Sheela Foam Limited (SFL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sheela Foam Limited Q4 and FY '25 Earnings Conference Call hosted by Investec Capital Services, India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ritesh Shah, Head, Mid-Market Coverage and ESG from Investec. Thank you, and over to you, sir.

Thank you, Shiv. Welcome all for Sheela Foam Conference Call. We have with us senior management of the company including Mr. Rahul Gautam, Executive Chairman; Mr. Tushaar Gautam, Managing Director; Mr. Amit Kumar Gupta, Group CFO; and Mr. Rakesh Chahar, Whole-Time Director. Rahulji, I would request you to start with some initial remarks, post which we can have a Q&A session. Over to you, sir. Thank you so much.

Thank you, Ritesh. Thank you. Thanks a lot. Good evening, everyone, and thank you for joining us for our earnings conference call for the fourth quarter and financial year ending 2025. Along with me today, we have Mr. Tushaar Gautam, Mr. Rakesh Chahar and Mr. Amit Gupta. Let me first take you all through the major developments in the company for the periods under review, and then Amit will take you through the financials. In the fourth quarter, on a Y-on-Y basis, we saw strong growth in our stand-alone business. As part of integration plan, most of Kurlon brand sales were routed through SFL through Sheela Foam, aiding in revenue growth. Our focus driven marketing and consumer engagement strategy also played a pivotal role to ramp up the sales. Financial year 2025 marked the first full year of the combined operations for the Indian business, that is Sheela Foam and Kurlon Enterprise Limited I'm happy to report that our strategic plans are playing out as planned. The various initiatives taken across the company on cost rationalization have already and will continue to improve profitability in coming quarters. In FY '25, the gross margins of 42.5% reflect annual cost saving run rate of INR 120 crores. Additional savings of another INR 130 crores have already been executed and the impact of which we will soon see and will get reflected in our performance in coming times. The headwinds in consumer durables are known to everyone, impacted the sales of FY '25, thereby limiting us to achieve the evasive double-digit EBITDA margins that we were looking for. On the mattress side, for FY '25, we achieved a high volume growth on a year-on-year basis. However, the same is not yet reflecting in revenue growth due to expansion of volume-driven, the e-commerce business and the Small-Town Initiative that we have taken in that -- in those categories. To ensure greater market penetration, we focused on expanding our network of showrooms. I'm happy to share that we added nearly 400 exclusive showrooms and appointed 1,700 dealers in FY '25. Showroom expansion remains a key focus area for us in FY '26 as well, wherein we plan to add more than 1,000 new touch points. We are enhancing our presence in MBOs, which allow for a higher counter share. Wherever possible, we are adding new distributor-owned outlets under both Sleepwell and Kurlon. We also continue to witness widespread adoption of small-town initiatives, which are now available in more than 4,000 towns in India and is showing very encouraging growth levels. The company is focusing on appointing these STI-specific distributors, who will work solely in this category. And I just repeat that, that this will be over and above the existing distribution system that we have. In the B2B segment, technical foam had steady volumes in FY '25. We maintained our share in the auto lamination industry. We are also developing new products for industries such as the aviation industry, ceramic filters, acoustics, that is the gensets and the silencing of the gensets, as also, footwear insoles. We are also leveraging the furniture foam or cushioning under the KEL or under the Kurlon brand to gain strong foothold in the North and West of India. Our comfort foam segment has had strong growth both in terms of revenues as well as volume during the year. Here, we have expanded our dealer network by adding nearly 1,000 plus new dealers. So as I'm mentioning that the volume definitely has gone up, but because of lower raw material prices, the value or the top line is yet to reflect the increase in the market that -- or increase in the market share that we have. Furlenco demonstrated a strong performance during this year. It achieved its full first year of positive profitability in FY '25. The existing ARR in March '25 stood at an INR 300 crores. The ASP crossed above INR 1 lakh in FY '25, which demonstrates a healthy penetration and adoption of Furlenco's offerings. Furthermore, we launched Furlenco in a few new cities, including Indore, Kolkata and Ahmedabad. To appeal to our Gen Z audience, we've also launched new product portfolios, those caters to their taste and needs, which are very different from Gen X and Gen Y. Coming to the performance of Staqo, which is our IT initiative, the growth journey continues in FY '25, with revenues growing by 61% year-on-year, with EBITDA margins of around 28%. We onboarded several new clients across PSUs, MSMEs, along with the private -- along with the other private domains. To conclude, we are on track to unlock the full potential of the Indian business. In view of further streamlining and rationalizing our India operations, we have monetized 3 manufacturing facilities namely Dabaspet in Bangalore, Rajpura in Punjab and Roorkee in Uttarakhand. Through these concerted efforts, our manufacturing facilities, which were hovering around 18 are now rationalized to 12. And we strongly believe that these 12 are good enough to cater to the needs and requirements of both the brands and of the comfort foams and the B2B businesses, at least for the next 3 years. On the international front, in the Australian business, we were able to receive the price increase. It took a little bit of time, but finally able to receive the price increases from majority of our customers, thereby improving profitability. We are also onboarding alternate raw material suppliers, which will further enhance business profitabilities. In Spain, the capacity expansion contributed to volume growth of more than 15% during the year. However, the revenue for reasons which I mentioned before, where the raw material prices are very low, the revenue was limited by lower raw material prices, utilizing the enhanced capacity led to increased overheads which in turn impacted our margins and profitability for the year. As we wait and as we see that the raw material prices are beginning to move up, these issues will get sorted out. As I look back in the last few quarters, clearly, the impacts of acquisition have stabilized and definitely the worst is behind us. With those words, I hand you over to Amit to take you through the financials.

