Wakefit Innovations Limited ($WAKEFIT)

Ladies and gentlemen, good day, and welcome to Wakefit Q4 FY '26 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the [indiscernible] of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions]. Please note that this conference is being recovered. I now hand the conference over to Mr. [ Hari Satani from ] Axis Capital. Thank you, and over to you, Mr. [indiscernible].

Thank you, [indiscernible]. Good morning, everyone, and welcome to the Q4 FY '26 Earnings Call for Wakefit innovations. Today, from the management, we have with us Mr. Ankit Garg, Chairman CEO and Executive Director; Mr. [indiscernible], Executive Director; and Ms. Parul Gupta, Chief Financial Officer. We'll begin the call with the opening remarks from the management, after which we will have the forum open for interactive Q&A session. I'll now hand over the call to the management. Thank you, and over to you, Ankit.

Thank you so much for the introduction. Good morning, everybody. A warm welcome to all of you and thanks for joining our Q4 FY '26 and full year FY '26 earnings call. On this call we joined by [indiscernible], who's Executive Director our CFO; and Strategic or and by the other Investor Relations invite us to [indiscernible] and the presentations are uploaded on the stock exchange and company website. I hope everybody has had a chance to look at them. Let me begin by thanking [indiscernible] dedicated teams who relentless efforts, execution focus and commitment were instrumental in delivering strong performance throughout FY '26. They are truly the backbone of the organization. With 17% year-on-year growth, we delivered our highest ever [ and on the venue ] INR 14,889 million, while the company delivered a satisfactory annual performance, the second half of the FY '26 that impacted overall growth momentum following softer discretionary spending trends in Q3 FY '26 across our categories, demand moderation continued further in the latter half of the amid evolving geopolitical macroeconomic uncertainties. Our business has an inherent seasonality element, and therefore, a Y-o-Y comparing good indicator of our performance. Our business is entered across 3 core categories, mattresses, furniture and furnishings. On an annual basis, our core product categories performed as below, store and India matters remained the largest category contributing 61.4% for FY '26 and a Y-o-Y growth. In Q4 FY '26, the MAT state continues to lead and grow by 20%, outpacing the industry growth trends, we were able to garner growth due to a strong omnichannel some key product portfolio details and loses. The furniture category contributed about 29.3% of the revenues for FY '26. The growth of this category was approximately 24% in FY '26 and 14% in Q4 FY '26. [indiscernible] currently operates primarily in cities where we have physical [indiscernible]. Furnishing strategy contributed 9.3% of our total revenues in FY '26. For FY '27, we are targeting revenue growth driven by the strength of our market portfolio while improving the need of our [indiscernible] and punishing business. We are closely monitoring raw material package to navigate the volatile environment with prudent price increases and focused cost optimizing efforts. From a long-term perspective, the company continues to be committed to its even of being a one-stop destination for home and policing pollution. The customers presented [indiscernible] evolving us we are expanding into select adjusting categories that complement our core portfolio. Additional substrategies are being introduced within the same ecosystem as side of our core categories should brought on offering and improve customer lifetime value. For instance, within furnishing, we offer home decor items such as life plants. Under the extended scope, we can also offer centers such as fertilizers, [indiscernible], soil conditional to support plant here at home. Further, a few of the supposed changes are intended to push in the company for future opportunities and long-term business expansion, while we continue to [indiscernible], these amendments are not anticipated [indiscernible] any meaningful financial impact on the mid-income. This expansion of scope to amendment of the object clause in the MOU has been approved by the Board of Directors. The proposal is provided to the members of the company for approval. Now with this, I would hand over to [indiscernible] be to explain more. Thank you.

Thank you, Ankit for the introduction. Good morning, everyone. I will start by providing certain operational highlights. The retail revenue growth for FY '26 stood at 49% on a Y-o-Y basis. We have built a truly omnichannel ecosystem across our own and external sales channels through which customers can access and engage with the Wakefit brand. We are present online off-line company-operated company of owned stores and MBO stores. As of March end, we had 139 active company-owned, company-operated stores across 6 cities. Our total current [ cocoa ] retail area would be approximately INR 400,000 square feet. In FY '26, our gross additions stood at 42%, and we also ended up closing only about 8 stores. These closures were largely attributable to logistical inefficiencies and operational constraints rather than any underlying weakness in demand. [ Focus ] stores remain a strategic priority for us as they enable deeper customer engagement and provide meaningful opportunity for cross-selling as well as upselling across the [indiscernible] categories that we are present. We continue to eat our store opening plan as given by us during the IPO. The COCO stores are likely to be opened in diverse Tier 2 locations while maintaining healthy unit economics. In addition to larger cities, we continue to see meaningful opportunities in smaller towns and underpenetrated reasons across India. It is worth noting that our COCO stores are asset light as the namely carry display inventory. Hence, they continue to turn profitable relatively quickly compared to the asset really traditional inventory model. The MBOs remain an important part of our strategy as they enable us to enter new markets and evaluate demand with limited upfront capital investment in that geography. It is pertinent to highlight that the MBO channel follows the cash and carry arrangement and is not operated under a credit-led distributor-led model. As of March end, we had 1,948 NBOs across 536 towns cities. Our own channels, which comprise our website and COCO stores contributed 67.2% of our annual sales and more than 74% of the quarterly sales. This indicates a continued growth in the brand strength. We believe we are still in the early chapters of Wakefit's story of India's home and sleep solutions as the market remains very large, underpenetrated structurally growing and with relatively few organized players. So this leaves a lot of headroom for long-term growth. West accounts for well below 1% of the combined mattress furniture and home accessories industry. And we have committed to keep capturing market share and continue to strengthen the brand. With that, I will now hand over to Parul, Ms. Parul Gupta, our CFO, for the detailed financial commentary. Parul, over to you.

