Ladies and gentlemen, good day and welcome to Sheela Foam Limited Q4 and FY 2025 earnings conference call hosted by Investec Capital Services India Private Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. 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, Steve. Welcome all to our Sheela Foam conference call. We have with us senior management of the company, including Mr. Rahul Gautam, Executive Chairman; Mr. Tushar Gautam, Managing Director; Mr. Amit Kumar Gupta, Group CFO; and Mr. Rakesh Chahar, Full-Time Director. Rahul, 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. Tushar Gautam, Mr. Rakesh Chahar, and Mr. Amit Gupta. Let me first take you all through the major developments in the company for the period under review, and then Amit will take you through the financials. In the fourth quarter, on a year-on-year basis, we saw strong growth in our standalone business. As part of the 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 2025, the gross margins of 42.5% reflect annual cost-saving run rate of INR 120 crores. Additional saving of another 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 2025, thereby limiting us to achieve the elusive double-digit EBITDA margins that we were looking for. On the mattress side for FY 2025, 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 e-commerce business and the small-town initiative that we have taken 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 2025. Showroom expansion remains a key focus area for us in FY 2026 as well, wherein we plan to add more than 1,000 new touchpoints. 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 these will be over and above the existing distribution system that we have. In the B2B segment, Technical Foam had steady volumes in FY 2025. 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 KL 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.
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 share that we have. Furlenco demonstrated a strong performance during this year. It achieved its full first year of positive profitability in FY 2025. The existing ARR in March 2025 stood at INR 300 crores. The ASP crossed above INR 1 lakh in FY 2025, which demonstrates a healthy penetration and adoption of Furlenco's offerings. Furthermore, we launched Furlenco in two new cities, including Indore, Kolkata, and Ahmedabad. To appeal to our Gen Z audience, we've also launched new product portfolios, those cater to their tastes 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 2025, 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 other private domains. To conclude, we are on track to unlock the full potential of the Indian business. In lieu of further streamlining and rationalizing our India operations, we have monetized three manufacturing facilities, namely Dobbaspet 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. 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 three 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 the majority of our customers, thereby improving profitability. We are also onboarding alternate raw material suppliers, which will further enhance business profitability. 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 standalone basis, we reported revenues of INR 691 crores. EBITDA for the quarter is 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 standalone revenue was around INR 2,600 crores. EBITDA for the period was at INR 235 crores, and EBITDA margins 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 is stood at INR 69 crores, and EBITDA margins were reported at 8.1%. Net profit is 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 is stood at around INR 300 crores, with EBITDA margins at around 8.3%. Net profit is stood 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 margins. The flow of profitability to the bottom line was limited primarily because of enhanced interest costs on the debt that we had undertaken for the Kurlon acquisition, 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 two- three years, with the growth targets that we have as a top-line growth, and we are able to repay the debt, we should be able to reach profitability metrics, which are better than what we enjoyed in the past. With that, we can now open the floor to questions and answer sessions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Arun Malhotra from CapGrow Capital. Please go ahead.
Yeah, good afternoon. 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 synergy 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 two companies, which are operating in completely different manners, have to be integrated. On the backend 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, etc. Now, to merge those things together to find out which is the best route to the market, etc., it has taken a little bit of time, but there is no structural problem.
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. It will move forward.
And also on synergy front.
Yeah.
On synergy front, as you mentioned, so we currently are looking at it very closely, and that's why we can see that around INR 120 crore worth of run rate by end March 2025 is already there, which to some extent is also reflected in the gross margins of the company. And also, 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, to a large extent, successful, as you would have seen, that we have reduced our number of clients 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, 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 four, five 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 two. I say it, but at the same time, I also see that two 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 back end of it, it should show positive parts.
Sure. And lastly, let's say I take you forward for three years. What could be the shape of the business in terms of profitability, margins, growth? 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 three years forward, hence. Yeah.
Yeah, yeah. 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 targets that we have taken for, and I would let Amit answer that, have we taken forward, we should be least impacted by environment changes. Of course, availability of raw materials, any logistics issue happening globally, etc., 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, is this what we have projected?
