Ladies and gentlemen, good day. Welcome to the Sheela Foam Limited Q1 FY25 Earnings Conference Call hosted by Elara Securities Pvt Ltd. As a reminder, all the participants' line 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 the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Purohit from Elara Securities Pvt Ltd. Thank you, and over to you, sir.
Yeah, good evening, everyone. On behalf of Elara Securities, we welcome you all for the Q1 FY 2025 conference call of Sheela Foam. I take this opportunity to welcome the management of Sheela Foam, represented by Mr. Rahul Gautam, Executive Chairman, Tushar Gautam, Managing Director, Mr. Nilesh Mazumdar, CEO, India Business, and Mr. Amit Kumar Gupta, Group CFO. We will begin the call with a brief overview by the management, followed by Q&A session. I will now hand over the call to Mr. Rahul Gautam, sir, for his opening remarks. Over to you, sir.
Thank you, Amit. Good afternoon. Good afternoon to everyone, and thank you for joining us for our earnings conference for the first quarter of financial year 2025. I would also like to thank Elara Capital for hosting this earnings call. Let me first take you all through the financial highlights for the quarter. For the first quarter under review, on a standalone basis, we reported revenues of INR 504 crore, which increased by around 10% year-on-year. EBITDA for the quarter stood at INR 48 crore, which declined by about 22% year-on-year. EBITDA margins were reported at 9.45% for this quarter, and the net profit stood at INR 32 crore, which is down by about 25% this year. On a consolidated basis, for the first quarter under review, we reported revenues of INR 810 crore, which increased by around 26% year-on-year.
EBITDA for the quarter stood at INR 60 crore, down by about 23% on a year-on-year basis. EBITDA margins were reported at 7.4% for this quarter, and the net profit stood at INR 47 crore, which has actually increased by about 8%, on year-on-year basis. Let me just begin by sharing with you that this quarter has been a very eventful quarter. Besides the financial year starting, which has the regular changes and the annual changes, which we all have to do in all the companies, we've been integrating Kurlon, represented by KEL, Kurlon Enterprise Limited, which was acquired in October 2023. You know, the integration processes have their own complex and complicated situations when the process takes place. We could have waited to run the two entities separately as different businesses, like we are all aware of Air India and Vistara.
That's going on, going on for almost a year, and probably will take another two, three years to complete. But we chose otherwise. If we had continued by keeping them separate, the fluid situations would have also continued for a very long time. Additionally, all the synergies that we have anticipated or we are working on would have taken that much longer to crystallize. And as I mentioned, we chose to consolidate right away, consolidate the operations side, consolidate the services side, and consolidate the sales and marketing side. In fact, we have gone one step ahead to even consolidate both the corporate entities and have already filed for a merger with effect from October 2023. That is the date of the acquisition. And when we chose to do this, there were some actions and some steps taken by us immediately.
On the operations side, we determined wherever manufacturing of whichever product was the best suitable. For example, foam being manufactured in erstwhile , Sheela Foam factories, while coir products being manufactured in Kurlon factories. Similarly, we also chose logistically the best suitable places for supplying and catering to the nearest market. In this process, we closed down two factories very peacefully with all the people being taken care of, and there have been benefits which have ensued thereof. Some of them are already beginning to flow in. On the services side, I shared with you that ERPs, or integration of ERPs, and we all know how important IT services are these days.
Normally, the integration takes 6-12 months, but we did that in less than a week, ensuring that all the security, the cybersecurity, was taken care of and has been taken care of as we move forward. Along with it, the F&A, Finance and Accounts department, has also been integrated, and the HR practices are under purview or under review and will be done soon. On the front end, exercises and marketing, we're all aware that the two businesses, though, may appear as absolutely similar, supplying mattresses to the market or to the consumers, but in functioning, they're very distinct from each other, very different. One operated through regional warehouses or regional distribution centers and then going directly to the retailers, while the other one operated through zonal distributors and then reaching out to the dealers.