Thank you, [indiscernible]. Let me now take you all through our financial performance for quarter holds for FY '26 and the full year financial year, with respect to the quarter 4 financial year '26 performance. Our revenue from operations for the quarter stands at INR 344 crores, which is a Y-o-Y growth of [indiscernible]. Gross margin for the quarter stood at INR 193 to a margin [indiscernible]. Our business has a distinct cost structure, a raw materials, we are over [indiscernible] and the fabric account for the meaningful promotion of our costs, and these are subject to the global commodity cycles, especially the [indiscernible]. The March quarter saw sharp inflation across several report categories with [indiscernible] materials such as the chemicals which get used like the polyol, et cetera, registering price increases raising from 30% to [ 130%. ] These elevated costs across crude late materials, packaging, logistics and infrastructure also impacted the operating environment. These trends are reflective of the broader industry conditions. Though our strong vendor relationship under help us manage part of the inflationary pressure and the company's [indiscernible] have been operating will be as a company, we [ underpurchasing ] of key raw materials and [indiscernible] which has mitigated the immediate sharp impact of the price volatility or I think on the macroeconomic factors and the pulse discussions. Also, to mitigate the impact, we implemented major pricing actions in March and April. We believe that Wakefit had the brand's strength and customer position to execute such invite responsibly. The combined impact of higher input costs and sales price pass-through may contain margin expansion in the year. The reported EBITDA, excluding other reasons for the quarter was INR 36 crores with a margin of 10.6%. Operating EBITDA, which is at 6.3%, remains relatively soft on a sequential basis, largely due to the better operating leverage in the quarter 3, which was a specific period with higher sales as our marketing investments. In Q4 '26, the advertising and marketing expense increased approximately 7.3% from the range of 5.3% in the last quarter. In FY '26, we spent around 5.7% in terms of the overall marketing. As mentioned in our last call as well, we reiterate that over the medium term, we anticipate a ramp-up in our brand building efforts from the A&P spend expected to be around 7% to 8% of the sales with content monitoring on the [indiscernible]. The expense for the quarter stood at 13.6 million, last quarter for FY '26 fix profit before tax and after exceptional items stood at INR crores. Personal to the India scale the company recorded a deferred tax charge amounting to INR 98 crores as part of the tax expense during quarter 4 of 2026. For the full year FY '26 -- now coming to the full year performance for the FY '26, revenue from operation was closed at INR 1,389 crores, which is a growth of around 17% over the last year. Gross margin for the FY '26 was INR 830 crores at a margin of 55.8%. This marks the improvement of 18.5% Y-o-Y growth. The [indiscernible] expenses for FY '26 was $33 million. However, for the next year, we anticipate these expenses to be estimated at around 12 crore reported EBITDA, excluding other income for the INR 56 crores was INR 182 crores with a margin of 2.2%. Profit before tax and after exceptional items [indiscernible]. As of March 31, 2026, the company has invested cash of around INR 58 crores. On a near-term basis, we do not expect any material change or valuation in the margin structure in Q1 FY '27. Having said that, from a full year perspective, we continue to closely track market conditions and are committed to maintain a disciplined approach towards cost. Yes, over to you. With this, we can open the floor for the Q&A.

[Operator Instructions] The first question comes from the line of [indiscernible] with IIFL capital, please.

Sir, this is Percy Panthaki here. Just wanted to know for the mattress division at a total COGS basket level, what is the inflation that you're facing?

[indiscernible] between February and May, the prices have seen a lot of volatility. They have gone up between 30% to 160% at some point. However, in terms of procurement that we have done opportunistically when it fell as well as some of the old stock that has been utilized, which was at a lower cost. We are operating at a 25% to 30% increase in some raw materials and about 15% to 20% increase in some raw material. And lastly, in some of the other raw materials we are using about 5% to 6%. And to pass this on, we have done 2 measures calibrated price increases of about 7% to 8% in March and 7% to 8% in April.

