Sheela Foam Limited (SFL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Sheela Foam Limited Q1 FY '25 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference to Mr. Amit Purohit from Elara Securities Private Limited. Thank you, and over to you, sir.

Good evening, everyone. On behalf of Elara Securities, we welcome you all for the Q1 FY '25 conference call of Sheela Foam. I take this opportunity to welcome the management of Sheela Foam represented by Mr. Rahul Gautam, Executive Chairman; Tushaar Gautam, Managing Director; Mr. Nilesh Mazumdar, CEO India Business; and Mr. Amit Kumar Gupta, Group CFO. We will begin the call with a brief overview by the management, followed by Q&A session. I will now hand over the call to Mr. Rahul Gautam sir, for his opening remarks. Over to you, sir.

Thank you, Amit. Good afternoon. Good afternoon to everyone, and thank you for joining us for our earnings conference for the first quarter of Financial Year 2025. I would also like to thank Elara Capital for hosting this earnings call. Let me first take you all through the financial highlights for the quarter. The first quarter under review, on a stand-alone basis, we reported revenue of INR 504 crores, which increased by around 10% year-on-year. EBITDA for the quarter stood at INR 48 crores, which declined by 22% year-on-year. EBITDA margins were reported at 9.45% for this quarter. And the net profit stood at INR 32 crores, which is down by about 25% this year. On a consolidated basis, for the fourth quarter under review, we reported revenues of INR 810 crores, increased by around 26% year-on-year. EBITDA for the quarter stood at INR 60 crores, down by about 23% on a year-on-year basis. EBITDA margins were reported at 7.4% for this quarter. And the net profit stood at INR 47 crores, which has actually increased by about 8% on year-on-year basis. Let me just begin by sharing with you that this quarter has been a very eventful quarter. Besides the financial year starting, which has the regular changes and the annual changes which we all have to do in all the companies. We were integrating Kurlon represented by KEL Kurlon Enterprise Limited, which was acquired in October 2023. You know the integration processes have their own complex and complicated situations when the process takes place. We should have waited to run the two entities separately as different businesses like -- we are all aware of Air India and Vistara that's going on, going on for almost 1 year and probably will take another 2 to 3 years to complete, but we chose otherwise. If we had continued by keeping them separate, the accrual situations would have all continued for a very long time. Additionally, all the synergies that we have anticipated, all we are working on would have taken that much longer to crystalize. And as I mentioned, we chose to consolidate right away, consolidate the operations price, consolidate tech services side and consolidated business and marketing side. In fact, we have gone 1 step ahead to even consolidate both the corporate entity and have already filed for a merger with effect from October 2023, that is the date of the acquisition. Now when we choose to do this, there were some actions and some steps taken by us immediately. On the operations side, we determined wherever manufacturing of whichever products was the best suitable, for example, foam being manufactured in [indiscernible] Sheela Foam factory, while all other products being manufactured in Kurlon factories. Similarly, we also chose [ anecdotally ] the best suitable places for supplying and catering to the nearest market. In this process, we closed down 2 factories very peacefully with all the people being taken care of, and there have been benefits which have went through to thereof. Some of them are already beginning to flow in. On the services side, I shared with you that ERP or integration of ERPs as we all know, how important IT services are these days. Normally, the integration takes 6 to 12 months, but we did that in less than a week and ensuring that all the security, the cyber security work taken care of and are being taken care of as we moved forward. Along with it, the F&A, finance and accounts department has also been integrated. And the HR practices are under preview or under review and would be done soon. On the front end, expertise and marketing, we are all aware that different businesses do may appear as absolutely similar supplying mattresses to the market or to the consumers in functioning were very distinct from each other, very different. One operated through regional warehouses or regional distribution centers and then going directly to the retailers, while the other one operated through zonal distributors and then reaching out to the dealers. Various pilots and various models were enunciated, were reviewed, were viewed to see that we arrived at the same -- we arrived at an integrated outcome, but at the same time, the best one that is possible. And I'm happy to share with you that we have come up -- the [indiscernible] have been reduced largely form a number of about 55 to about 16 and while the distributors have been given the additional task of distributing Kurlon products. Now this may sound too simple but when it involves retailers across India, across the entire geography and across EBO and MBO systems being operated and with the 2 different sales forces in operation, integrating this was not easy. And I must say that in this quest for doing things quickly for obvious reasons, it did result in disruptions, especially on the sales department. And I believe now we have a place to say that the negative -- environment or economic environment was definitely not helpful during this process. The impact of growing orders versus savings potential which we have evaluated is INR 250 crores annually. We have already achieved a run rate of about INR 100 crores. The fixed swap of both the units, which I mentioned, our fixed cost are rising because of the 2 units has come down and they have been [ nationalized ] with the quarter 1 -- that's the one that we are talking about. The sales system is completely in place. However, we all know that this creates some disruption resulting in sizable sales profit. But now the system is completely in place. Everyone is operating and let me say that even I have information beyond the closing of the last quarter, things are running as smoothly as they should. We are happy to share that the entire integration process is about 85% to 90% complete. And we are ready for the upcoming season. I must also share that the merger, which has been filed with the NCLT. Whenever that -- the order comes out, it will be a seamless conversion even at the corporate level. Lastly, let me talk about the international businesses in both the geographies of Australia and Spain. And much credit to both, helped the process of increasing the capacity that has been completely commissioned. Australia has gone up from about 10,000 tonnes to 15,000 tonnes per annum. And in Spain, we have gone from 12,000 tonnes to 18,000, which ensures that we are very future ready as far as the -- which we are concerned. I must say that sales have been not so far away has been -- preferably stable. And if they have not increased this only on account of the raw material prices, which have been on the lower side and have reflected on the top line being just [indiscernible]. To conclude words, I conclude the opening remarks and open the floor to all the questions and we will try our best to answer each one of them. Thank you very much.