Various pilots and various models were initiated, were reviewed, were viewed to see that we arrive at the same. We arrive at an integrated outcome, but at the same time, the best one that is possible. I'm happy to share with you that we have come up. The RDCs have been reduced largely from a number of about 55 to about 16, and while the distributors have been given the additional task of distributing Kurlon products. Now, this may sound as simple, but when it involves retailers across India, across the entire geography, and across EBO and MBO systems being operated, and with the two different sales forces in operation, integrating this was not easy. I must say that in this quest for doing things quickly, for obvious reasons, it did result in disruptions, especially on the sales side.
I would even love to add a place to say that the negative environment or economic environment was definitely not helpful during this process. The impact of doing all this was that savings potential, which we have evaluated as INR 250 crore annually, we have already achieved a run rate of about INR 100 crore. The fixed costs of both the units that I mentioned, or the fixed costs arising because of the two units, have come down, and they have been actualized in the quarter one that we are talking about. The sales system is in place. It's completely in place. However, we all know that this creates some disruptions, resulting in sizable sales losses. But now the system is completely in place. Everyone is operating.
Let me say that even all the information I have beyond the quarter closing of the last quarter, things are running as smoothly as they should. We are happy to share that the entire integration process is about 85%-90% complete, and we are ready for the upcoming season. I must also share that the merger which has been filed with the NCLT, whenever the order comes out, it will be a seamless conversion even at the corporate level. Lastly, let me talk about the international businesses in both the geographies of Australia and Spain. And I must say that both have a process of increasing their capacities that has been completely commissioned.
Australia has gone up from about 10,000 tons - 15,000 tons per annum, and in Spain, we have gone from 12,000 tons - 18,000, which ensures that we are very future-ready as far as those matters are concerned. I must say that sales have been not too far away have been reasonably stable. And if they have not increased, it's only on account of the raw material prices which have been on the lower side and have reflected on the top lines being just smoothly on. So with these words, I conclude the opening remarks and open the floor to all the questions, and we will try our best to answer each one of them. Thank you very much.
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 the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking their questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Tushar Vaidya, who's an individual investor. Please go ahead.
Good evening. It's Gautam. Looking at the Q1 results, I can see that the number one, revenues have not grown commensurately. For example, after the Kurlon takeover, after Kurlon should have brought revenues of roughly INR 850-INR 900-INR 1,000 crores to the table. However, which is approximately maybe INR 250 crores per quarter. However, this year, Q1 FY 2025, year-on-year, the revenues have grown only by about INR 160 crores. So it implies that either Kurlon revenues have dropped or Sheela Foam businesses revenues have dropped significantly. So the first part of my question was relating to what to revenues, why are revenues falling. And this is concerning from the context that when we look at competitors, other mattress manufacturers, their revenues are growing. So why are our revenues falling in a market when our competitors' revenues are growing? That's the first part of the question.
The second part of the question pertains to profitability. EBITDA has jumped from 12% last year to 7.4% this year. Other expenses have gone up from 26.6% last year to 34.9% this year, an increase of 8.3%. So costs appear to be. I noticed that marketing expenses have gone up, but they've gone up by roughly 1.9%, whereas expenses have gone up by 8.3%. So marketing expenses will not account for the total increase in expenses. So the second concern is that expenses appear to be growing, and the EBITDAs are falling. So these are the questions I have. Looking forward to hearing from you, sir.
Thank you, Tushar. Thank you very much for bringing these questions. As far as the total revenues are concerned, I know that you are referring to the target that we have for Kurlon at INR 1,000 and therefore, quarterly revenue of INR 250. But it is the process of integration, which has impacted or, let's say, temporarily impacted the revenues, especially when you do the front end part of it. And the processes, as I said, the way that the products are sold are completely different. There are leftovers. There are stocks from before. There are people who have to be brought on board. There are the final process that we decided was through the zonal distributors. Now, they were dealing only in Sheela Foam products earlier. They have to be. Kurlon has to be added to them, etc.