On April, how much?

7% to 8%.

Okay. So total, about 15% price increase has been taken. And while the prices have been very volatile and you said that there is some benefit of old inventory, et cetera. But if one was just to measure the total COGS basket of the mattress division, pre-war versus the spot prices today, that inflation would be how much?

[indiscernible] based on our procurement side, it is somewhere around 10%.

No. I mean what I'm trying to understand is, let's say, the crude prices remain at around $100 for a longer period of time and you run out of old inventory. And then, of course, you will have to procure at whatever spot prices continue into the future. In that scenario, what kind of COGS inflation would you have on the overall mattress division [indiscernible].

Approximately 30%.

Understood. Understood. Secondly, I just wanted to understand in terms of competitive intensity and on-demand in matters because you've taken a 15% kind of inflation in prices. I think that is sort of pretty unprecedented in a couple of months of time. So how do we gauge what kind of volume impact of this price increase will have? That's one question. And a separate question is on the general competitive intensity in the market, especially amongst the organized players and some of the new D2C players, et cetera. How is the situation now versus, let's say, 6 months ago?

On the price increases, if we were the only company who have taken a price increase, probably the impact would have been much higher just for us. However, given that it was an industry-wide impact, pretty much all of the industry has also taken price increases commensurate to the increase in raw material prices. So net-net for the consumer, it has gone up almost [indiscernible] within a 1% or 2%, 3% difference between the 2 -- between all of the major brands. But having said that, so because of this, obviously, we do consider that there could be some slowdown in purchases until the price is normalized, but there is also a benefit of higher ASP which means lower volumes itself provide us that revenue growth. But we do focus on volume growth, but we -- it might be an issue for the short term. Having said that, the competition intensity has definitely gone up over the last 6 to 9 months, where certain companies in the INR 100 crore to INR 300 crore annual revenue with a much lower cost structure, although they do not have a recognized brand person, they might be very well-respected labels on marketplaces. They might be strong in specific towards 3 regions. So there, we definitely have seen increased advertising spending as well as increased matching of prices similar to exit. So both of these have been accelerated over the last 6 to 9 months.

Understood. And lastly, just wanted to get your sense, again, assuming crude prices remain where they are, given the price increases that we have taken, given the higher ad spend that you will have to do et cetera, do you think that you will be able to hold on a full year basis, the EBITDA margin of the company assuming that crude remains at [indiscernible]?

So firstly, firstly, the raw material prices for base poor TDI and plyboard, [ MDF ] board, while they are linked to crews, they're not directly correlated to crude. That is why I mentioned that the prices for raw materials went up even up to 160% at one point, 80% at one point for a different raw material. But when we actually are procuring it using the strength of our supplier relationships, as well as other reasons, we are able to keep it at 30% or so. So definitely, if it continues, we will see pressure. But if we have to focus on one thing, I think we, as a company, are very focused on prudent market share protection and market share growth. So we will have to see how the rest of the industry operates, but we are very, very protective of our market share on all channels because that acquisition of market share has a compounding effect. So the first customer that we procure comes back for a second category, third category, fourth category over 2, 3 years. So we are very protective of that. So if we are pushed, we would probably still pay the 20% plus growth [indiscernible] for that, while EBITDA might be impacted by 1 percentage point, 2 percentage points something to that.

[Operator Instructions] Next question comes from the line of [indiscernible].

Sir, first question is on the expansion into more [indiscernible] categories. You talked about some color there that how big categories do you see these are? And what will be our aspiration of market share or our revenues, we can aspire to, say, maybe in 4, 5 years? I ask this question because, I mean, we also have furnishings as a category. But in that, we haven't seen meaningful traction yet outside the [indiscernible]. So some color about when we are expanding the horizon and product profile, where do you see the right to win? And second is on the COCO stores. I mean, I -- so as of December, we had highlighted we had about 137 stores. So we ended the year at 139. So we added probably only 2 stores incrementally in a quarter or so. So have we gone slow on the store expansion plans? And what will be the net expansion plan for FY '27, if you can just tell us?