Yeah. So Arunji, 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 reach the place where we are looking to reach. So if you see, during the last one year, our business from structurally, that is, the operating business has become more efficient, yeah, it has become more profitable. Our problem simply had been. Can you hear me? Am I audible?
Yes, yes, I can hear you.
Yeah, I think the person is saying to or somebody else to.
Okay, okay. So now, since both 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 costs 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 one year. Our share on the online segment has gone up. We are currently around INR 175 crores-INR 200 crores on the online segment. Historically, we could touch only INR 100- 110. And also, in the small-town initiative, we will be touching very soon INR 100 crore mark on that particular segment. So this helps us in two ways.
One, it 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 a 30%+ contribution margin company, 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 two years. To give you numbers, and I have given it in the past also, I would retain my number that we intend to grow in India by around 15% per annum for the next two- three years.
And our EBITDA margins should be somewhere around 13%-14% odd in three years. If you ask me, maybe it touches 15%. That's my internal target. But you can take it. It will definitely be higher than 12% odd. The only thing is that we should be growing now from here from a top-line perspective, which we are pretty confident of.
Thank you.
Thank you.
Thank you. The next question is from the line of Aishwarya from iThought PMS. Please go ahead.
Hi, sir. No, I didn't.
Yes. Aishwarya, please go ahead.
Yes. So my question is regarding the top line because mattresses business in itself is like a moderate growing business. Because if I buy a mattress, let's say one mattress is for about INR 35,000 or something, it will go and it will last for me up to 7-10 years, around there. So what generally happens is we can see that the top line is moderate growing. And I was expecting a conservative number, but then you did the guidance was given that we will be performing about 14%-15%, 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 Aram in the rural area, but that cost would be much lower than the cost of mattresses which is available in tier-one 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 question is regarding debt because this year, since the interest costs are higher, in how many years will we 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 Aram and Tarang. And you said that the costs in the tier one cities is lower than the cost of Aram and Tarang. So yeah. So.
Higher. Sorry.
So Aram and Tarang is high. That's right. I mean, there are other mattresses available which are lower than that price. And therefore, how do you intend to compete? Is my understanding right?
Yes, yes, sir.
Okay. 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 upsell, 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 high mattress. So that's the journey as far as the showrooms are concerned, EBO showrooms. As far as the Tarang and Aram are concerned, I mean, it has market in the rural area and also the smaller shops in the urban area. So 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 treatments from our side. So premiumization in the EBOs where 75% business is coming, that will not get impacted. And there, we will get additional sales where we are not present today. So that's how we are looking at it.
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?
Aishwarya, 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-INR 150 crores per annum for the next growing at the rate at which it should grow for the next two to three years. In addition, we are also monetizing certain real estate which has been left free because of the closure of plants, which Rahulji mentioned in the part of his speech, which should fetch us around INR 200 crores. This we are trying to monetize in the next one 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 two to three 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 costs.
Understand, sir. I have one last question regarding the other B2C 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 for 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 two large brands and get them to move to their destinies, it's going to be a task, and I think all efforts and all resources of the company should be focused on that.
Secondly, if you see, we are now leader 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 take a little bit of our size, I can tell you that they are only present in top-tier urban places where they can make a significant impact. The way we are countering and the way Rakesh 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 on 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 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 two core brands and keep growing. The other brands might also grow, but yes, the market is very large for accommodating them as well.
Thank you so much for answering the questions, sir. Thank you.
Thank you. The next question is from the line of Rahul Agrawal from IKIGAI Asset. Please go ahead.
Yeah, hi. Very good evening, sir. Sir, a few questions or 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?
Rahul, you'll have to speak up a little louder. The voice is just not coming through.
Is this better?
Little better.
Okay. Firstly, some questions and some clarifications. Wanted to clarify that the 15% CAGR growth on revenues and 13%-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 and B2B businesses. So B2B businesses 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.