The regional distribution centers which were carrying the stocks, they have to be closed down. Materials have to be transferred. There are some disruptions that take place, and it's a result of all that. But let me just repeat myself and assure you that this is this is a part of quickly trying to integrate, getting over it, and getting on with our jobs of manufacturing and selling. And this number that you talk of INR 1,000 crores will, will soon be realized. As far as the EBITDA part is concerned of 12% going to 7.5%, Amit, would you take that question?
So, hi, Tushar. This is Amit Kumar Gupta from Sheela Foam. Tushar, if you look at it, I would answer if the time permits, my answer into two parts. The first I will point out is the gross margin. I think when we started this acquisition of Kurlon, the combined gross margin would be around 40%-odd. The Q1 figure that you see here only comprises of Sheela Foam since Q1 last year, Kurlon was not there. So and that is written at the bottom of the presentation also. So, you cannot compare it with Q1, but yes, Q4 will be compared. So firstly, I would mention that whatever benefit were to accrue from the integration process, as Ravindra just mentioned, 101 run rate has already been achieved, and this is reflected in the gross margin that we have.
The lesser EBITDA is only on account of its cost leverage. Since the top line you see there, even if you compare it with, say, Q4, it is lower by around INR 70 crore. If I take a gross margin expense there and multiply it by that INR 70 crore, you will find that the EBITDA margin would be somewhere in the 12%+ range. What I can see, the revenue was disrupted temporarily because of the integration process, and now it is all on track. As soon as in the next quarter we see this revenue coming up, I think whatever was to be done on the cost side has already been done, and you should observe a much better EBITDA, on the cost side.
Ravindra, as a follow-up, may I ask, may I know the split of top line between original Sheela Foam and Kurlon?
Which part of the year are you talking about?
For Q1, sir. For Q1 FY 2025, against the consolidated top line of INR 810, how much came from Kurlon and how much came from the standalone Sheela Foam?
You are referring to consolidated revenue, right?
Yes. I'm referring to consolidated, the total revenue.
Yeah. So this includes Kurlon, Sheela Foam, Australia, and Spain.
That's right.
Yeah. So, very difficult for us to bypass it. See, the model that, Rahul just explained, that now both the brands are working together to derive the integration benefits. So especially in India, we have combined the distribution network. Now, if you go to the shop exclusive on the shop, you will find them at different places. But at the back end, it is the same same team or the same channel that is distributing those products. So we have stopped the, doing it on, that way because ultimately, what is, the sales proposition that the dealers and distributors have is how much of the combined volume are they able to sell and how much they are able to deliver. But still, broadly, if you ask me, I can tell you that, Kurlon, because of disruption, has been a little bit lower this time.
It would be somewhere around, say, INR 170-INR 175 crores, whereas Sheela Foam should be around INR 44-INR 45 crores to be disrupted.
Noted. Noted. Okay. Okay. Got it. Got it. Thank you. Thank you, Rahul. Thank you, Amit.
Thank you very much. Ladies and gentlemen, I would like to remind the participants that you may press star and one to ask a question. I would also like to remind that in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participant. The next question will be from the line of Drisha Poddar from Carnelian Asset Management. Please go ahead.
Yeah. Just want to ask a couple of questions. So, wanted to understand that even on a standalone basis, gross margins have declined by about 383 basis points on a year-on-year basis, you know, from about 38.6%-34.8%. So what has led to this gross gross margin decline even on a standalone basis?
Sorry, you are looking at okay. Okay. So can you repeat yourself, please? The voice is not coming through clearly.
Wanted to understand the decline in gross margins even on a standalone basis. Standalone also, we've seen a gross margin decline of about approximately 383 basis points.
So, Amit.
Yeah. I hear you. So may I just tell you that you would have declined to my last question?
Right.