[Operator Instructions] The first question is from the line of Tushaar Vaidya, who is an individual investor.

Mr. Gautam. Looking at the Q1 results, I can see that the -- # one, revenues have not grown commensurately. For example, after the Kurlon takeover -- Kurlon should have brought revenues of INR 850 crores, INR 900 crores to INR 1,000 crores to the table. However, which is approximately maybe INR 250 crores per quarter. However, this year, Q1 FY '25 year-on-year, the revenues have grown only by about INR 160 crores. So it implies that either Kurlon revenues have dropped or Sheela Foam businesses revenues have dropped significantly. So the first part of my question was relating to what to revenues, why our revenues falling? And this is concerning from the context that when we look at competitors, other mattress manufacturers, their revenues are growing. So why are our revenues falling in a market when our competitors' revenues are growing? That's the first part of the question. The second part of the question pertains to profitability. EBITDA has jumped from 12% last year to 7.4% this year. Other expenses have gone up by from 26.6% to last year to 34.9% this year, an increase of 8.3%. So cost appears to be -- I noticed that marketing expenses have gone up, but they've gone up roughly 1.9%, whereas expenses have gone up by 8.3%. The marketing expenses will not account for the total increase in expenses. So the second concern is that expense appears to be growing and the EBITDAs are falling. So these are the questions I have. Looking forward to hearing from you, sir.

Thank you, Tushaar. Thank you very much for bringing these questions. As far as the total revenues are concerned. I know that you are referring to the target that we have for Kurlon at a INR 1,000 crores and therefore, our quarter revenue of INR 250 crores, but it is -- the process of integration, which has impacted or, let's say, temporarily impacted the revenues, especially when you do the front end part of it and the processes, as I said, with the way that the products are sold are completely different, there are leftovers, there are stocks from before, there are people who are to be brought on board for the final process that we decided was through the zonal distributors. Now they were dealing only in Sheela Foam products earlier. They have to be -- Kurlon has to be added to them, et cetera, the regional or the -- the regional distribution centers, with carrying the stock, they have to be closed down, materials have to be transferred. There are some disruptions that take place and it should result of all that. But let me just repeat myself and assure you that this is the part of quickly to integrate, getting over it and getting on with our jobs of manufacturing and planning. And this number that you talk of INR 1,000 crores will soon be realized. As far as the EBITDA part is concerned of 10% going to 7.5%. Amit, would you take that question?

Tushaar, this is Amit Kumar Gupta and the Group CFO for the company. So Tushaar, if you look at it, I would answer -- bifurcating the answer into 2 part. The first, I will point out is the gross margin. And I think when we started with the acquisition of Kurlon, the combined gross margin would be around 40-odd percent. The Q1 figure that is in there only comprised of Sheela Foam in Q1 last year, Kurlon was not there. And that is written at the bottom of the presentation also. So you cannot compare it with Q1, but yes, Q4 will be comparable. So firstly, I would mention that whatever benefits was to achieve from the integration process as Rahul ji just mentioned. 100 plus run rate has already been achieved, and this has reflected in the gross margin that we have. The lesser EBITDA is only on account of -- it's for an average. Since that topline will be there even if you compare it with the Q4, it is lower by around INR 70 crores. And if I take a gross margin difference there and multiply it by that INR 70 crores, you will find that the EBITDA margin would be somewhere in the 12% plus range. So what I can say, the revenue was disrupted temporarily because of the integration process and now it is all on track. So as soon as in the next quarter, we see this revenue coming up. I think whatever was to be done on the cost side has already been done and you should observe a much better EBITDA on the profit side.