India 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 Aram 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 at 16%-17% YoY 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 YoY basis?
So two 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.
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'll 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 sides. 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 decently absorbed in the market on the B2B side? And incrementally, we should see a steady 10% CAGR on volumes, irrespective of what happens to the price because that's 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, which is what you will 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?
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 seven years, based on which an operating income of INR 7.25 crores has been booked in the current quarter. This is the income for the financial year 2024-2025. Since we got the letter in the current quarter, we could 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. Sorry.
Okay. No problem. We can move forward.
Yeah. The second part is you are referring to adjustment 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 outside sellers. These are estimated initially when you account for based on purchase price allocation at the time when we did the acquisition. However, things had 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 outside suppliers. 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.
Is this a cash inflow in any manner or the INR 36 crore?
INR 35 crores is not a goodwill adjustment. So you are mixing two things. Goodwill adjustment is of INR 30 crores, which we did in quarter three. 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 racks of mattresses which were lying in the bottom for years, and they were not of that value. We put a claim on the outside 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, Rahul, for getting into so many details. And I'll get back in the queue, sir. Thank you so much and all the best.
Sure. No, this is Rahul. You can also call me in case you need more clarification, please.
Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. So 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 spelled it wrong as 700. So 400 is clearer.
Perfect.
So right now, yeah.
Okay. Yeah, Ritesh, go on.
Yeah. Number, sir. Basically, where we are on absolute number from a count standpoint.
So the absolute numbers would be 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 formats. If you talk about the overall network, that is about 11,000, both Sleepwell and Kurlon put together. So 3,000 and 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 INR 175-INR 200 crores. But 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 details.
So Ritesh, we can't exclusively discuss the numbers. You know that these are trade elements. But I understand your concern, and maybe Ritesh can give a broad percentage of.
Or I can also, Ritesh, we can discuss this one-on-one. So there is, see, on a macro level, there is a B2C, which we call it a general trade, which is a good channel. So there is an initiative to drive growth there. Then we have the e-com bit, where I mean, we have space for much faster growth. So there we have 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, there is a growth plan around that, which is both new categories, application development. So that also is in the vicinity of about 12%-15%. But the dependency is on the user industry.
But our initiatives are aligned to get about 12%-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 timeline 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 timelines?
Yeah. So Ritesh, I'll not discuss INR 120 crores because that is already done, and that is there. Major part of it is in operating margin. Some part of it is in freight and the closure of certain units and saving of overheads on administrative costs 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, etc., this month. So that should fully happen maybe by the end of June. So we will have some part of that impact in June, and the second quarter, it will be 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 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 two new machines for it, which would take around four to six 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 would 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 two parts.
We have already implemented a 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 were doing now, it has increased overnight with coming in of Jabalpur because we now transship foam from Jabalpur to most of our units. It's 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 two, three 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 two quarters, but some part of it will be visible in the last two quarters.
This is quite useful. I'll just add two more, and I'll join back the queue. Sir, earlier we had indicated broad numbers around Aram and Tarang. It's there, surprisingly, even in EBOs in the marketplace. So is this 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 where should we see this number, say, a year out or two years out?
Okay. So the number would still be around 6%-7% the year gone by. We see this number within the portfolio growing up because the numbers are going to grow rapidly. So we see it growing to, say, 12%-15% in this year.
Sure. And last question for Rahul, 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? Thank you so much.
Thanks, Ritesh. I think you're putting the most difficult question to me. So let's look at the online and offline as two 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 faster pace than what the offline one is going. 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 an unorganized sector which is there, and that unorganized sector, the numbers are a little difficult, but just making a good intelligent guess, our Sleepwell and Kurlon activities have been by far the most and have also shown better results.
Online, I'm saying 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 their profitability and sustainability and all that stuff. So we can probably talk about it maybe another three, four months down the line as to where they stand here.
Sure. Rahulji, thank you so much. I'll join back the queue. Thank you.
Thank you. The next question is from the line of Nikhil from SIMPL. Please go ahead.