Thank you, [indiscernible]. First one, to take a step that we have always reiterated that we exit ultimate vision is to be an integrated home and sleep solutions company. So that would entail a lot of product categories that are adjacent to our core, core being mattress, hard core wood and furniture and furnishing and decor. But within decor itself, it is made up of multiple subcategories and like I give to give an example of live plants. If you are supplying live plants, we also might want to supply small agricultural products such as a [ pick ] for the fat soil, some sand some fertilizer, et cetera. Similarly, on decor, if we are just providing certain wall hangings, we will need to have capability to source those. Finally, in [indiscernible] the things that will complete the portfolio not take us away from our core strength. Our core strength is vertically integrated full stack R&D to deliver of mattress, furniture and permission. But many of these smaller categories which we need to complete, especially in the presence of the jumbo store that is coming up next year, which is a large 100,000 square foot plus store, it really has to have aspirational looks. It will have to complete the product portfolio. It will have to give the complete vision of how the room or a home or a kitchen can look like. In order for that, we have to procure trading small volumes, white label in small volumes in order to be able to give that complete look. We cannot afford to have it look there because the ultimate destination is people should -- when they think of home, they should think of Wakefit. Just like there are very clearly when you think of beauty, and you think of maybe think of fashion. Clearly, a brand comes up in your mind. When you think of home, we want to reiterate [indiscernible] in people's minds. This is a step in that direction. However, this does not require upfront capital investment for manufacturing. This does not require massive marketing investments because it is primarily sold through the stores. And hence, kindly look at it as a way to complete the portfolio, not something that takes us away from our core. Now the second question that you talked about, you're absolutely right with that. At the end of December, we paused recalibrated, looked at all of our retail metrics, which included LSG, which included locations, playbook and during our IPO also, we had mentioned that we would be doing regular format stores, ranging from 600 square feet to about 5,000 square feet and 1 or 2 jumbo stores, which are more than 100,000 square feet. So that journey is on where there are usual practice that every 9 to 12 months, we pause, look back, understand all of the mistakes and then identify the road map. You -- I can assure you, you will see a much different number in the first quarter, April, May, June, when we announced it. But the target for this full year is to deliver more than 80 stores net addition. We are working on that, but we will be able to share specifics in the first quarter results. And like I mentioned on my prepared transcript, the focus is to provide a lot more geographical reach which was not there for mattress and furniture go beyond metros and Tier 1 to Tier 2 and continue to be present where at the customer wants us to be.

Understood, sir. And last question is on the channel exposure. I mean our own channel exposure has probably gone up to an all-time high of 75%. And you also talked about looking at MBOs now to expand the reach. So I mean, if we have probably some normalization in the own channel store as you look for the revenues of growth as well, will that also have some drag on EBITDA margins? Or how should we look at the channel strategy from here on [indiscernible]?

The channel strategy should be looked at directionally rather than in specific 1% gain or 1% loss kind of reason. The primary justification for that is that depending on our tail event, some volume might move to marketplaces. Depending on a surge in store opening, 1 quarter, there might be much more sales in COCO stores. So those kind of minor changes happen. But directionally, the company is committed to steadily grow the company-owned channels, which is a combination of B2C website and COCO stores. The reason for that is -- number one, we are able to acquire them at a better unit economics because we don't need to pay third-party commissions. Step number two, we are able to get the customer data using which we reactivate them using [indiscernible] so that whenever new launches happen, whenever new sake event comes, we are able to get them back for a second, third, fourth transaction. And then this AI-enabled CRM takes over the [indiscernible] to keep on saying that if you bought a mattress, you should buy your water profile should buy this. These are the new launches. This is a price drop that has happened, et cetera, et cetera. So long-term commitment is that own channel should become very, very powerful for Wakefit. But both the marketplaces as well as MBOs strategic partners that we will continue to work with, but a lot more aggressively on our own channel. And to answer your question about drag, we don't foresee that drag because of the point that I mentioned earlier. Our source asset light, they're not just to the deal on inventory like in duality or a parent, the more you stuff it into a store, the more sale happens. Ours is only displacement and hence, the drag will not be as [indiscernible] because people come browse, purchase and go home and the fulfillment happens centrally from our warehouse.

Next question comes from the line of [indiscernible] with [ Berman ] Capital Management.

And so first question is with regards to the mattress business. So the challenge that I received, and I just want to confirm if it's like a sample bias or actually relevant for the industry. The feedback I received is that in the physical retail channel from accesses due to supply chain disruptions, the smaller and unorganized players are unable to procure home and other raw materials. Now my understanding is this might lead to an accelerated volume growth for the larger organized players both on the B2B form and on the B2C mattress side in the next few quarters. Obviously, this should be countered to any volume hit because of price hikes. So if you can just confirm this or refuse this, can you quantify the incremental or net volume growth benefit, if at all? And what is the sustainability of the same?

Sure. Thank you for the question. So we can pick our next and [indiscernible] subsidiaries in our and most surplus for manufacturing capacity in India. However, those are contract manufacturers who either manufactured for some of the smaller regional brands or resell it in the unbranded home market. But the bigger problem with such unhanded home manufacturers is that the use of [indiscernible] is very, very prevalent where the [ Tuna limestone ] is added, which will end up reducing the efficacy and quality of the foam. So you're absolutely right in saying 2 things. One, that larger brands like ours, which have an integrated manufacturing capacity due to supplier relationships and scale economies are going to be able to obtain [indiscernible] at preferential rates and when there is a capacity retention allotment. So because of that, larger brands do have a benefit in getting it [indiscernible] and once we procure it, we don't have to depend on third-party contract manufacturers. We are manufacturing in our in-house facilities with no other trends and hence, are able to provide a 10-, 15-, 20-year warranty also for some of our products. So your hypothesis is correct. But in this kind of a scenario, larger, well-established brands, which manufacturing setups are going to gain, but it is much, much harder to quantify that.