Sheela Foam itself had a revenue of around INR 440-INR 445 crore.
Correct.
Whereas the top line that you see here is INR 487 crores. The remaining INR 40-INR 45 crores is because of the intercompany sales between SFL and TEL because now, of course, we are doing all the margin in the outstanding, but we have developed an arm's-length principle, and we have put all these business in a manner that they are able to function together. That is how only the efficiencies can be derived.
Right.
This whole arrangement has been put in. When you do it at an arm's-length, the profit margin that you take from the sister company is much lower. It cannot be as you were selling it to a third party. Generally, you take a 5%-6% profit margin on cost of goods sold because of which the intercompany sales gross margin would be much lesser. When you do an average of it, you find that the overall gross margin has reduced. If you see on an India business level, which is the right metric to look at it, you will find that the margin has actually improved gross margin. It has, though in the financials, it shows an improvement by around 80.1%. There were certain product mix, which has happened, in this quarter for the goods.
We have increased the sales of online segments. We have increased the sales of the mattress, which is mattress for every Indian. There, the gross margins are lesser for the EBITDA of the sales because this won't involve marketing cost, etc., so effectively, this margin should have gone down by 0.4%, whereas it has increased by 0.1%. So I would say that from quarter four, my gross margin has increased by approximately 0.5% on an India business level. This is the right metric to look at.
Okay. Okay. So, Amit ji, what can be the gross margin levels to work upon now in the future? Like, should we, you know, work with about 35%-36%? Should that be the new normal?
No, by 35, 36, if you have worked with gross margin at India level, it is currently around 44%, and there are certain synergies which Ravindra mentioned that out of INR 250 crore, only INR 100 crore have been executed or under-executed till now. So there is an incremental savings of, efficiency, INR 100 crore-INR 150 crore, which will come over the next 6-9 months. So definitely, you should see an enhancement in the gross margin over this period, and, that should lead to a much higher gross margin than what even currently it is.
Got it. On the growth side, like, you know, now that I assume that most of our, you know, synergy like integration issues are behind us at like 85%-90%, that we've been integrated, so what kind of growth rates can we expect for the balanced three quarters and for next year?
So on a quarter-over-quarter basis, as we had given the guidance earlier, we are looking, on a quarter-over-quarter, on a year-over-year basis, a growth of around 15%-odd.
Correct.
You can be reassured that we are looking at double-digit growth rates in the quarter, on a year-on-year basis.
Got it. Understood. Lastly, on the two subsidiaries that we have, both Australia and Spain, where we've seen that, you know, due to higher other expenses, you know, margins have compressed further. What is our outlook there?
Sure. Amit ji, this is, as I again mentioned, right in the beginning, these numbers are appearing because of reduced raw material prices. And.
Understood.
Those areas, we supply foam to the brand owners and to the mattress manufacturers, and therefore, the raw material prices impact us far more. These prices are stabilizing or have stabilized. And second, we are also bringing some of our costs down. Therefore, you should see a better number in the coming quarters.
Got it. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, a reminder that you may press star and one to ask a question. The next question is from the line of Amitesh Kumar from Master Capital Services. Please go ahead.
Hello. Am I audible?
Yes, Amitesh. You are.
Oh, so thank you for the opportunity, sir. I had two questions. So firstly, you said integration of ERP, so it took 6-12 months, but you did it in a week. So can you explain how did that happen?
Is that your first question? Is there a second question?
Yes, sir. My second question is, regarding that you mentioned negative economic environment was not helpful. So could you emphasize on that as well?
All right. So let me first talk about the ERP product. The integration of ERP, when you switch especially from a system like they had an old version of SAP which was operating. And as far as Sheela Foam is concerned, the operating on itself, it's a homegrown system that is there. So when you do module by module, let's say starting from stock to manufacturing to sales to financial accounting, you can do it module by module. And let's say we could have done the sales and marketing first and left the back end continued to work as it was. Or we could have done was do a module of just manufacturing and switch over people switch it over to the other company.