Thank you, sir, and good evening, everyone. I am Amit Kumar Gupta. Let me take you through the financial performance for the fourth quarter and financial year ending 2025. For the fourth quarter under review, on a stand-alone basis, we reported revenues of INR 691 crores. EBITDA for the quarter stood at INR 46 crores with EBITDA margins at 6.6% for the quarter. Net profit was reported at INR 12 crores. For the financial year ended 2025, the stand-alone revenue was around INR 2,600 crores. EBITDA for the period was at INR 235 crores and EBITDA margin reported at 9.1%. Net profit was reported at INR 112 crores. On a consolidated basis, for the fourth quarter, we reported revenues of INR 850 crores. EBITDA for the quarter stood at INR 69 crores and EBITDA margins were reported at 8.1%. Net profit stood at INR 22 crores. For the financial year ended 2025, we reported consolidated revenues at around INR 3,500 crores. EBITDA for the period stood at around INR 300 crores with EBITDA margins at around 8.3%. Net profit stood at around INR 100 crores. One thing that I would like to mention here, though, on an operational front, we performed better in 2025, improving our gross margin, the flow of profitability to the bottom line was limited because -- primarily because of enhanced interest cost on the debt that we had undertaken for Kurlon purchase and also on incremental depreciation since Kurlon, it was the first full year of Kurlon with us, the depreciation for the entire year was combined. However, we believe that in the next 2 to 3 years, with the growth target that we have as the top line grows and we are able to repay the debt, we should be able to reach profitability metrics, which were better than what we enjoyed in the past. With that, we can now open the floor to questions and answer session.

[Operator Instructions] The first question is from the line of Arun Malhotra from CapGrow Capital.

Just wanted to understand, I think we have seen a couple of quarters after the merger has happened, we are still not seeing the profitability. Is there any structural problem with the business itself? That's one. And second, hopefully, the synergies should have come by now, and we should have seen higher margins, but that is nowhere to be seen.

Thank you, Arunji, for the question. And this is something which we discuss and talk about all the time. Our analysis is that there is no issue with any structural -- or there is no structural problem. It is just that the 2 companies which were operating in completely different manners have to be integrated. On the back-end side of it, there was not much of an issue because production and manufacturing is very similar. However, it's on the front-end part of it. There was one, which was going directly to the dealers and to the customers, while for Sheela, it was through distributors, et cetera. Now to merge those things together to find out which is the best route to the market, et cetera, it has taken a little bit of time, but there is no structural problem. And I appreciate your point of view of saying that for post -- I mean, somewhere the lower performance of the company seems to be coinciding with the acquisition part. But to us, we believe that it's a bit of a coincidence. Many things have kind of happened together. But otherwise, as we kind of come out of it, as we conclude the acquisition and the integration, we believe that the worst is behind as it will move forward.

On synergies front, as you mentioned, so we currently are looking at it very closely. And that's why we can say that around INR 120 crores worth of run rate by end of March '25 is already there, which, to some extent, is also reflected in the gross margins of the company. However -- and also if you -- if we go down below the gross margins with combined overheads of Sheela Foam and Kurlon, during the year, we were in the process of pruning the same and creating it into one organization and optimal overhead structure. We have been able to, a large extent, successful as you would have seen that we have reduced our number of plants from 18 to 12. All those administrative overheads and manpower costs in those plants have gone away. But they have taken place over the entire last year. So full year reflection would come for the first time this year. In fourth quarter, we were pretty confident that it would be reflected. But unfortunately, there were certain tailwinds because of the environment in the consumer space because of which our top line was restricted to the amount at which it is. Had we been able to achieve even 10% higher than this, we would have achieved our double-digit margins, which we are looking forward to in the coming quarters.

Sure. I appreciate the confidence which you are showing, and you have also shown in the past. But since it is not reflected in the numbers, I am again repeating the same thing, the market is now losing the credibility, which can be seen from the past performance of the stock, which is now below the IPO price, last 4, 5 years, the stock performance is negative. So are we also concerned about the minority shareholders? And trying to do something in that direction?

So we are definitely concerned about all the shareholders. And what you have stated Arunji is based on numbers and on facts that this is how it has kind of panned out. But I mean, the confidence that you talk about it, I don't want to call it confidence, but I just want to say that it's a positive -- very positive outlook that we have. And undoubtedly, it has taken far more as far as effort and energy and time was concerned in integrating the 2. I say it, but at the same time, I also see that 2 organizations of this level and this set of complexities, we have done reasonably well for integrating them. And now that we are almost at the fag end of it, it should only -- it should show positive part.

Sure. And lastly, if -- let's say, I take you forward for 3 years. What could be the shape of the business in terms of profitability, margins, growth? What is -- what are the industry trends which you think being a market leader now with the consolidated entity, you could actually capture those margins, profitability and the market shares and the growth? I'm talking 3 years forward hence, yes.

Yes, yes. So I would say that, look, as far as the general uncertainty about everything is concerned, that's ever increasing. But having said that, if you just look at the areas or the market size or the potential of the market size that exists, I think it doesn't matter if the conditions get very adverse or very bad, still there would be enough for us to grow. So whatever is our target that we have taken for -- and I would let Amit answer that. Have we have taken forward? If we should be least impacted by environment changes, of course, availability of raw materials, any logistics issue happening globally, et cetera, those could for a little while impact, but otherwise, as far as the markets in India are concerned, we all know that, that should be there. But Amit, what we have projected?

Yes. So Arunji, I think I can give you simple numbers, but that won't help. So let me give you a little bit of how we intend to approach this particular thing, and this is the place where we are looking to reach. So if you see during the last 1 year, our business from structurally, that is the operating business has become more efficient. Yes, it has become more profitable. Our program simply had been -- can you hear me? Am I audible?

Yes. Yes, I can hear you.

Person is saying to or somebody else should.

Okay. Okay. So now -- since both the organizations have now been combined, the next job for us was to create an overhead structure, which was optimum for an organization of our size. In that also, we have been pretty successful. If I compare on a like-to-like basis, our cost in spite of inflation have not gone up. Now the important thing that we need to work on now is how do we increase our top line. And I think we have taken positive steps in this direction in the last 1 year. Our share on the online segment has gone up. We are currently around INR 175 crores to INR 200 crores on the online segment. Historically, we could touch only INR 100 crores, INR 110 crores. And also in the Small-Town Initiative, we are -- we will be touching very soon INR 100 crore mark on that particular segment. So this helps us in 2 ways. One, it increases -- gives us additional revenue. And secondly, it gives us additional market where we are selling our product. So if you see, we are moving in a direction where growth should come, and we should further strengthen our leadership position. Now given this background, we believe and we being a company which is at 30%-plus contribution margin company, we have -- our products are of such nature, I believe that as soon as we are able to achieve some growth on the top line, this would definitely be reflected in the bottom line. And that is what our focus area now is for this year as well as for the next 2 years. To give you a number, and I have given it in the past also, I would retain my numbers that we intend to grow in India by around 15% per annum for the next 2, 3 years. And our EBITDA margins should be somewhere around 13%, 14-odd percent in 3 years. If you are -- maybe it touches 15%, that's my internal target. But you can take it, it will definitely be higher than 12-odd percent. The only thing is that we should be growing now from here from a top line perspective, which we are pretty confident of.