Yeah. Thank you. Thanks a lot. You have given a quite a detailed explanation on the cost side. But continuing on that, if we look at from our presentation for India business, if I look at expenses as a percentage of revenue, we are around 34%-35%. And pre-acquisition, it was in the range of 25%-28%. And you mentioned that we eventually want to reach that 13%-15% at the margin. My question is, is this ambition to reach that 13%-15% completely dependent on our expectation 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%-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. On the other part where it can get contributed is the synergy side, and synergies, Amit has already explained that where the balance 130 is to kind of come in.
Once all these three 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 the 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 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.
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 an INR 850 crore company, and so its overhead percentage was higher than us. So in spite of inflation for one 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 overhead also because a lot of plant closures have taken place, trade 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 these trade rationalizations, the route to market changes, probably we've grown lesser than the industry in the last one year?
So I think it would be about the same there.
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 two additional segments in which we grew. 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 the e-com business growth and the other segments, the GT channel or the MBO channel 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 two 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 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 segments?
Okay. Sure. Yeah. So if you look at what 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. On the other side, which is the e-com and the STI, so there we have grown substantially, and that has been added together, and it also adversely impacts the ASP. So I think what really was kind of coming in the value growth is the ASP drag over 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 products that we had introduced to compete with them in the market. I mean, it is a combination of many things.
But there was some course correction that was required, which has already been initiated just about a month and a half back, and we have already started seeing the results on the ASP going up at our EBOs. So 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 five- 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. 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 the next five years, what's their role in the whole scheme of this business?
When we have a larger opportunity and we've done an acquisition and our energy is towards making these acquisitions successful, what's the role these two 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. There were mattress technologies, etc., which were there to come. Today, if we review that position today, I think the question that you are 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 role, and Spain plays a different role. But that question must be asked. I would say that for Australia, 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 five 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, etc. And you're quite right that the real potential lies here in this country. And with the position that we have, with the two strong brands and with all the base work that is being done, we should see the next four- five years of good run.
So eventually, because I mean.
Sorry to interrupt. Mr. Nikhil, can you please come back in the queue for further questions?
Sure.
Yeah. Thank you. The next question is from the line of Varun Singh from AAA PMS. Please go ahead.
Yeah. Thank you very much. Am I audible?
Yes, please. Yes, Varun.
Yes. Yes. Yes. So thank you for the opportunity to ask a question. 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 20% volume growth when maybe so many other consumer sectors are facing slowdown. So we have been able to deliver such a good growth rate, maybe 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, etc., that is out there. And even if I remember correctly, during last conference call, regional conference call, we were guiding for 17%-18% kind of revenue growth in the mattress segment.
Assuming that, let's say, even if we are able to achieve 15% revenue growth, and I break that number down 15% to two parts, one may be Tarang, which assuming it grows by 20%. Our core mattress segment, the other 90% of the revenue pie, that must grow minimum 14% in value terms to achieve the for the India mattress business 15% revenue growth. 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 2026. It may be a possibility, but for the first quarter itself, given that April has already gone by and 50% of May month is also done. 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 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 2026 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, etc. But some newer applications we forge, and newer industries get created. For example, we're doing something for the aviation industry or the toys industry, which is suddenly 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, 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.
That's why 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. If I remember correctly, during the last call, 10% was the expectation from the fourth quarter, but unfortunately, because of the subdued demand situation and deflationary environment, etc., we could actually achieve just 8 or 8% compared to 10%, so for FY 2026, and again, starting from Q1, FY 2026 itself, I mean, how much confidence do you think 10% EBITDA margin in the degree of conservativeness you would think, sir?
So 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.
Okay, sir. That's all from my side. Wish you all the best. Thank you very much.
Thank you. The next question is from the line of Jaineel Jhaveri from JNJ Holdings. Please go ahead.
Yeah. Hi. Thank you for taking my question. So my first question was regarding the CEO. He was a professional CEO that had been brought into the company. I mean, he stayed for almost two years, I think, or one and a half or two 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'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, 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, I mean, and through this entire call, we have been talking about what kind of instability an acquisition like this brings about.