Rahul ji. As a follow-up, may I ask -- may I know the split of top line between original Sheela Foam and Kurlon?

Which part of the year are you talking about?

For Q1, sir. For Q1 FY '25, against the consolidated top line of 810, how much came from Kurlon and how much came from the worthwhile Sheela Foam?

So you are referring to consolidated revenue, right?

Yes, I'm referring to consolidated total revenue.

Yes. So this includes Kurlon, Sheela Foam Australia and Spain.

That's right.

Yes. So very difficult for us to bifurcate. So the model that you said, Rahul ji just explained that now both the brands are working together to derive the integration benefit. So especially in India, we have combined the distribution network [ meaning growth on the shop -- on the stock holds combined at different places. ] But at the back end, it is the same -- or the same channel that is distributing those products. So we have stopped doing it on that way. Because ultimately, what is the sales proposition that the dealers have, distributors have is how much of the combined volume are they able to sell and how much they are able to deliver. But still broadly if you ask me, I can tell you that Kurlon, because of disruption has been a little bit more than it would be somewhere around INR 170 crores, INR 175 crores, whereas Sheela Foam would be around INR 240 crores, INR 245 crores.

[Operator Instructions] The next question will be from the line of Drisha Poddar from Carnelian Asset Management.

Just wanted to understand a couple of questions. So I wanted to understand that even on a stand-alone basis, our gross margins have declined by about 383 basis points on a year-on-year basis from about 38.6% to 34.8%. So what has led to this gross margin decline here on a stand-alone basis?

Sorry, you are looking at...

Can you just repeat yourself, please, the voice is not coming too clearly.

Sir, I wanted to understand the decline in gross margins even on a stand-alone basis. Sir, stand-alone also, we've seen a gross margin decline of about approximately 383 basis points.

So Amit?

Yes. Ma'am, just to tell you, as you would have heard pertaining to my last question. Sheela Foam [indiscernible] had a revenue of around INR 240 crores, INR 245 crores. And as the top line activity there is 487 crores. The remaining INR 40 crores, INR 45 crores is because of the EBITDA company sales between [ assessment and KEL ] because now we are doing -- though the merger is outstanding, but we have developed an arm's length principle, and we are -- we have put all this business in a manner that they are able to function together. That is how only the efficiencies can be derived. This all arrangement has been put in. But when we do it by the arm's length, the profit margin that you gained from the sister company is much lower. It cannot be as you are selling it to a third party. So generally, you take a 5% to 6% profit margin on cost of goods sold because of where the intercompany sales gross margin would be much lesser. And so when you do an average of it, you find that the overall gross margin has reduced, but if you see on an India business level, which is the right metric to look at it. You will find that the margin has actually improved -- gross margin. So it has -- though in the financials, it shows an improvement by around or into 0.1%, but there were certain product mix which has happened in this quarter for the we -- we have increased our sales cost online segment. We have increased the sales of maintenance which is maintenance for every Indian. There gross margins are lesser for the EBITDA of the sale because this won't involve marketing costs, et cetera. So effectively, the margins should have gone down by 0.4%, whereas it has increased 0.1%. So I would say that the quarter 4, my gross margin has increased by approximately 0.5% on an India business level, which is our expected [ total segment. ]

Okay. Okay. So, Amit ji, what can be the gross margin levels to work upon now in the future? Like should we -- work with about 35%, 36%. Should that be the new normal?

No. My 35%, 36%. You should work with gross margin at India level which is currently around 44%, and there are certain synergies, which Rahul ji mentioned that out of INR 250 crores, only INR 100 crores have been executed or run rate shifted down. So there is an incremental saving efficiency of INR 100 crores to INR 150 crores, which comes over the next 6 to 9 months. So definitely, you should see an enhancement in the gross margin over this period, and that should lead to a much higher gross margin than what we can -- currently it is.

Got it. And on the growth side, like now that I assume that most of our synergy -- like integration issues are behind us 85% to 90% that we've been integrated. So what kind of growth rate can we expect for the balance 3 quarters and for next year?