The people take time for training, and that's the normal standard 6-12 months that it takes for when you switch over from one ERP to the other. Here, we trained people a little in months. We prepared for it, and we checked the financial year starting on 1st of April, and we will start it at that, that particular time. A little fortunate that we are in the same business, and therefore, the people understood the, the manufacturing processes or the selling processes. However, systems are different, and the way that, you know, each one has to operate on it, it takes time for, for training and, and implementation. Any, any follow-up questions on that? I'm happy to answer.
No, sir. I'd like to understand the negative economic environment point as well.
Yeah. So I think that that's accurate. What we have been seeing is, of course, growth rates of what the declared growth rates in India of 7%-odd, that has been there. But when you break that down, you find that it is the services side which has contributed to it, and it's not the other parts which includes the consumer durables, or the areas that we operate in. And that's the negative part that I talk about, that it was not that, I mean, if you look at the last six months, the only consumer durable which has grown is the air conditioners, and that's because of intense heat that was there. But all the others have been having an absolute low or actually a little lower turnovers, compared to the previous time.
Okay. So thank you.
Okay.
Thank you. The next question is from the line of Resham Jain from DSP Asset Managers. Please go ahead.
So, yeah. Hi. Good evening. My question is related to the overall integration. And, I'm sorry, but you have explained in detail in the last half hour, but it's very difficult to comprehend that the kind of run rate which Kurlon used to do of close to INR 250-odd crore on a quarterly basis, how despite the total, kind of if I look at this quarter number, that mathematics doesn't make any sense. So I think if you can just explain, maybe in a separate sheet, how both the businesses have grown, that would be very helpful because it seems that one of the businesses might have seen a significant growth, and I'm not able to understand what is the reason of that degrowth.
I understand the markets are not great, but still, because of integration, what all impact you have in MBOs, EBOs, any region-specific. I think those kind of details would help in understanding those aspects.
Okay. Okay, Resham. So we will prepare a separate document and share it with each one of you of exactly how it impacts. But it's in a summary form and in a bit of a repeated form. I just say that it does. I'll just imagine that there are two businesses operating: one operating through MBOs and through regional distribution centers directly from company to their own warehouses and then through the retailers. The other case, it is company to the zonal distributor, which is a sale, and then from a distributor to the retailers and through EBOs, which is also a sale. Now, you want to integrate the two. So let's talk about the starting point because these are continuing businesses, and they have starting points where there are stocks existing. There are products which are existing.
There are payments which are yet to come from either side. Then you now need to shift from a regional distribution center towards a distributor, sorry, from a regional distribution center to a depot or to a distributor for selling. You have to transfer the stocks which are existing in the distribution centers. You have to transfer the credits which are existing. There are human beings which are involved up in the, you know, on the retail side and on the distribution side. Those people who have been used to a particular company and now suddenly what have to do both the companies look at what goes through their minds, and then look at the insecurities that go through their minds. Till the time that some comfort levels are evolved, and the business begins to settle down.
So that's the disruption that, that we talk about. Products which are being made in one or two particular factories, and then you want to close those two factories down because it doesn't make sense for them to go on any longer, or for, for long. They have their impact. The supply chain, there has been a supply chain which has been existing, and there is a supply chain that you want to create, a combination of both of them. So these are the issues that is there, but I would be happy to take, to prepare, one-pager on this and share it with you.
Got it, sir. The second question is, sir, given, for our understanding, it's very difficult to comprehend what kind of visibility you have in terms of, let's say, revenue going forward. I assume that this is temporary in nature, all the stock adjustments and other aspects. But, let's say going forward in the second half, the key festive season will be there. How do you think about the kind of revenue run rate which we can do in the India business?