The next question is from the line of Aishwarya from iThought PMS.

Am I audible?

Yes, Aishwarya. Please go ahead.

Yes. Sir, my question is regarding the top line because the mattresses business in itself is like a moderate growing business because if I buy a mattress, just say, one mattress is about INR 35,000 or something, it will go and it will last for me up to 7 to 10 years around there. So what generally happens is we can see that the top line is moderately growing. And I was expecting a conservative number, but then you did -- the guidance was given that we will be performing about 14% to 16% and we did perform somewhere near to that which is 12% from last year. And what I'm trying to understand is that since you have onboarded new products and your new products in the Tarang and Aaram in the rural area, but that cost would be like much lower than the cost of mattresses, which is available in Tier 1 cities. So unless we do good in volume terms over there, it's still like a moderate growth. Then how will we be achieving the guidance which we are giving today? And the other cost -- other question is regarding debt because this year, since the interest costs are higher, in how many years will be having no debt? That's another question, sir.

Okay. Aishwarya, thanks. So I'll let Mr. Rakesh Chahar answer this. As to the impact of Aaram and Tarang and you said that the costs in the Tier 1 cities is lower than the cost of Aaram and Tarang. So Aaram and Tarang is high, that's right. I mean there were other mattresses available, which are lower than that price. And therefore, how do you intend to compete? Is my understanding right?

Yes. Yes, sir.

So we have a large EBO network, which is almost about 2,500 showrooms. So there, the journey will be of premiumization. So there is already a program that we have initiated to [ upset ], which is both on the product side and also the software issues with the retail partners that how do we engage consumers, elevate their interest in sleep and the role of a mattress in good sleep and therefore, able to sell a higher mattress. So that's the journey as far as the showrooms are concerned, EBO showrooms. As far as the Tarang and Aaram are concerned, I mean, it has market in the rural area and also the smaller shops in the urban area. So we are -- we have put a structure in place because we are very weak in the urban area. We were only driving this product so far on the rural side. So recently, we have introduced it in the urban side, restricting it to a level where the small furniture shops can carry it because normally, the mattresses are sold along with the furniture. So they will have both different treatment from our side. So our premiumization in the EBOs, where 75% business is coming, that will not get impacted. And here, we will get additional sales where we are not present today. So that's how we are looking at.

Okay. And Amit, can you respond to her question on the interest part of it? As we go forward, there is a large interest component, which is there. And till when will that kind of continue and when will we be able to clear that?

So Aishwarya, there are -- we currently have a debt of around INR 700 crores, INR 750 crores on our Indian balance sheet, against which we have a cash of around INR 450 crores. We expect to generate with a level of profitability around INR 100 crores to INR 150 crores per annum for the next -- growing at the rate at which it should grow for the next 2 to 3 years. In addition, we are also monetizing certain real estate, which is land free because of the closure of plant which Rahulji mentioned in the part of his speech, which should fetch us around INR 200 crores, and this is we are trying to monetize in the next 1 year, that is in the current financial year. So I believe that with all this, we should be able to deleverage our Indian balance sheet fully in the next 2 to 3 years, after which the interest component, which you currently see at around INR 100-odd crores should be reduced only to working capital interest of INR 10 crores, INR 15 crores per annum. So that should be the trajectory of interest cost.

Understand, sir. I have a last question regarding the other [ D2C ] brands, which are actually raising money to break the market share, because they are not profitable yet, but they are breaking market share. And they are giving some various schemes which actually customers are lured by. So what I want to understand is that are we still open for any other acquisitions as a company, not just with the mattresses or for any other product, which will complement the business?

No, Aishwarya, at the moment, we are not looking at any other acquisition. We would want to settle this down. I think dealing with 2 large brands and get them to move to their destiny, it's going to be a task. And I think all efforts and all resources the company should be focused on that.

And secondly, if you see, we are now leaders pan-India. So Sleepwell rules in the North and the West and Kurlon rules in the South and the East. At any point of time, it would always make sense for us to do an organic growth rather than spending too much money on an inorganic growth. Now as you mentioned that there are people who are competing with us, and they may -- they are -- they may take a little bit of our size. I can tell you that they can -- they are only present in top-tier urban places where they can make a chipping impact. The way we are countering and the way Rakeshji mentioned, that we are opening showrooms. We opened around 700 last year. We will open around 1,000 in the current year. So we are growing much faster than them. And apart from that, we are again creating market development strategies in the online and the STI segment. So being a leader, yes, we cannot behave like them because their stakes are much lower. We need to develop pan across the country. So we need to follow different strategies, but I can tell you that with these strategies, our objective is to get a very strong foothold in the country, which we can do on the strength of the 2 core brands and keep growing. The other brands may also grow, but yes, the market is very large for accommodating them as well.

The next question is from the line of Rahul Agarwal from Ikigai Asset.

Sir, a few questions and a few clarifications. Firstly, you gave a guidance of 15% CAGR with 13%, 14% margins. I believe that is more for the mattress-only, right? It doesn't include the B2B part. Is that correct?

Rahulji, you'll have to speak up a little louder. The voice is just not coming through.

Is this better?

A little better?

Okay. Firstly, some questions and some clarifications. I wanted to clarify that the 15% CAGR growth on revenues and 13% to 14% margins, this is only for the mattress business, it doesn't include the B2B part. Is that correct?