So on a quarter-on-quarter basis, as we had given the guidance earlier. We are looking on a quarter-to-quarter on a year-on-year basis, a growth of around 15-odd percent. You can be rest assured that we are looking at double-digit growth rate on it in the quarter on an year-on-year.

Got it. Understood. And lastly, on the 2 subsidiaries that we have both Australia and Spain, where we've seen that due to higher other expenses, margins have compressed further. So what is your outlook there?

I'll take that. This is, as I again mentioned, right in the beginning. These numbers are appearing because of reduced raw material prices. And those areas we supply foam to the brand owners and to the mattress manufacturers. And therefore, the raw material prices will impact us far more. These prices are stabilized or have stabilized. And second, we are also bringing some of our costs down. As forward you should see better numbers in the coming quarters.

[Operator Instructions] The next question is from the line of Amitosh Kumar from Mastertrust.

I had 2 questions. So firstly, you said integration of ERP. So it took 6 to 12 months, but you get it in a week. So -- can you explain how did that happen?

Is that your first question? Is that a second question?

Yes, sir. My second question is regarding -- you mentioned negative economic environment was not helpful. So could you emphasize on that as well?

All right. Let me first talk about the ERP products. The integration of ERP, when you switch especially from a system like they had an old version of SAP, which was operating. And as far Sheela Foam is concerned, operating on itself, it's a homegrown system that is there. So when you do module buying module, let's say, starting from stock to manufacturing to sales to financial accounting, you have -- you can do it module by module. And let's say as we could have come on the sales and marketing first. And yes, the track end continues to work with this [ walls. ] Or we could have done and/or we could have done or just do a module of just manufacturing and switch over to -- switch it over to the other companies. The people take time for training, and that's the normal standard 6 to 12 months that it takes for when you switch over from one ERP to the other. Here, we trained people a little longer. We prepared for it and we checked the financial deal starting on 1st of April, and we will start it at that particular time. A little fortunate that we are in the same business. And therefore, the people understood the -- their manufacturing processes or their selling processes. However, systems are different and the way that -- the each one has to operate on it. It takes time for training and fragmentation. Any follow-up questions on that, I'm happy to answer.

No, sir. I'd like to understand the negative economic environment point as well.

Yes. So I think that's correct. What we have been seeing is of course growth rates of -- the declared growth rates in India of 7-odd percent that has been there. But when you break that down, you find that it is the services side which has contributed to it. And it's not the other part, which includes the consumer durables or the areas that we operate in. And that's the negative part that I talked about that it was -- it was not that -- I mean, if you look at the last 6 months, the only consumer-durable, which is growing is the air conditions and that's because of our intense heat that was there. But all the others have been having an absolute luke warm or actually a little lower turnover compared to the previous front.

The next question is from the line of Resham Jain from DSP Asset Managers.

So, my question is related to the overall integration. And I'm sorry but you have explained in detail in last half an hour, but it's very difficult to comprehend that the kind of run rate which Kurlon used to do of close to INR 250-odd crores on a quarterly basis. How despite the total kind of -- if I look at this quarter number, that mathematics doesn't make any sense. So I think if you can just explain maybe in a separate sheet that how both the businesses have grown, that would be very helpful because it seems that one of the business might have seen a significant growth, and I'm not able to understand what is the reason of that degrowth? I understand the markets are not great, but still because of integration, what all impacts you have in MBOs, EBOs any region specific, I think those kind of details would help in understanding those aspects?

Okay. Okay, Resham, so we will prepare a separate document and share it with each one of you of exactly how it impacts us in a summary form and in a bit of a [ strategic ] platform. I'd just say that it does -- I just imagine that there are 2 businesses operating, 1 operating, which is through MBOs and through regional distribution centers directly from companies through their own warehouses and then through the retailers. The other case, this company's zonal distributor, which is a sale and then from a distributor to the retailers and through EBOs, which is also our sales. Now you want to integrate the two. Forget about the starting point because these are continuing businesses, and they have starting points where there are stocks existing, there are products which are existing, there are payments which are yet to come from either side. And then you now need to shift from a regional distributor on to a distributor -- sorry, from a regional distribution centers to a distributor for selling. You have to transfer the stocks, which are existing in the distribution centers. You have to transfer the credits, which are existing, there are human beings which are involved after -- on the retail side and on the distribution side. Those people who are being used to a particular company and now suddenly what has to do both the companies -- look at what goes through their minds? I mean look at the insecurities that goes through their mind. And till the time that some comfort levels are evolve and the business begins to settle down. So that's the disruption that we talked about, products which are being made in 1 -- 2 particular factories and then you want to close those 2 factories down because it doesn't make sense for them to go on a longer or -- for long. They have their impact, the supply chains, there has been a supply chain, which has been existing. And there is a supply chain that you want to create, a combination of both of them. So these are the issues that is there, but I would be happy to take -- to prepare 1 pager on this and share it with you.