Got it, sir. I understand it's difficult to quantify. But just direction and obviously, there would be a volume [ shop ] for some time because of the price hikes, it's not precedented and like I said, everyone has taken it. So any volume it will get all the [indiscernible]. Do you think any such benefit, and I'm sure you're already seeing that in the month of April and May. Do you think any such benefit due to an obviously, which is beneficial in the medium to longer term, but my question is pertaining to specifically the initial quarters of FY '27. So any such benefit of being a large player and having the supply relationships, is it enough to counter or overcompensate for a volume mix of price hike that has happened and hence, your overall revenue growth, price hike and volume growth come in can actually be faster than what you saw in, let's say, Q4 or Q3 of last year?

That is right. We are seeing such positive tailwinds. We are seeing a higher growth rate also. And if you just look at the April number, with a higher growth rate compared to the fourth quarter. But it's too early to say because even last year, April, May, June was a very, very healthy quarter for exit. So I would reserve my comments for the first quarter results. But in short, it will definitely has been way better than [indiscernible].

Got it. And my last question is on the -- this has already been asked. It's more around volume elasticity and the price hikes that we have taken, like we have taken 15% price hike versus prework and your overall COGS basket is roughly 30%. Now broadly, it seems that there will be some pressure on gross margins, at least in Q1. Is that the right way to think about it, right Q1 could be some pressure and then Q2 normalized, you would see slightly better margins? Or do you have enough stock still left at older [indiscernible] so that this inflation and coupled with the price hike won't really different in Q1?

Definitely, there will be a small impact in [indiscernible]. When Parul explained that we don't foresee too much of a difference, it is compared to the March numbers, compared to March exit gross margin, we foresee that it will hopefully stay steady at that level for [indiscernible]. But yes, if the war does second quarter can become even better. But as I was telling you, because we are present in multiple channels, our B2C website is very, very profitable. Our cocoa stores have an average selling price that is 80% higher than online. So our efforts are going to be to balance the product mix to sell more premium products to sell in better economic channel to try to keep the gross margin impact to a minimum, but there could be a minor, minor impact.

Got it. I understand. I've gone through 2 questions. Is there a hope for one more question, I'll get back to the queue?

I'm okay, we can take it.

Got it. This is more like an industry analysis I was doing on this segment. So what I did was I took the last 10 years the revenue EBITDA of [ sleep call out Euroflex], Wakefit [indiscernible], like the move of organized guys [ whose ] data. My observations are as follows: overall, on a growth basis, revenue on a rolling 3-year CIL basis has largely been in the 8% to 12% tale, number one. Number two, the overall gross profit pool and the EBITDA [indiscernible] terms has actually deteriorated like some players has deteriorated sharply over the last 10 years, which is in line with the heightened competitive intensity and prevalence of newer channels, which may not be as profitable. Number three, our final finding. The market share split with 5, 7 years back versus today has seen a material shift. And new guys like [ sleep company ] who didn't exist, people with already half your size versus the industry leader, they are a significant portion of the 20%, 30% of the revenue already. And this might just change the amount of funding, someone else gets funding. They are happy to burn cash. My question is how -- as a top manager of one of the key brands trying to grow in this segment? How do you plan growth from a more longer-term perspective within this mattress and foundation strategy? Because your growth is not a [indiscernible] 10%, 12% growth. You see margins getting [ depressed ] and hence, you yourself are trying to shift people to your own channels, et cetera. But there are new players who are trying to do the exact same thing. They are taking the same group that you have taken. We started to see the may go aggressive on offline. The EBITDA pool keeps coming under pressure. So what needs to happen for -- and you see nicely happening, which would improve the economics of the industrial?

Sure. I will not be able to comment on industry or specific companies, but 2 clarifications. As a 10-year-old company, we have been [ proximate ] enough to get to INR 1,490 crores in revenue. So our CAGR definitely has been much, much higher. And the last 3 years, [indiscernible] is also about 20% for us. And if you notice some of the decline in the industry's growth rate has also coincided with Wakefit and other B2B companies rise. But having said that, like you rightly said, the barrier to entry to this industry might be low because of the aforementioned abundant supplier of manufacturers who can make you mattress. However, the barriers to scale come in when the company hits about INR 30 crores, INR 40 crores, INR 50 crores of annual revenue. Because that is when -- whether you have your own supply chain, whether you have your own R&D, whether you have your own manufacturing, whether you have the capability to process the return mattresses in the 100-day trial, whether you are able to have the balance sheet strength to handle warranty returns. All of these come into play when you want to scale. So to be summarized, barrier to entry is pretty low, barrier to scale is pretty high when you take a stand-alone mattress category. However, when you add second and third and fourth categories that we could have, first, it was bedlinen embedding. Second it was furniture. Third, it was furnishing and decor. The company ends up [indiscernible] starting a slide where your LTV is not based on one infrequent subject category like a mattress, but multiple recent purchase categories that go into the home. This is exactly the problem we saw in 2020 and hence, steadily every 2 to 3 years, we expand into a new category, learn, make mistakes and then add that to the flywheel. So I don't -- I cannot comment on what should happen for industry profit pool to improve. I can only comment on Wakefit profit pool, hopefully getting more stable and more defensible because we are able to have multicategory, multichannel presence that the customer would want. That's the reason one objectively tracked metric for Wakefit is a repeat revenue percentage every month and cross-category sales percentage every month. So we don't obsess about other things. We also about these solutions. So that means -- we don't treat a customer one and done. We want him to keep [indiscernible].