No. That's incorrect. Mattress should grow even higher. See, this is a combined growth for the entire India business, including the B2C, D2C and B2B businesses. So B2B businesses will have -- are expected to have a little bit lower growth because we have segments like technical foam, which depend on end user industry. But mattress should be higher because we combine one organic growth of the industry, coupled with growth in the new markets that we have opened, which is STI and maybe online segment.

So in short, it is for the entire business -- entire India business. That's right.

Got it. Perfect. And then now just further breaking it down into B2C and B2B. B2C, essentially because of the mix change and higher growth into smaller towns as well as Aaram and Tarang, obviously, we are looking at a bit lower ASPs. So my belief is that increment growth on mattress, which will be higher than 15%. So let's say, for the sake of discussion, it's 16%, 17% Y-o-Y on a CAGR basis should largely be driven by volume? Is that understanding correct?

So volume growth will be higher than value growth. You are right, because there are different segments and different price categories. That way, you are right.

Okay. Okay. I get it. And on the B2B side, though on a full year basis, I believe the numbers are okay. But when I look at the trends, it looks like the ASPs are up, but the volumes are down meaningfully in fourth quarter. So is it more seasonal? Or is it any other reason why the foam, the B2B volumes are down this quarter on a Y-o-Y basis?

So 2 reasons I can tell you. First, I will -- so 2 reasons I can tell you. One, we took certain price increases in this quarter in mattresses specifically. And second, third quarter, online was the highest, which to some extent impacts ASP. So in the fourth quarter, that impact was a little bit lesser. And that's why we could see better ASPs in fourth quarter than the third quarter.

No, actually, my question was on ASPs for B2B products, not for the mattress. My question is -- I'll just repeat myself, on B2B on the fourth quarter performance, what I see is the pricing has actually gone up. The selling price on a tonnage basis has gone up while the volumes are down like almost 15%, 30%, maybe for some segments. Any particular reason for that? That was the question.

So I tell you -- so if you see there were certain price increases in B2B segments also. We should have taken these price increases in the earlier quarter. That would have impacted, but there is a combination of impact. On opposite side, one, raw material prices were coming down. So because of that, there was pressure on pricing. And on the other hand, we took price increases to compensate for what we should have done in the previous quarter. The volumes are different. And especially, you will see that in comfort foam. But other than comfort foam, I think volumes and value should match up, right?

Okay. So is this price hike recently absorbed in the market on the B2B side? And incrementally, we should see like a steady 8%, 10% CAGR on volumes irrespective of what happens to the price because that anyway out of anybody's control. Is that understanding correct?

Yes. That understanding is correct.

Okay. Perfect. And just a few clarifications. On the notes to accounts, there was adjustment on goodwill purely coming from accounted as other income for working capital adjustments. There was something written on the government grants of INR 46 crores. And then we have this asset sales of INR 45 crores, which are supposed to happen at about INR 200 crores over the next 12 months is what you'll try for. So asset sale is pretty clear, but could you clarify on the goodwill adjustments where is it booked as other income? And as for government grants, what is that about? And how will that get accounted for, please?

So I'll take the government grant first. This government grant is on Jabalpur plant. We got a total incentive of around INR 45.7 crores, you can look at the notes to the financial statements, which we released. This is to be received over a period of 7 years, based on which an income of -- operating income of INR 7.25 crores has been booked in the current quarter. This is the income for the financial year '24/'25. Since we got the letter in the current quarter, we would not have booked it earlier. We booked it in this quarter.

So this is booked as revenue, is it? Is this booked as revenue? Or is it booked as other income?

It is booked, I will have to check. Yes, the second part is you are referring to adjustments on account of acquisition. So we estimated a definite amount of money which we should have received on account of indebtedness and working capital from the erstwhile sellers. These are estimated initially when you account for based on purchase price allocation at the time when we did the acquisition. However, things have become pretty clear by the third quarter. And in the third quarter, we adjusted goodwill to reflect the real position, which we were leading to in discussions and negotiations with the erstwhile supplier. So the liability that we had created was adjusted with goodwill to the amount that we needed to pay them. We needed to pay lesser amount, so that liability was reduced.

So this is -- is this a cash inflow in any manner or -- this INR 36 crores?

INR 35 crores is not a goodwill adjustment. So you are mixing 2 things. Goodwill adjustment is of INR 30 crores, which we did in quarter 3. This INR 35 crores is the amount that we received on account of damaged and spoiled inventory, which was there in the warehouses, which we discovered when we cleared the warehouses. So when we cleared the warehouses, we found that there were wraps of mattresses, which were lying in the bottom for years, and they were not of that value. We put a claim on the erstwhile sellers, and we could realize INR 35 crores under that. However, as per accounting, if you receive any money from sellers, you cannot account for it in raw material. You have to account it as other operating income. We could have adjusted it to consideration, but that was allowed only till 12 months. So we accounted it as other operating income, which is appearing here.

Perfect. So this really helps. Sorry for getting into so many details.

No issues, Rahul. You can also call me in case you need more clarifications, please.

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

A couple of questions. First, to start with distribution. I think, sir, you indicated a number, we added 400 exclusive showrooms. I think after that, the number was given 700. My question was, is it possible if you can quantify the actual number for EBOs, MBOs that we have right now? And basically, you indicated a target, I'm not sure whether it was 400 or 700.

Ritesh, you are right, it was 400, maybe I spelt felt it wrong as 700. So 400 is clear.

Yes, numbers, sir. Basically, where we are on absolute number from a count standpoint?

So the absolute numbers would be -- like we have showrooms, which are a display format for retail. There we have a total of about 2,500 in Sleepwell and around 500 in Kurlon. So it's about 3,000 showroom format. If you talk about the overall network, that is about 11,000, both Sleepwell and Kurlon put together. So 3,000, and these 3,000 outlets, they constitute about 70% of the business.

Sure. Sir, would it be possible for you to break the revenues based on the different channels. So I think for D2C, Amitji did indicate that we are looking at like INR 175 crores to INR 200 crores. But would it be -- would you be comfortable to break it up between, say, EBO, MBO, D2C, small-town initiatives? Basically, it gives us a yardstick to understand how the company is doing.