Got it, sir. The second question is, sir, given fraud, our understanding is very difficult to complement what kind of visibility you have in terms of, let's say, revenue going forward? I assume that this is temporary in nature, all the stock adjustments and other aspects. But let's say, going forward in second half, the key festive season will be there. How do you think about the kind of revenue run rate, which we can do in the India business?

So I think let me first begin by saying that fundamentally the business and from the combined business has actually become stronger. That is as a platform, it has become stronger from the 2 platforms that were existing. Now it's not getting reflected on the top line. And your question is that what kind of confidence levels do you have that -- that the top line will come to projected levels or to even the erstwhile levels that were existing. Fundamentally, when I say the capacity to manufacture the products that you have, the brands and their sales that is there in the market, the distribution channels that you have, they are stronger than before. Now it's a question of -- and I said the numbers that you are watching are 30th June numbers, there is 1.25 month, which is or a month and a few days which have gone by. And therefore, I speak with some confidence to say that they will return to the old or to the projected numbers that we have. And we will be well in time before the quarter 3, which is the high season quarter before that starts, we will be well in position for that. Unfortunately, I can't talk too much about whatever has been done in the recent past or 1 month back, but the confidence is there.

Next question is from the line of Ritesh Shah from Investec.

Sir, am I audible?

Yes, Ritesh. Clear and loud.

Yes. Sir, a couple of questions. One, is it possible to quantify corresponding numbers to INR 170 crores and INR 445 crores what you indicated for this quarter? For the last year?

You want to ask 1 by 1 or you want to put all the questions, Ritesh?

Sir, whatever is convenient to you, sir.

No. All right. So you'll have to repeat this last one.

Yes. Sir, so the first question is, I think in the -- one of the questions you answered, Kurlon did around INR 170 crores this quarter. And SFL did INR 445 crores. So the question is how much was the content for corresponding period last year.

So Ritesh, as far as Kurlon numbers are concerned, we would not have them because they were not listed, and they did not prepare any quarterly numbers at all. So they've only had annual numbers. And therefore, we have attempted that in the past, but unfortunately, not been able to get that. That's 1 part. And even this INR 170 crores and INR 445 crores that Amit said, is a bit of an estimate because what we have put in process is that eventually -- now finally, everything is going to become Sheela Foam, even the sales part of it are whatever comes from Kurlon as a corporate entity goes through Sheela Foam as a related party transaction. But of course, everything happening at an arm's distance and then goes to the front end or to the market. And therefore, it's extremely difficult to get -- these are estimates, and we can't have the last years -- we can have the Sheela Foam numbers, but we can't have Kurlon numbers of last year.

Sheela Foam numbers, Ritesh, are already there in the presentation. I think it is INR 450 crores something, the Q1 numbers on stand-alone asset. But Kurlon numbers since they never published these numbers -- very difficult and internal numbers are very subjective. So I would not like to take a risk of inserting new numbers.

That's quite helpful. Sir, my second question was on distribution. Would it be possible to quantify what is the EBO and MBO network under Sheela Foam? And how much it is under Kurlon, the number is like 3 months back, 6 months back, it's perfectly fine. And wanted to understand how do we plan to increase the number for EBO, MBO for the Sheela market and for the Kurlon market? And how far have we reached in the journey? Like is it a 3-year saying, 5-year target? And where are we over there?

So I'm requesting Nilesh to take that question.

Ritesh, so as far as the distribution is now concerned, as you would know that we used to have people doing largely only through exclusive outlets and -- Kurlon by and large was through multi-brand outlets. And this, along with the acquisition, obviously, people get the opportunity also to go through multi-brand outlet and also expand the exclusive channel both for SFL and Kurlon. So as we see currently, both the brands put together would be getting sold in the urban market for approximately 7,000 outlets now. In the last quarter, we would have added stores revised approximately about 700-odd outlets for both the brands. And this does not build in the small town India where we have a completely independent channel, which we have created. So that's the kind of expansion that we have done until now in the first quarter.

Right. And sir, is it possible to break this number of 7,000 between EBO and MBOs, including 700?

So is I -- very broadly break this up, it will be approximately around 3,000 outlets will be exclusive and about 4,000 would be multi-brand or high potential oulet.