So I think let me first begin by saying that fundamentally, the business and I'm talking the combined business has actually become stronger. That is, as a platform, it has become stronger from the two platforms that were existing. Now, it's not getting reflected on the top line. And your question is that what kind of confidence levels do you have that the, that the top line will come to protected levels or to even the erstwhile, levels that, that were existing? Fundamentally, when I say the capacity to manufacture the products that you have, the brands and their resilience that is there in the market, the distribution channels that you have, they are stronger than before. Now, it's a question of and as I said, the numbers that you are watching are 30th June numbers.
There is a month and a quarter, which is or a month and a few days, which have gone by. And therefore, I speak with some confidence to say that they will return to the old or or to the projected numbers that we have. And we will, we will be well in time before the quarter three, which is a high-season quarter, before that starts. We will be well in position for that. Unfortunately, I can't talk too much about, you know, whatever has been done in the recent past or one month back, but the confidence is there.
Okay. Great, sir. Thank you, and all the best.
Thank you very much. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Sir, am I audible?
Yes, Ritesh. Clear and loud.
Yeah. Yeah. Hi. Yeah. Thank you, sir. So, a couple of questions. One, is it possible to quantify corresponding numbers to INR 170 crore and INR 445 crore, what you indicated for this quarter, for the last year?
Do you want to answer one by one, or you want to put all the questions, Ritesh?
Sir, whatever is convenient to you, sir.
No. All right. So you'll have to repeat this last one.
Yep. So, the first question is, I think, in one of the questions you answered, Kurlon did around INR 170 crore this quarter, and SFL did INR 445 crore. So the question is, how much was the contribution for corresponding period last year?
So, Ritesh, as far as Kurlon numbers are concerned, we would not have them because they were not listed, and they did not prepare any quarterly numbers at all. So they were only had annual numbers. And therefore, we have attempted that in the past but unfortunately not been able to get that. That's one part. And even, this INR 170 and INR 445 that Amit said is a bit of an estimate because, what we have what we have, put in process is that eventually not no, finally, you know, everything is going to become Sheela Foam. That even the sales part of it are you know, whatever comes from Kurlon as a corporate entity goes through Sheela Foam, as a related-party transaction. But of course, everything happening at an arm's length distance and then goes to the front end or to the, to the markets.
Therefore, it's extremely difficult to get them. These are estimates, and we can't have the last year's, we can have the Sheela Foam numbers, but we can't have Kurlon numbers of last year.
Sheela Foam numbers, Ritesh had already there in the presentation. I think this is 450-something. And that's the one number from standalone of SFL. But Kurlon numbers, since they've never published these numbers, are very difficult, and internal numbers are very subjective. So I would not like to take the risk of citing those numbers.
Yeah. That's quite helpful. Sir, my second question was on distribution. Would it be possible to quantify what is the EBO and MBO network under Sheela Foam and how much it is under Kurlon? If the number is like three months back, six months back, it's perfectly fine. I wanted to understand how do we plan to increase the number for EBO, MBO, for the Sheela markets and for the Kurlon markets, and how far have we reached in the journey?
Like, is it a three-year thing, five-year target, and where are we over there?
I'm requesting Nilesh to take that question.
Hi, Ritesh. So as far as the distribution is now concerned, as you would know that, we used to have people going largely only through exclusive outlets, and Kurlon, by and large, was through multi-brand outlets. And this, along with the acquisition, obviously, people get the opportunity also to go through multi-brand outlets and also expand to the exclusive channel both for Sleepwell and Kurlon. So as we see, currently, both the brands put together would be getting sold in the urban market through approximately 7,000 outlets now. In the last quarter, we would have added, stroke revised, approximately about 700-odd outlets for both the brands. And this does not build in the small-town India where we have a completely independent channel, which we have created. So that's the kind of expansion that we have done till now in the first quarter.
Right. And sir, is it possible to break this number of 10,000 7,000 between EBO and MBOs, including 700?
If I very broadly break this up, it will be approximately around 3,000 outlets will be exclusive, and about 4,000 would be multi-brand or high-potential outlets.