So we can indicate broad percentages what we are looking at. But getting down to the channel would be too much going down in the detail.

So Ritesh, we can't exclusively discuss the numbers. You know that these are trade elements, but I understand your concern and maybe Rakeshji can give broad percentage.

I can also -- Ritesh, I can be also -- we can discuss this on one-on-one. So there are -- see, on a macro level, there is a B2C, which is which we call it a general trade, which is about channel. So there is an initiative to get -- drive growth there. Then we have the e-com bit where -- I mean, we have space for much faster growth. So there we've taken a much higher number. STI is a category creation. So it has reached at a run rate of INR 5 crores, where we have a bigger target to grow there. So it is structured like that. As far as the B2B and comfort foam business is concerned, they are also -- there is a growth plan around that, which is both new categories, application development. So that also is in the vicinity of about 12% to 15%. But the dependency is on the user industry, but our initiatives are aligned to get about 12% to 15% there. So as a sum total of all these verticals, it comes to about 15%. That's what Amit indicated.

Sure. That's helpful. Sir, my third question was on synergy. We have indicated that INR 120 crores is already in the numbers. And INR 130 crores is already executed, and we expect it to be reflected. So the question is, can we detail out the split of INR 130 crores, if it's already executed, what is the pipeline that we are looking at? Is it on the front-end side or on the back-end side? So what is it that has been achieved? What is it that is pending and time lines?

Amit?

Yes. So Ritesh, I'll not discuss INR 120 crores because that is already done and that is there. Part of it -- major part of it is in operating margins. Some part of it is in freight and the closure of certain units and saving of overheads on account -- administrative cost on account of that. Now let's talk of the remaining INR 130 crores that is there. So the major portion of the remaining INR 130 crores would come out like there was one of the biggest units, which is under closure currently. We started it towards the later end of March. We had to give certain notices, et cetera, month -- this month. So that should fully happen maybe by the end of June. So you will -- we will have some part of that impact in June and the second quarter, it will be a full impact for that. There are certain technical improvements or innovations that we are introducing in this, which I spoke last time in the call also, that is around INR 40 crores, INR 45-odd crores of savings would come out of it. It was being used in Kurlon earlier. That is being used in Europe and America also. We have ordered 2 new machines for it, which would take around 4 to 6 months to come. So part of it is executed. Part of it would be executed once those machines come to India and are installed. So those benefits you will be able to see, the second part of it in the third quarter. But the first part of it, it should be visible to you from the first quarter itself. Then there are certain initiatives in freight. Freight is again also in 2 parts. We have already implemented major part of savings on freight. However, there are components in freight since we have higher volumes, how we can increase the efficiency of utilizing space in the trucks that we are doing currently. We are using bigger size of trucks. There is some INR 5 crores, INR 7 crores of savings coming out of that. Additionally, we have a lot of inter-unit freight. So what we are doing now, it has increased overnight with coming in of Jabalpur because we now transship foam from Jabalpur to most of our units have been cheaper. We are compressing that foam and sending it to our other units. We had a compressor, which is currently compressing and so a part of that saving is realized. But we have also ordered a new compressor, which would entail more savings on this particular front. In addition to this, there are similar 2, 3 other savings. I cannot give you all details of that. But yes, why I said that these have already been executed is that they have already been put into that mode. We have done what we could have done in the fourth quarter or in the first quarter that we are doing and gradually over the period of the year, most of it should come in the first 2 quarters, but some part of it will be visible in the last 2 quarters.

This is quite useful. I'll just add 2 more and I'll join back the queue. Sir, earlier, we had indicated broad numbers around Aaram and Tarang. It's there surprisingly even EBOs in the marketplace. So is there something which is by design. And I think in the last call, you had indicated 7% of the volumes was Tarang, please correct me if I'm wrong. Just wanted to know the run rate and why should we see this number, say, a year out or 2 years out?

Rakesh?

So the number would still be around 6%, 7% the year gone by. We see this number within the portfolio growing up because there the numbers are going to grow rapidly. So we see it growing to, say, at 12% to 15% in this year.

Sure. And last question for Rahulji. Sir, how do you see the competitive intensity in the marketplace? If you could provide some color on different categories and what's our strategy on pricing and discounting in the marketplace?

Thanks, Ritesh. I think you're putting the most difficult question to me. So let's look at the online and offline as 2 separate things. There is a lot of activity on the online stuff. And so are we participating in that because that whole segment is growing at a far fast or faster pace than what the offline one is growing. On the offline side, I don't see that there is too much of activity. I see that we are doing our bit. And if I can hazard a guess, we would have actually increased our market share in the last year or so. There is, of course, a bit of unorganized sector, which is there. And that unorganized sector, the numbers are a little difficult, but just keeping -- making a good intelligent guess. Our Sleepwell and Kurlon's activities have been by far the most and have also shown better results. Online, I'm saying if the whole segment is growing, and everyone is participating growing. There are some few newer brands which have come in. Now the only problem is on it -- on their profitability and sustainability and all that stuff. So we can probably talk about it maybe another 3, 4 months down the line as to where they stand here.

The next question is from the line of Nikhil from SIMPL.

Yes. You have given quite a detailed explanation on the cost side. But continuing on that -- if you look at from our presentation for India business, if I look at fixed expenses as a percentage of revenue, we are around 34%, 35%. And preacquisition, it was in the range of 25%, 28%. And you mentioned that we eventually want to reach that 13% to 15% EBITDA margin. My question is, is this ambition to reach the 13% to 15% completely dependent on our ability to grow at 12%, 15%? Or is there more on the cost side, which can help us or bring down our total expenses down? Because you've mentioned INR 130 crores is already realized, but still, we are in that single-digit EBITDA margin. And maybe INR 120 crores another may be realized. But I'm not clear how that ambition of 13% to 15% will be achieved.