Next question comes from the line of [indiscernible].

Actually, my question is answered. I was wanting to ask you about typically inflationary scenario --

Mr. [indiscernible], your voice is not audible. And you're also [indiscernible] also please come during the [indiscernible].

Yes, so I said my question was in usually such a high inflationary scenario where material prices are so significantly higher, what is the usual behavior of the industry by these smaller players or local [indiscernible] and local large-size players or unorganized players, usually what has been the experience in the past?

Sure. Local unorganized players who get their form manufactured by contract manufacturers and of -- in this inflationary environment end up cutting more corners to try and add more adjacent or to provide lower density of home because it is very hard to make use of or identify how much other trend is there in year 1 of usage because year 1 usually behaves recently. And the power quality products end up deteriorating later on beyond the year 1. So we are seeing there some short-term shortcuts are taken by some of these regional brands. which just to protect their margins, which ultimately comes back to [indiscernible]. So for us, we would never compromise on quality or purity of the manufactured products because you are a brand and we provide a 100-day trial and we provide a 10-, 15-, 20-year warranty. So given these reasons, all well organized branded groups, branded companies in this space hope to benefit during this period.

But doesn't it widen the pricing gap between organized and the anomaly?

That is correct. [indiscernible], in the -- but even during the non-inflationary period, an unorganized player has certain structural advantages of handling in cash, avoiding GST and no PF or ESI for their employees. So that gap always remains even in a noninflationary environment. However, now the consumer behavior has evolved over the last 10 years, revenue [ has entities ] come into existence. But then people used to start searching in the local [ MDO ] mattress market. Every city would have a street where 10 mattress stores are present side by side, and they sell all brands together in the same stores. However, today, if you notice your own behavior, your people around you, the search starts on Google, YouTube, Amazon. And then once you see that unbranded products have no warranty, no 100-day trial, and you are still paying them about 2,000, 3,000 [indiscernible] in an organized brand as opposed to a brand where all of these facilities are provided. The consumer behavior is slightly more evolved where they say 10-year life, this is not such a big deal. So that is the overall benefit with the structural movement from unorganized to organized, we cannot break any credit for.

But in the near term, does the relative pricing gap expand? So what was the pricing gap between us and let's say the organized and the unorganized? That gap expands further because you guys have to go through price increases. Those guys have [indiscernible] channel or [indiscernible] trading. So does the gap increases further?

The [indiscernible] --

If that's if that's the case, then how does it fall back to a better volume growth scenario, for a better scenario?

So if you remember the previous question also, we were saying that volume growth might be impacted in the short term, while ASP increases should tie us over, especially in the premium products range and premium channels such as retail. We are not saying that despite all of these volume will grow at a very, very fast pace, that we will put in efforts to grow value volume but value growth will help us in the near term to mitigate those impacts.

Okay. So in our case, what was the volume CAGR for the last 4, 5 years? And what is the volume that you would see volume growth that you would see in FY '27 or what kind of changes that you would see between what was the CAGR and what should be in '27, considering the higher price [indiscernible]?

We don't have a policy. It's not volume growth is not a KPI and then you don't have it handy. We primarily track ASP, ASP increase cross category sales and repeat rates. So unfortunately, we don't have that handy.

The next question comes from the line of Ritesh Shah with Investec.

I just have quick questions. First is, Parul, I think the rental outgo, we have indicated INR 20 crores in Q4, INR 80 crores in FY '26. How should we look at this number for '27, '28?

So [indiscernible] also mentioned it is that we are targeting to open to typo you should be estimating the almost we did almost [indiscernible] store in this year, so approximately leveling of that.

I didn't hear you. You said we added 40 stores this year?

Yes. The new stores, which have been added is close to [indiscernible] in this year in FY '26, and next year, we are targeting for the 80 stores, which is do --

So the number would be similarly in line with that, rightly lower than double because the average square foot of the stores has reduced -- but yes.