Sure. And how do we plan -- that's helpful. And sir, how do you plan to increase this number, say, is it a 3-year view 5-year view?

So see, the distribution expansion would happen in a calibrated manner, we would expand the showroom for both the brands because the exclusive give a different kind of a shopping experience to the consumer. As we had discussed before that the strategy we are following is that the entire country, we have broken up in almost 2,000 micro markets. And for each micro market, we have a separate distribution plan, how both the brands we will be enhancing their presence, either through increasing outlet or through increasing share depending on what the current status is. The numeric distribution is something that we will be driving through the small town India. And my guess is that small town India, we will have -- we already have about 5,000 outlets. And by end of the year, this is completely new channel that we are creating. We will have another about 7,500 to 10,000 total number of outlets that we will have in small town India by the end of the financial year.

Sure. Sir, I'll ask the question in a different way. Sir, in the past, we have indicated that we would look at double-digit volume growth. So please correct me if I'm wrong, so my idea was to understand how much is the same-store sales growth that we are looking at? And how much of it did come from the distribution network enhancement? So I wanted to understand how you're thinking about this.

So volume growth distribution is going to come through -- just not channel. It will also come through several other initiatives that we are doing as we speak for almost every quarter, we have a new product introduction that we have planned and which we will be rolling out to fill in some of the portfolio gaps that we have. We will also be looking at communication, which will help us, obviously, both in building our brand saliency and particular modeling and along with that, the channel expansion. So it will be a combination of all this that will give us the volume growth that Rahul ji spoke about.

Right. I'll just try to ask that question again, if I had to look at 12% volume growth, like how are we thinking about it? So I understand enhancing the market share, putting new products in the marketplace, but -- so that's why I asked -- I started the question from first distribution. If you are going from the 7,000 to 7,700, so how one should look at the arithmetic?

Yes. So when we are talking about our new products and communication, et cetera, a large part of that is going to help consumer existing channel itself. When I do a new product introduction, advertising, communication. So that will come in the same channel to break back up into things or how much of the communication and new products will help me only in exclusive and not in the other channels, it will be slightly difficult. But overall, if you want, how much of expansion of channel will happen -- asset channel, we are looking at approximately expanding the channel by 10%. In the time I have 7,000 outlets, we will expand by another 10% in the channel -- in the urban market, if that helps answer your question.

Yes, sir. And this 10% will be in a year or 2 years?

Yes. Yes, it will be in the current financial year.

And sir, my second question was on incentives. I understand we have peaked around the incentives for both Kurlon as well as Sheela Foam. They are probably at a similar level now against the deviation, which was there earlier. Please correct me if I'm wrong because the samples as might be a bit off to what we are looking at. So wanted to understand your thoughts, how are the incentive structures for both, EBO as well as MBO now? And as we get into a high season on sales, what is our thought process? The reason to ask this is there are new players who have ventured into the space, including likes of Nilkamal to what we understand, they are giving crazy discounts to the dealers. So how do we take care of this problem? And how are we positioning ourselves?

So we -- as far as the incentive structure is concerned, we have not majorly disrupted it but made it a little bit more disciplined and one can get into the retailing of it on a separate platform so that one understands. But we need to remember that these are -- the brands that you mentioned are not really our benchmark brand in terms of the way we would want to create demand for them. So there are a set of brands who are driving sales by throwing money at the channel, but that can only take you until a certain distance. We are looking at creating consumer demand and driving growth. So therefore, there is a difference there. And the current level of sales that we are discussing between the brand that you just mentioned and CFL, Kurlon are no where comparable actually, Ritesh. There is a significant difference between that what we have been discussing in the past has been about the e-commerce platform that we had even discussed in the previous earning. Happy to share that on e-commerce platform now SFL and Kurlon, we have seen fairly healthy growth.

Sir, if I just squeeze in one. Furlenco, if you can quantify the numbers the first half of the fiscal. And when do we plan to increase the takeover here?

Amit?

Yes. So I think Furlenco, Ritesh, could you just repeat the question so that I understand I have got it correctly.

Sir, financials for Furlenco, that is one. And second is, when do we plan to increase the stake?