So Nikhil, there is no doubt that the sales have not kept up or the top line has not kept up to the level that we wanted. A lot of this will be contributed by as soon as we start achieving the top line that we want. On the other expenses part of it, I think there is a constant battle that goes on. There is a process which is in place for reducing the expenses and each one of the departments does their little bit, and we see that happening on a month-to-month basis. Under the other part where it can get contributed is the synergies side and synergies, Amit has already explained that where the balance, INR 130 crores is to kind of come in. Once all these 3 things kick in, which is existing departments or functions, reduction in expenses, which is, as I said, a constant process that goes on, we may have been a little distracted by the acquisition or the focus may have been more on integration part of it, but that's now back and that process will be on. The second is the INR 130 crores that Amit has already explained as to where and all the execution has taken place and that has to come in and add to that the sales going up, we would -- or we should be meeting the top line targets or the EBITDA targets that we are looking at.

Only one additional thing I'd like to mention. The percentage that you are referring to, please appreciate that this is the first full year when Kurlon is being consolidated. Kurlon was a INR 850 crore company, and so its overhead percentage was higher than us. So in spite of inflation for 1 year, in spite of additional overhead, we have been able to maintain it at the same percent, which means same absolute value since the top line is constant. So you would appreciate that a lot of efforts or a lot of savings would have gone into the company to offset those higher levels. So it's not that savings are not there. Savings are there in overheads also because a lot of plant closures have taken place, rate rationalizations have taken place, and they are reflected in the number that you just cited.

Okay. So would it be right to say that bringing this trade rationalization, the route to market changes, probably, we've grown lesser than the industry in last 1 year?

I think it would be about the same.

So in terms of volume, we have grown and that is what the entire industry has faced. So we have grown better than industry because there were 2 additional segments in which we grow. Internet, we grew by 80%. STI, that was a new, whatever we gained was an incremental. So our growth definitely is much higher than what the industry would have grown.

But sir, then if I remove e-com business growth and the other segments, the GT channel or the MBO channel would have been -- would have seen a degrowth in that case? Because -- so based on the numbers of sales of Kurlon, which we used to -- Sleepwell which we used to report. And if I do a rough back of envelope calculation, it seems like a lot of growth has only come from those 2 segments, while the MBO channel, which was our strength or the EBO channel has not performed at all. So would it be true for the industry also? Or -- I understand because bringing these integrations, we brought some changes and that's why we have seen some loss of share? Or is it the industry has also not grown in those channels?

Rakesh?

Yes. So if you look at the -- we call it general trade like EBOs and MBOs. So there on numbers, we have grown by about 13%. What has happened there is that the ASP has gone down. And therefore, in value, it is very flattish. The -- on the other side, which is the e-com and the [ STI ], so there we have grown substantially. And that has -- when added together, it also adversely impacts the ASP. So I think what really was kind of coming in the value growth is the ASP at our EBOs and MBOs. So that is something which -- because of the market conditions, because of the unorganized getting [ this thing ], so that is plus some product that we had [ introduced ] to compete with them in the market. I mean, it is a combination of many things. But there was some code correction that was required, which has already been initiated just about 1.5 months back. And we have already started seeing the results on the ASP going up at our EBOs because that's the purpose of EBO. We invest into EBO to basically premiumize and to increase the ASP, which has not happened in the last year. So that's how the situation is.

Okay. Sure. Last question. And this is slightly a longer term or your vision. See, we have a very strong right to win in the India business with significant market share, good brands. And there is a possibility or a runway for growth, say, for 5, 10 years, even if we remove the near-term ups and downs. In this whole scheme of things, when we look at Australia and Spain, they are stagnant, where -- when we bought them, they were at INR 300 crores, INR 400 crores. Today also, they are at INR 400 crores. Similarly, Spain, which was INR 350 crores, is still at INR 350 crores. And probably whatever price we had paid for the acquisition, we had recovered probably now. In next 5 years, what's their role in the whole scheme of this business? Like, when we have a larger opportunity and we've done an acquisition and our energies towards making these acquisitions successful, what's the role these 2 entities will play now?

It's a very good question, Nikhil. Let me just say that when these were acquired, which was -- Australia was done in 2005, and Spain was done in 2019. Each one of them added value as far as our business was concerned. There was a lot of cross learning. There were technologies. They were mattress technologies et cetera, which were there to come. Today, if we review that position today, I think the question that you're raising, I would agree with that, that we must raise that question as to what kind of value are these kind of -- of course, each one of them has a different. I mean, Australia plays a different value and/or role, and Spain plays a different role. But that question must be asked. I would say that for Australia, we can -- we are probably in the right time to raise that. Spain being part of that largest European market that is there, and there is a lot of turmoil going on in Europe. I would hold on for another year or so to really look at -- even to raise this question that we have. But in short, you're saying in 5 years, what do you see them, their role will diminish with time, or their contribution will diminish with time. And it will get restricted to whatever they are doing catering for the local markets, et cetera. And you're quite right that the real potential lies here in this country. And with the position that we have with the 2 strong brands and with all the base work that has been done, we should see the next 4 to 5 years of good run.

Sir, eventually because...

Sorry to interrupt. Mr. Nikhil, can you please come back in the queue for further questions? The next question is from the line of Varun Singh from AAA PMS.

Am I audible?

Yes, please. Yes, Varun.

Yes. First, Rahul sir, I just wanted to inquire your mind, that in the mattress segment where we are putting so much of hard work, it is heartening to say that there is a 20% volume growth when maybe so many other consumer sector is facing slowdown. So we have been able to deliver such a good growth rate, may be lower than what we would have expected, but still it is quite positive. However, given that there is only 6% value growth in this segment and so much of opportunity, excitement and energy, et cetera, that we are -- that is out there. And even if I remember correctly, during last conference call -- recent conference call, we were guiding for 17%, 18% kind of a revenue growth in the mattress segment. And so assuming that, let's say, even if we are able to achieve 15% revenue growth, and I break that number down 15% to 2 parts, one may be Tarang, which assuming it grows by 20%, so our core mattress segment, other 90% of the revenue pie, that must grow minimum 14-odd percentage in value terms to achieve for the India mattress business, 15% revenue growth. So sir, I mean, please help us understand that how much comfortable you think this minimum 14%, 15% growth, excluding Tarang is a possibility for FY '26, it may be a possibility, but for the first quarter itself, like given that April has already gone by and 50% of May month is also done. So for us, sir, do you think that delivering 15% revenue growth in mattresses is quite a fair ask rate?