Sure. And sir, how do we plan to?
That's helpful.
Yeah. That's, that's helpful. And sir, how do we plan to increase this number, say, with a three-year view, five-year view?
So see, the distribution expansion would happen, in a calibrated manner. We would expand the showrooms for both the brands because the exclusive gives a different kind of a shopping experience to the consumer. As we had discussed before, that the strategy we are following is that the entire country, we have broken up in almost 2,000 micromarkets. And for each micromarket, we have a separate distribution plan how both the brands will be enhancing their presence, either through increasing outlets or through increasing share, depending on what the current status is. The numeric distribution is something that we will be driving through the small-town India. And, my guess is that, small-town India, we already have about 5,000 outlets. And by end of the year, this is completely new channel that we are creating.
We will have another about 7,500-8,000 total number of outlets that we will have in small-town India by the end of the financial year.
Sure. Sir, I'll ask the question in a different way. Sir, in the past, we have indicated that we would look at double-digit volume growth. So please correct me if I'm wrong. So my, my idea was to understand how much is the same store sales growth that we are looking at and how much of it will come from the distribution network enhancement. So I wanted to understand how you are thinking about this.
So, volume growth, Ritesh, is going to come through, just not channel. It will also come through several other initiatives that we are doing. We have, as we speak, for almost every quarter, we have a new product introduction that we have planned and which we will be rolling out to fill in some of the portfolio gaps that we have. We will also be looking at communication, which will help us, obviously, both in building the brand saliency and particular models, and along with that, the channel expansion. So it will be a combination of all this that will give us the volume growth that we spoke about.
Right. I'll just try to, sir, push in. Again, if I had to look at 12% volume growth, like, how are they thinking about it? So I understand enhancing the market share, putting new products in the marketplace. But, so that's why I asked I started the question from first, the distribution. If you are going from the 7,000 - 7,700, so how should one look at the arithmetic?
Yeah. So you see, [Farga], when we are talking about new products and communication, etc., a large part of that is going to help come through my existing channel itself when I do a new product introduction, advertising, communication. So that will come in the same channel. To break that up into saying how much of the communication and new products will help me only in exclusive and not in the other channel will be slightly difficult. But overall, if you want, how much of expansion of channel will happen after channel, we are looking at approximately expanding the channel by 10%. Meaning, if I am at 7,000 outlets, we will expand by another 10% the channel in the urban market. If that helps answer your question.
Yes, sir. And this 10% will be in a year or two years?
Yes. Yes. It will be in the current financial year.
Perfect, sir. Yes, sir. And sir, my second question was on incentives. I understand, we have clicked around the incentives for both Kurlon as well as Sheela Foam. They are, they are probably at a similar level now, against the deviation which was there earlier. Please correct me if I'm wrong because the samples that might be a bit off to what we are looking at. So I wanted to understand your thoughts. How are the incentive structures for both EBO as well as MBO now? And as we get into a high season on sales, what is, what is our thought process? The reason to ask this is, there are new players who have ventured into the same space, including likes of Nilkamal. From what we understand, they are giving crazy discounts to the dealers.
How do we take care of this problem, and how are we positioning ourselves?
So, see, as far as the incentive structure is concerned, we have not majorly disrupted it but made it a little bit more disciplined. One can get into the detailing of it on a separate platform so that one understands. We need to remember that these are the brands that you mentioned are not really our benchmark brands in terms of the way we would want to create demand for them. There are a set of brands who are driving sales by throwing money at the channel, but that can only take you till a certain distance. We are looking at creating consumer demand and driving growth. Therefore, there is a difference there. The current level of sales that we are discussing between the brand that you just mentioned and Sleepwell and Kurlon are nowhere comparable, actually, Ritesh. There is a significant difference between that.
What we have been discussing in the past has been about the e-commerce platform that we had even discussed in the previous meeting. I have to share that on e-commerce platform now, Sleepwell and Kurlon, we have seen fairly healthy growth.