Okay. Just a related question over here. Given the store count has increased, how should we look into ROU, which has actually declined on a year-on-year basis?

[indiscernible] basically, what has happened also is are some of the components and repeat because it's a lease accounting. And [indiscernible] there something which will keep on depreciating. Since the addition in the current year has been lower than what has been we were carrying for. That's why you're seeing a reduction per if there are changes in terms of the lease and also you will see that impact, and that's why we clearly called out the rent component separately for you all to just have a better view around it. But it's not going to be -- again, it's going to be the similar to the way the accounting will happen and the new incremental additions will add on to the [ ROA ] and the will keep on depreciating whatever we are carrying on the balance sheet.

Probably I'll call you for this, I would -- if you could help us with some breakup, it will be great. My third question is on CapEx. How should we look at it for '27 and '28, given we have a [ jumbo ] store coming up. I think this year, it was INR 29 crores for [indiscernible], any broad ballpark number?

Are you asking for FY '26, '27 now, or '27 [indiscernible]?

Yes.

Yes. So we are still in the process of concluding on that number. But with the [indiscernible] coming in and the new stores we are talking about, we should be somewhere around INR 120 crores to INR 140 crores of the [indiscernible].

And just to clarify, most of this CapEx is going to be in retail, not for any manufacturing capacity increase. And this will include nearly 50%, 70% of the jumbos initial CapEx to have been done in this year. Not all of it will come in this year, but that will be one big component. Second, the component is the planned opening of about INR 80 crores.

That's -- yes, sir. There is other nonoperating expenses of INR 40 crores in Q4 and INR 63 crores in FY '26. What is this pertaining to? How should one read into it?

[indiscernible] is, this is all kind of a nonoperating excess for income like the mutual fund, the NPL gain on the mutual fund, which is an unrealized scale. I'll [indiscernible] have gained a loss on the foreign exchange. So that is very much visible in the financial level captain item. So these are the only income under [indiscernible] have been or from the operating profit. These are the nonoperating, which is an unrealized [indiscernible].

Perfect. If you could explain the cash flow bridge from March '26 until now, I think our presentation indicates around INR 958 crores of investable cash. How should we read into this number? And some clarification around the bridge would be great.

Okay. So the INR [indiscernible] crores comprises of the cash we bat we carry in a different medium [ tenements ] in our book. So we had our internal accrual cash which we carried before came into the IPO and after the post [indiscernible], we are still -- we have only utilized INR 4.5 crores out of the levers what we raised in December. So that is what contributed to the increase in the cash component. And before the [indiscernible], we were carrying a INR 450 crores and internal approach we are profitable in the [indiscernible]. So that's what we are currently funding at.

How much would be internal accrual contribution over here? So I think pre-IPO, you indicated INR 450 crores, then there was IPO [indiscernible], I would presume it's around 300, 350 something, right?

[indiscernible].

[indiscernible].

Yes, INR [ 417 ] of the -- to be around INR 400 crores, you can take up your proceeds of the expensive is everything is internal approval.

Okay. And other financial assets have increased from INR 89 crores to INR 356 crores. How should we look into this?

Just again, as a component of the same number, what we have just spoken about because whatever we have invested in the fix deposits that will be probably part of the financial effect if the maturity is more than 3 months and less than in [indiscernible]

Please last question, sorry. [indiscernible] you indicated like we follow 3 variables. You indicated cross-category sales and other 2 variables. It could be [indiscernible] it and if you have some quantification or how you review it, your thought process would be great.

Yes. The way we review it is 3 things. One is of every INR 100 that we made in a month, how much of that comes from repeat customers. And this number is underreported primarily because in 2 or 3 channels, we don't get customer data. So using a smaller set of channels where we get the customer data, we are able to determine a certain number, and that is what we improve. Second number is every time a purchase happens in category B, we look at whether they have made any purchase in category. So that number is way more healthy for mattress, which means people have pure mattress in the first era, back and purchase other service products with a very higher level of frequency compared to people who have bought furniture in the first transaction, and then they come back for other products. This is natural because mattress is a 11-year-old category product. Furniture is 4.5 years old, and the [indiscernible] is about 6 years old. So it reflects the age and maturity of that category. Both of these is what we track on the limited data where we get customers to information. And also on ROU well, we'll be happy to quantify perfectly on a call, the way we handle any new stores because we are very, very frugal. We always start with 11 months or 12-month lease. As we spend 3, 4, 5 months in that location and see that it is working, then we go in for extended 2 years, 3 year lock-in? Or the -- if it's not doing well, we wrap it up in 11 months and find a location in the same micro market, 400 meters away, 500 meters away, but in a better footfall area. So I think a lot of those are playing into that accounting. We'll be happy to clarify with it.

Next question comes from the line of [indiscernible].

Just wanted to understand if there is -- on the [ mattress ] side, is there a revenue guidance that we can give out for this year?