So I think it's a fair ask rate. It's a fair ask rate and maybe really breaking it down into details and into days and weeks and all, we may not be able to do that. But it's a fair ask rate.

All right. All right. And sir, second question is the other 50% of the business, which is B2B and also I mean, let's talk about the India B2B business, given that deflation explains the maximum part of value growth decline. What would explain this business to be growing by minimum 10% in FY '26, starting from Q1 itself? I mean how do you look at the B2B, which is, again, a larger part of our business in the deflationary situation given raw material is likely to stay deflationary. That's my second question.

So on the B2B side, our growth rates are quite dependent on the industries that we cater to, whether it's the auto industry or the shoe industry, helmet industry, toys industry, et cetera. But some newer applications, we forge and we -- newer industries, get created. For example, we're doing something for the aviation industry or the toys industry, which is certainly picking up as far as India is concerned. So a lot of foam would go into it. But by and large, in the near future, you would see that the growth of the product or the growth will be completely dependent on the growth of the industry that -- the user industry. And like you said, that this is deflationary, the raw materials. And in these B2B businesses, the selling prices are always based on the raw materials plus margin. So that's why that the top line may appear a little subdued or may appear subdued. But the industries that we cater to, they are quite robust. You know that, whether it's the auto industry or it's the shoe industry or -- I mean, they go through little ups and downs, but otherwise, they are here to stay and they are here for their products to be consumed here.

Understood. Sir, and just one last question, if I may, on our EBITDA margin guidance. I remember correctly, during last call, we -- like 10% was the expectation from the fourth quarter. But unfortunately, because of the subdued demand situation and deflationary environment, et cetera, we could actually achieve just 8-odd percent compared to 10%. So for FY '26 and again, starting from Q1 FY '26 itself, I mean, how much confidence do you think 10% EBITDA margin in the degree of conservativeness you would think, sir?

So it's -- I mean, that may be tough to give exactly what is the confidence level or what -- but we stay absolutely positive in that direction. That's all I can say. Confidence or any kind of guesswork on -- not guesswork, but any kind of numbers, it may be a little awkward at this time. But otherwise, we remain positive for that.

The next question is from the line of Jaineel Jhaveri from JNJ Holdings.

So my first question is regarding the CEO. He was a professional CEO that had been brought into the company, and he stayed for almost 2 years, I think, or 1.5 or 2 years. So I just wanted to know -- and now I think the management has moved back to a family person. So I just wanted to know that has there been a shift in thought process? Or are we going to look for a professional CEO again? Anything regarding that?

So we've not -- we're not in the right time or right position to answer that question. But all I can say is that when the CEO was hired, we had many things which began to happen one after the other. And the CEO was also hired with a certain commitment to him. The acquisition happened, the integration happened and all the changes in the market that began to happen. So that was the reason that we kind of disengaged with each other. As far as reverting back to an older gentleman or to somebody who's been there in the company or -- it's no change of any business policies or it's no change of doing business. But it's just to stabilize it. And we have been -- through this entire call, we have been talking about what kind of instability an acquisition like this brings about. So at this point of time, we are just saying that we want to stabilize it, get it to moving in the direction and at a rate at which we want. As far as the CEO part is concerned, that was always with future in mind. And I hope that you will appreciate that if we -- if and when we start even thinking about it, it does take a couple of months to find, settle somebody, and then there is a settling in time, and we don't want any kind of a disruption at the moment to happen. We want things to stabilize, and then we'll move on. And in any case, as I said, CEO was more with the future in mind.

Right. No, I just wanted to understand your thought process and would be helpful.

No, no. Sure. I fully appreciate that these are issues which would keep going on in the mind. So it's good that you've raised it.

Right. And one other thing, and this may be just something that -- I mean, just some thought that I had was in terms of even the kind of questions that other participants have asked and that I have been following the company for some time now. Is there any thought process on like restructuring the company or like maybe demerging the mattress business? Why I asked this is because a lot of the value in the share price is going or gone because of things that are maybe not even core to the company, maybe something like the Staqo part of the business or even Europe and Australia. So is there any thought process -- and then you have this one beautiful part of the business, which all have grown even including the Kurlon acquisition. So is there any thought process on maybe demerging that out?

Sure, it's a brilliant question. And let me just say that there are many people who would think and probably in other countries, it does happen that the mattress business and the other foam business are fundamentally different businesses. But the way that things have grown in India, it is from the foam business that the mattress business evolved and grew. It's also coincidental that the shops or the areas where it was peddled, or it was sold to the customers or the consumers were also same and similar. Therefore, would someday the 2 businesses be different? Probably, yes, but that someday is quite far away. It's not -- but I understand and appreciate that there is a fundamental difference in the nature that the way the 2 products sell and except that they are in the same place and the raw material parts of that are. The other things that you said about Europe, I have already answered the question on Europe and Australia. They had a role to fulfill. There is some which has happened and some we'll have to see how it kind of evolves. But as time goes by, the company is very clear on 2 things. Number one, the priority is India business. Number two, the priority within the India business is the mattress business. Therefore, if you will look a few years down the line or even a few quarters down the line, you would find that percentages -- percentage of mattresses or branded mattresses in the India business will keep on increasing. The percentage of India business in the entire business of Sheela will keep on increasing. So that direction will happen. Now someday, will those 2 businesses split or not? Now -- someday it will, but I don't know when, it may be quite some time down the line. At the moment, there is -- there are synergies in doing them together from the point of sale, from a transportation perspective, from the ingredients, from the infills, all this kind of things, there is a lot of synergy there. But fundamentally a little different.

The next question is from the line of Rachna from SIMPL.

Am I audible?

No, ma'am, your voice is coming very low.

Hello.

Yes, please go ahead.

Okay. Sir, during some recent channel checks, we saw that Sleepwell products were not present in Kurlon's EBOs and MBOs and vice versa. Now these raises a concern, especially since now we are talking about opening new showrooms. Given that existing showrooms are still underperforming to generate revenue, it's a bit difficult to believe that the showroom expansion can drive meaningful growth in the future. In this context, I just wanted to understand what concrete steps are we taking to improve [ stability ] and performance within the existing retail footprint before investing in the showroom openings.