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. I hope that you will appreciate that 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 move on. In any case, as I said, CEO was more with a future in mind.
Right. No, I just wanted to understand your thought process, and this is 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 phrased it.
Right. And one other thing, and this may be just something that, I mean, or just some thought that I had was in terms of even the kind of questions that other participants have asked and that I've been following the company for some time now. Is there any thought process on restructuring the company or maybe de-merging the mattress business? Why I ask 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 de-merging that out?
So 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's 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 two businesses be different? Probably yes, but that someday is quite far away. It's not good, but I understand and appreciate that there is a fundamental difference in the nature that the way the two products sell and accept 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 two 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 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 two 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 are synergies in doing them together from the point of sale, from transportation perspective, from the ingredients, from the infill, all these kind of things. There is a lot of synergy there, but fundamentally a little different.
Okay, sir. Thank you. That was super helpful. Thank you so much, and good luck.
Thank you. The next question is from the line of Rachna from SIMPL. Please go ahead.
Hi. Hello. Are you there?
No, ma'am. Your voice is coming very low.
Hello?
Yes, please go ahead.
Okay. So during some recent channel checks, we saw that Sleepwell products were not present in Kurlon EBOs and MBOs and vice versa. Now, this 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 visibility and performance within the existing retail footprint before investing in new showroom openings?
Tushar, are you there?
Yes, I'm here.
Tushar, right? Yeah. So could you take that question, please?
Yes, absolutely. So we can think of it in two or three sort of areas. One is Sleepwell started with a large set of EBOs, and their primary role from a growth perspective is to get simple growth. So there are a set of initiatives that we need to take there. The expansion that Rakesh talked about is primarily going to be led by Kurlon EBOs because Kurlon had a very weak EBO network, whether in south, west, east, north, 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 and a half 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. A same store will, in our experience, when you convert an MBO or a new store or you build a new store, you get about two to three years of very good growth, and then it becomes a bit incremental in the sense that footfalls 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 three or four broad areas where 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. Did that answer your question?
Yes. Okay. One more question I needed to add. Can you talk about the economics of Tarang and Aram brands separately since we always mention 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 our ambition of reaching 14%-15% of EBITDA level?
Tarang and Aram at a percentage margin level are exactly the same as the current business. There is no difference at all.
Okay. And.
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 Aram, Tarang, 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%.
Hello?
Hello?
Yes. I have one more question, if I can add. Now, this is on the e-commerce business. We have the advantage of diversified warehouses, manufacturing facilities, well-known brands, 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 not allow the other people to grow so much before you started to take the right actions. We did that about a year, year and a half ago. Last 12 months, Amitji, correct me if I'm wrong, we've had close to 100% growth.
Yeah, yeah, right.
Targets and ambition currently is to continue, no, 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 three, four months, Sheela Foam mattress brands, at least on one of the platforms, have been number one. And we expect to continue that journey and also expand that on the other platform. On platforms, we will very quickly get to either number one or number two. Brand.com, there is still some work to be done. And that's the work we're putting in now for the next 12- 18 months.
Thank you, sir. 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.
Hi, Steve. 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.
Yep, yep, yep, yep.
Yeah, go ahead.
Yeah, just two questions. One is for Tushar, 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, three 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 sales that we had for this year, and if there is any broad guideline on those numbers for next year, that would be great. Thank you so much.
Ritesh, I would only say as far as Furlenco is concerned, I can comment a little more on the opportunity. As far as 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 then in the previous question, I think we've done a few pilots, good results, which is can we leverage the current 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 two or three 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.
Sure.
Is that okay, Ritesh?
Sure. Thank you so much, sir.
Thanks. Thanks.
Yeah. 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.
Sure. Thank you so much, Amitji. Rahul, 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 conference call. I hope that me, Tushar, 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 investor relations managers, that is Valorem Advisors, or to any one of us. 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.