We don't have a habit of providing guidance, especially in a normal day time itself, we worry about how to provide something that is sustainable and achievable. In an inflationary environment and geopolitical agents, we don't -- it will be very hard to provide it. But like I said at the company level, given all these variables are multichannel and multi-category, we aspire to grow at least about 20%. We will do our best to achieve that.

So would it be like you hinted earlier about increased competitive intensity? So as previous 3 years as 19%. Would that be slowing down because of this competitive intensity as we look to purchase margins?

No. Like I said, we are a very market share-driven company. While we don't say that grow at any cost, I don't care about the margin. That's not who we are. But we'll prudently manage product mix and channel mix to try and keep protecting the margin, but we always protect market share a lot more because the [ dream ] is very big, the journey is very long. And more importantly, one large customer in the first transaction means a lot of lost banking revenue because that whole thing will go [indiscernible]. So we're losing on mattress customer is not losing on [ mask-matter ] customer. It is losing the same customer who would come back for a sofa, coffee table, book rack. So then we ensure that we fight it out in the marketplace.

Okay. And my last one would be on this 100-day return. What percentage of sales have you seen the returns coming in? And that the customer has to pay for the cost of the transportation on the other terms?

No, we do the pioneers of launching this 100-day return policy in India, which was a game changer for the whole [ macro ] thing that be about 9, 10 years back. The way we defined it is that until that point in time, even if there was a warranty claim, the customer was made to run pillar to post to have a physical build, to prove that they bought the product from this particular store then deal with a complex mathematical calculation on how much refund they will get even for a royalty claim where there is a defect. So the way we changed the industry was to say that. It is a no question asked 100-day return which means you take it right in the privacy of your home. Both [indiscernible] side, right side, first, both having a different type of body and both will react differently to the product. The [ 99 ] today, also if you don't like it, you should be able to return and claim the full refund with no conditions other than that the mattress cannot be damaged. You cannot have liquid stains. You cannot have a cigarette burn, et cetera, et cetera. But other than that, we would have no questions asked. So that's how it changed. To answer your question on the return percentage, I can tell you that it has always remained in the same stable percentage range. Most of the 10, 11 years that we had this policy, and that number is stable [indiscernible]. It's below double digits. I don't think it's a KPI, so we don't disclose it every quarter, but it is below double digits. And we have a very capable and established supply chain to bring it back, reprocess and then figure out what to do. Customer does not have to bear any costs.

Next question comes from the line of [indiscernible].

Yes, my question have been answered. I just wanted to understand from the 80 stores that we are planning to open in FY '27, how much of that is going to be the [indiscernible], as you mentioned? And how many will be the small so if you can give the bifurcation?

Sure. All of the stores that we mentioned are the regular format between 600, 800 square feet all the way to 5,500 square feet. All of the APR back only. [ Jumbo ] the first store will come up only in early FY '28, which is April, May of next year. As per are today's projections where the construction is going up, we only hope to open [indiscernible] number of stores, be very frugal with that. [indiscernible] the hypothesis of Jumbo store, providing this full home destination in one place and then only scale it. That is not included in the 8, only one is coming up early next year and second one later next.

Okay. Okay. So 2 jumbos in FY '28. And the additional like products that you mentioned, like live plants and everything. That -- is that offering is only going to be in the [indiscernible]?

Even some of the regular stores, which have 5,000, 8,000 square feet flagship stores in those cities have space for them. So we will -- wherever there is place to display those merchandise, we will do that. And even website these restate also, it will be present. But [indiscernible] you rightly said, we'll give the [ lion's ] share of that. So it's a way to complete the portfolio in a very cost-efficient manner that we don't need to get into R&D set up a factory, et cetera. We can source white label [indiscernible] be to R&D, but we source it from somewhere else.

Okay. And if we have these projections, how far the [ Jumbo ] store can break even?

[indiscernible] initiatives in about 18 months that, again, we are doing it in a very frugal, very low-cost manner in about 18 months or so, we should aspire to breakeven. And think of it as a standard asset heavy retail a retail company, which would break in 18, 24, 36 months. So we are trying to beat that benchmark by doing it in 18 to 24.

Thank you. Ladies and gentlemen, due to time constraints, we have reached the end of question-and-answer session. I now -- I'd like to hand the conference over to the management for closing comments.

Thank you all for attending this conference call. We are happy to share the growth numbers. We are happy to share our strategy. Although despite geographical headwinds and macroeconomic headwinds the company has managed to deliver, will be very calibrated on our cost while being very aggressive in protecting ourselves on the market share sell. We will hope to continue to see all of you next quarter also and engage with all of you as and when needed. Thanks for investing the time and learning about Wakefit. If you have any further queries, please contact us, [indiscernible] Investor Relations [indiscernible]. Thank you.

Thank you. On behalf of Wakefit, that concludes this conference. Thank you for joining us. You may now disconnect your lines.