Tushaar, are you there?

Yes, I'm here.

Yes. So could you take that question, please?

Yes, absolutely. So we can think of it in 2 or 3 sort of -- 2 or 3 areas. One is Sleepwell started with a large set of EBOs. And there, the primary role is -- from a growth perspective, is to get same-store growth, right? So there are a set of initiatives that we need to take there. The expansion that Rakeshji talked about is primarily going to be led by Kurlon's EBOs, where Kurlon had a very weak EBO network, whether in South, West, East, especially in the North. So that's the second pillar of growth. Same-store growth stays an important parameter for all of us to drive, various initiatives there. And we've had decent success in the last year, 1.5 years on same-store growth. As far as the Sleepwell EBO network is concerned, expansion will always get you additional growth, like I said, from Kurlon, which is geographical expansion. But also both from Sleepwell and Kurlon in new areas and new markets, new housing developments as cities are expanding and there are micro markets getting developed. So that kind of expansion will always get you growth. Same-store will -- in our experience, when you convert an MBO or a new store or you build a new store, you get about 2 to 3 years of very good growth. And then it becomes a bit incremental in the sense that footfall start to get saturated, and all of those things start to happen. The big lever there, which we're exploring, and I'm not committing anything on that at the moment is with the Furlenco acquisition, is there a role for Furlenco to play in our existing EBOs to drive footfalls. So those are the 3 or 4 broad areas where how we see the EBO network growing across both brands and of course, leveraging furniture as a category with the Furlenco brand to see if we can scale that up. Does that answer your question?

Yes. Okay. One more question I needed to add. Can you talk about the economics of Tarang and Aaram brand separately since we always mentioned that these brands are a volume-driven business. And also what capacity utilization would it start to break even? And eventually, how does it add up to an ambition of reaching 14% to 15% of EBITDA level?

So they're not -- they -- Tarang and Aaram at a percentage margin level are exactly the same as the current business. There is no difference at all. Of course, the absolute margins are lower because the price points are lower. But as a percentage, they are not lower at all. Capacity, like we've always explained, in our business, capacity has extremely limited role to play. Capacity utilization has got very, very, very small implications on overall margins. Having said that, the primary capacity that was put in for Tarang, Aaram and some other products was in Jabalpur, which was a very, very new technology, the VPF technology. That's something that has scaled up to about 50%, 60% of current capacity already. And very, very quickly, we will get to 70%, 80%.

I had one more question, if I can add in. Now we -- this is on the e-commerce business. We have the advantage of diversified warehouses, manufacturing facilities, a well-known brand and a large product basket. But still on e-commerce, we found that new age players could make a dent. So what could have been done differently and what is our approach now since both Kurlon and Sleepwell have a good brand equity at consumer level. So logically, do we see our e-com business growing stronger over the years?

Yes, ma'am. E-com will grow stronger, for sure. I think in hindsight, what could have been done differently is to do not allow the other people to grow so much before you started to take the right actions. We did that about a year, 1.5 years ago. Last 12 months, Amitji, correct me if I'm wrong, we've had close to 100% growth.

Yes, you are right.

Targets and ambition currently is to continue, maybe not 100%, but 60%, 70%, 80% of growth level target for both brands put together on the e-com platform as well as brand.com. The only other thing I would say there is, I mean, for the last 3, 4 months, Sheela Foam mattress brands, at least on one of the platforms have been #1, and we expect to continue that journey and also expand that on the other platform. On platforms, we will very quickly get to either #1 or #2. Brand.com, there is still some work to be done, and that's the work we're putting in now for the next 12 to 18 months.

Ladies and gentlemen, due to time constraint, this was the last question for today's conference call. I now hand the conference over to Mr. Ritesh Shah for closing comments.

I thought I would take the last question. So can I take one last question, if it's okay, sir. Otherwise, we'll close the call.

Go ahead, Ritesh.

Yes. Just 2 questions. One is for Tushaar. How should we look at the future of Furlenco, incremental equity? Will we look to buy into it basically and the funding part of it, that's one. And second question, 3 parts for Amitji. CapEx number for the next fiscal and if you would like to qualify A&P as a percentage of sales and discounts and rebates as a percentage of the sales that we had for this year and if there is any broad guideline on those numbers for next year, that would be great?

Ritesh, I would only say as far as Furlenco is concerned, I can comment a little more on the opportunity. As far as the investment and financials and all of that, Amitji is the right person to speak about that. So I'll leave that to him. But like I said in the previous question, I think we've done a few pilots, good results, which is can we leverage the Sheela Foam EBO network to expand their footprint into Furlenco offline and therefore get far more footfalls, both for the mattress business as well as for Furlenco as a brand. I think those green shoots are there for sure. We need to put all of that together in the next 2 or 3 months and see how we can scale that up. From a business perspective, investment into Furlenco, further investment and the dynamics, I will leave to Amitji to comment.

So Ritesh, on the CapEx front, this year, we are targeting, including everything we should not exceed INR 75 crores of CapEx in India and overseas should be very notional because their CapEx cycle is over. What was the second question that you asked about percentages? I could not gather that fully.

A&P as a percentage of sales and discounts and rebates as a percentage of sales.

So I would say overall, this should be say maybe a percentage over of what we have spent last year. But that will mostly come out from the incremental sales that we would be doing.

Rahulji, I would request you for closing remarks. Thank you so much.

Thank you, Ritesh. Thank you very much for conducting a great conference. I mean, it gives a good feeling for all of us here. And thank you all who are participating in this earnings con call. I hope that me, Tushaar, Rakesh, Amit, we have been able to answer your questions satisfactorily. If you have any further questions or would like to know more about the company, please reach out to our investment relationship managers, that is Valorem Advisors or to any one of us. And like always, I would say that it has been a great learning exercise for us. So thank you very much, and good night, and Jai Hind.

Thank you. On behalf of Investec Capital Services, India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

Thank you.

Thank you.