Okay. So for financials, I would divide it into 3 parts, Ritesh. One is prior to our acquisition. The second part is from August till February or January when -- because in February, the company turned PBT positive. So before that, it was PBT negative. And then from say, February till now. So before we acquired the company had a top line run rate of around INR 12-odd crores because of the -- it did a turnover of around INR 150 crores per annum. It had a bottom line PBT of minus INR 10 crores per month, which in the subsequent quarter, the turnover increased. But yes, the bottom line almost remained the same, INR 8, INR 9 crores PBT negative average per month, with top line gradually increasing. Post February, the company turned into PBT positive when it was at a run rate of around say INR 14.5 crores, INR 15 crores per month top line. Happy to say that the company has last month crossed INR 17 crores top line, which is a run rate of INR 200 crores plus. And it's PBT-positive and gradually improving on the profitability there. As regards to investment, we have an option of getting another 9% in the company with an investment of INR 100-odd crores. The matter is currently being debated at our Board level and Directors level. So we have this option until 29th of August. So I think it would be very early for me to comment as to what would be done on that whatever the Board of Directors decide accordingly, we will take that action.

The next question is from the line of Gunit Singh from Counter Cyclical PMS.

So most of my questions have been asked, but I think there have been lots of questions regarding the revenues in the coming year and the kind of margins that we are looking at. Can you [indiscernible] about INR [ 3,000 ] crores of consolidated revenues in FY '24 at about 10% operating margins. So I mean, just to directly understand, I mean, what kind of growth over this, are we expecting in FY '25 and FY '26? And also, I mean, what kind of EBITDA margins are we looking at in FY '25 when the Kurlon business is stabilizing with a stand-alone entity and going forward for FY '26, what is the outlook for the same? And what are the steady-state EBITDA margins for Kurlon stand-alone?

So I would just take your last question first. I would not be able to give you a Kurlon EBITDA margin because, as I mentioned earlier, both Kurlon and SFL businesses are now working together. The factories of both the companies are being utilized to produce material for each other depending on where it is most efficient to produce and depending on where it is most nearest to the customer to service. But yes, we have replaced that with India business margin, which is a combination of SFL and KEL India business margin, which will give you a reasonable idea as to how the top lines are growing. And what is the level of efficiency that the business is generating are reflected in the gross margins there. Now to take your first question on the growth rate. Here, I would divide it into 2 parts. One is the Indian business, which is SFL plus KEL plus [indiscernible] and the other is the overseas business. From last year turnover and just to correct it here, last year Kurlon was only for 6 months. So the consolidated number that we have in the financials needs to be normalized for that, which will mean that we had a turnover as normalized turnover of around -- INR 2,900-something-odd crores sorry -- around INR 2,700-odd crores for the Indian business last year. On it, we are intending. And I would say we are making efforts and that is what we have been communicating in the past. So we are trying to have 14% to 15% [indiscernible] growth rate, starting from financial year '25 until financial year '27. Overseas business on a top line is anticipated to have a growth of around 10% per annum. On the bottom line, I would say that with all the efficiencies that have been communicated and all the efficiencies that have been executed till now, yet some of those results are yet to come and the impact of operational leverage because of enhanced turnover. We anticipate that in the next 3 years, we should be touching 14% to 15% EBITDA margin, not because the savings -- we could not have gone beyond that with the amount of savings we could have gone 2% to 3% higher on that. But we need to reinvest on the brand, so the investment in the brand would go up by around 2% to 3% of sales resulting in a net bottom line inflow of around 14% to 15% on an India business and around 10-odd percent on [ annual basis. ]

Alright. So that's very harshening for the long-term trajectory. And sir, for FY '25, I mean, what kind of consolidated EBITDA margins would we be looking at?

So short-term EBITDA guidance, giving is a difficult job, but I can certainly tell you that it would be more than double digits. So 10% plus, maybe 11% or something of that sort.

Next question line of Manish, who is an individual investor.

I think you answered my question. I was about to ask about the EBITDA margin. So because as you stated -- since you've integrated 2 businesses, initially, if I just look at the EBITDA margin for SFL, it was 13.3%. Now since you've integrated 2 businesses, you've integrated the supply chain, you've integrated the warehouses and all. So the EBITDA margin of Sheela Foam should increase rather than decrease. So since you answered my question that you're looking at around 15% EBITDA margin, that answered my question. And sir, I would like to ask one thing. In one of the interview, it has spoken that if I go to villages and all what they do is there's a small space and if I want to have a mattress. What they do is they roll up the mattress and put inside the bed, right? So how are you planning to capture low income groups people because they also -- they currently use cotton mattresses, right, they don't use foam mattresses. So do we have a future plan of capturing low income groups or moving towards capturing what -- someone in the villages belong.

