malls. How that mix can likely change going forward given the segment that we are looking at incrementally? Are we aligned to that? That's the first question. And the second question is, you also emphasize that we are looking at a significant and large business, focusing on affordability and availability. Does it mean that the margin profile will be in trend with what we are doing right now? Or would there be any risk over there?

So I mean, both on the affordability and the availability part of it. Let me just say that we probably will have to look at to make that happen, both to save money on the transportation side as well as to save on the distribution costs, I think we will have to look at some alternate ways of reaching to the consumer. We have some ideas and some thoughts. They are being trialed at the moment. And that will not be at -- it will definitely not be at the expense of existing shoppes and galleries and the worlds that we had. They will continue to sell what they are and the story that -- not the story, the whole process there of adding value and of getting better products that will kind of continue on that. I'm sorry, the second question, I didn't hear very well again, you'll have to repeat it.

Right. Sir, the second question was on margins. But before we go into that, sir, can you please elaborate a bit more on the distribution side? Can you give certain number of touch points that we already have and what we intend to grow as we probably would look to go more aggressively into Tier 2 and below as we put up new capacities?

So I think -- I mean, as I'm understanding you, for these kind of products, the channel will have to be completely different, the touch points will have to be completely different. And -- as I said, I'm not in a position to discuss exactly how it will be, but probably another 3 months' time, we should be having it. But at this point, this will be different.

Sure. That's helpful. And sir, the second related question was on how should one look at the margin profile, given as we focus on affordability and availability?

So I don't think the margins would be under stress for doing something like that. I think the volumes should help ensure that the margins are intact, plus the newer ways that we are exploring of reaching the product.

Okay. And sir, in the initial remarks, you touched upon 400 Vande Bharat trains. I just wanted to understand do we already cater to Indian railways and incrementally what is the scope of basically 400 Vande Bharat trains? How much it can add on a tonnage or a revenue basis?

Rakesh, can you just respond to that, please?

Yes. So we are already supplying to Indian Railways. And these Vande Bharat trains are modern trains with better cushioning material, better aesthetics. So they will -- so therefore, the use of foam, both in the chair cars and in the sleeping berths is likely to go up. They're made for better comfort for the consumer. So how much will it go? So there is a changeover currently happening from an existing material, which is used for cushioning to a polyurethane foam material. It's a technical polyurethane foam material, which is replacing the existing material. So that transition is on, but it will take time, but eventually all cushioning will be of polyurethane foam.

Is this only for Vande Bharat? Or is it for all the trains? If it's for all the trains...

All the trains, all the trains.

So this is something which can actually be pretty huge. Is that understanding right?

Yes, it will be.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Rahul Gautam for closing comments.

Thank you. Thanks a lot for conducting it and for moderating this conference. And I must thank each one of you participated in this and the interesting questions that you have been asking and let me tell you that in spite of whatever 40, 50 years that I've been in the business, every time this introduction is a learning exercise. And your comments and suggestions are absolutely well noted and taken care of. In case we have not been able to respond clearly to a question that may have been raised, please feel free to connect up to our CFO, Nikhil, and we will try to respond on a one-to-one basis, either through a mail or through a talk over the phone. We hope and pray that you and your families remain safe and sound during these crazy times, and these times come to an end quickly. As I see it, and especially after the budget that was presented 2 days back, I see very interesting times, and we hope to be discussing the future more and the not so good times would be behind us. Thank you very much, and we'll see you again in 3 months' time.

Thank you. On behalf of Sheela Foam Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.