Yes, Manish, thanks for that question. We have covered this as a part of our -- what we call as the small town India strategy, and that strategy is targeted towards this particular segment that you spoke about which is the cotton mattress and how do we upgrade them because there is a certain convenience that a cotton mattress has that it can get folded and put into a corner in the house area, et cetera, is small. So as we have shared this in the past, we have rolled out pure threefold mattress, which is threefold. So the consumer can actually fold the mattress and put it in one corner and when they want to use -- they can take it out and unfold it. So this gives them the comfort of a home mattress. The roduct comes with a 3-year warranty, price points starting from approximately INR 2,000 which is upwards for a single mattress. So the lifetime value of the product is much better than a cotton mattress. We have now -- we have launched this product in almost 70% to 75% of the country and happy to share that we are seeing quite a positive response with this strategy.

Yes. Why I ask this question because I come from a small village in Jharkhand. I speak to people around why do you go for cotton mattress and not for the foam mattress. The mentality has not changed. So we are brining the new products to them. Will give them full mattress in the same price. How do you intend to change the mentality? Let's say, this is better than the cotton. That's more important. Are we trying to figure it out, how we'll change that mentality of people around? Do we have some initiatives or some advertisement or some outreach to people around -- hey, this is better.

All that I say is that the answer is yes to everything that you said it will unfold in the cost of time.

Yes, sir. Thanks for knowing that we are targeting 15% EBITDA margin.

Last question for today is from the line of Tushaar Vaidya, who is an individual investor.

This question is for Rahul ji. Rahul ji, Sheela Foam from the factory has never been paying dividends. Do you intend to continue this policy? Or do you -- or is there a thought of you looking at a dividend policy going forward? That's question number one. And question number two, going back to revenues. Do you believe that we are losing market share currently?

So, Tushaar, you will have to repeat the first question.

Sir, the first question was on your dividend policy. Sheela Foam has not been paying dividends but it has been making profits. So do you ever intend to change the dividend policy? What are your views on paying dividends, was the first question.

Okay. So Tushaar, I think there's been a couple of times that we have discussed this issue. It's also debated very hotly as far as our Board is concerned. The few prime reasons is, for example, we kept the money aside for an acquisition like this that has happened. And we always believe that when you give -- I know there are advantages of giving dividend. Tax wise, it's definitely on the negative side. We also believe that the majority of the dividend would come just to the family. And we thought that as far as the shareholders are concerned, the benefits would be far more through the market processes and which we expect that this will happen. I may not be able to discuss exactly what happened in the Board the last time. But -- it's not that we are close to giving dividends. We fully recognize the role that dividends play and let's hope soon it will come through here. That's one. The second one, you asked a question about the revenue, and you said that are we losing any market share? So there are no, though no well-known numbers, and the reason I say that there are some brand numbers which exist. But the unorganized sector is so large that if you put all that together, and that's how you would define the market, if the numbers may not be there. But I don't think so they're losing any market share. We now may not be gaining on any at the moment, but we are not losing any market share. On the other hand, we are expanding the market by the small town initiatives or the village initiatives that we are doing. And at the same time, we would be also working on the premiumization of the product and doing it. So it's just a question of the noise and the [Foreign Language] that you hear -- it one starts to believing that we would be a new losing share of a mattress front. And please also accept this part that as far as the company and the company's turnover is concerned, it is reflecting not only the mattress and the branded mattress side, but it also includes the technical foams. It also includes the furniture foams, which are going, and these 2 areas, which are also reasonably large just because the raw material prices have come down, the values of the top line impact of these 2 has also come down. On the mattresses side, if you would specifically ask this question to Nilesh, he will tell you that [indiscernible] has actually grown in number, has grown in both volume and value terms, and it will continue to grow. Kurlon, I would get a little more comfortable or be in a position to share some more numbers with you by the next quarter. But the number that I have for the last quarter, also it has gone by 5% up.

6% up.

So I don't think we are losing out on any -- but thanks for bringing this out and one will become a little more oriented towards this.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Thank you. Thank you all for participating in this earnings conference call. I hope we've been able to answer your questions satisfactorily. And I'm also saying it with a little bit of apprehension from my own side, because I did see the anxiety that all of you have and are expressing it on the quarter numbers. But let me assure you once again, that this is a temporary phase on account of the integration process or the pace of integration that we have chosen to and all this should be behind us. Fundamentally, the business is good and strong and will continue to grow. If you have any further questions, or would like to know more about the company, please reach out through -- directly to any one of us or through our IR managers, Ad Valorem Advisors. So thank you very much and have a good day. Bye for now.

Thank you. On behalf of Elara Securities Private Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.