Right. Sir, I'll just quickly one. Kurlon, so, if you could quantify the numbers of first half of the fiscal and, when do we plan to increase the stake over here? Thank you so much for the answers.
Hello. I'm Amit. Yeah.
Yes. So, I think Kurlon, so, Ritesh, could you just repeat the question so that I understand I have got it correctly?
Sir, financials for Kurlon, so, that is one. And second is, when do we plan to increase the stake?
Okay. So for financials, I would divide it into three parts, Ritesh. One is prior to our acquisition. The second part is from August till February, or January when, because in February, the company turned PBT positive. So before that, it was PBT negative. And then from, say, February till now. So, before we acquired, the company had a top line run rate of around 12-odd crores, because of the, which it did a turnover of around INR 150 crores per annum. It had a bottom line PBT of minus INR 10 crores per month, which, in the subsequent quarter, the turnover increased. But yes, the bottom line almost remained the same, INR 8-9 crores PBT negative average per month, with top line gradually increasing.
Post-February, the company turned into PBT positive, when it was at a run rate of around, say, INR 14.5-15 crore per month topline. Happy to say that the company has last month crossed INR 17 crore topline, which is a run rate of INR 200 crore+. It's PBT positive and gradually improving on the profitability thereof. As regards to investment, we have an option of getting another 9% in the company with an investment of INR 100-odd crore. The matter is currently being debated at our board level and directors level. So, we have this option till 29th of August. So I think it would be very early for me to comment as to what would be done on that. Whatever the board of directors decide, accordingly, we will take that.
Sure. This is very useful. Thank you so much, sir. All the very best. Thank you.
Thank you. Thanks, Ritesh.
Thank you very much. The next question is from the line of Guneet Singh from Counter Cyclical PMS. Please go ahead.
Hi, sir. Thank you for this opportunity. So most of my questions have been asked, but, I mean, there have been lots of questions regarding revenues in the coming year and the kind of margins that we are looking at. So, sir, we did about INR 3,000 crore of consolidated revenues in FY 2024 at about 10% operating margins. So, I mean, just to directly understand, I mean, what kind of growth over this are we expecting in FY 2025 and FY 2026? And also, I mean, what kind of EBITDA margins are we looking at in FY 2025 when the Kurlon business is stabilizing with our standalone entity? And going forward for FY 2026, what is the outlook for the same? And what are the steady-state EBITDA margins for Kurlon standalone?
Okay. So I would just take your last question first. I would not be able to give you a Kurlon EBITDA margin because, as I mentioned earlier, both Kurlon and Sleepwell businesses are now working together. The factories of both the companies are being utilized to produce material for each other, depending on where it is most efficient to produce and depending on where it is most nearest to the customer to service. But yes, we have replaced that with India business margin, which is a combination of SFL and KEL, India business margin, which will give you a reasonable idea as to how the toplines are growing and what is the level of efficiency that the business is generating, reflected in the gross margins thereof. Now, to take your first question, on the growth rate, here, I would divide it into two parts.
One is the Indian business, which is SSL plus AEL plus SSO, and the other is the overseas business. From last year turnover, and just, to correct it, here, last year, Kurlon was only for six months. So the consolidated number that we have in the financials needs to be normalized for that, which will mean that we had a turnover a normalized turnover of around INR 3,000, INR 2,900-something-odd crores, sorry, around INR 2,700-odd crores for the Indian business, last year. On it, we are intending and I would say we are, making efforts, and that is what we have been communicating in the past also. We are trying to have a 14%-15% CAGR growth rate starting from financial year 2025 till financial year 2027. Overseas business on a topline is anticipated to have a growth of around 10% per annum.
On the bottom line, I would say that what all the efficiencies that have been communicated and, all the efficiencies that have been executed till now, yes, some of those results are yet to come. And the impact of, operational leverage because of enhanced turnover, we anticipate that in the next three years, we should be touching 14%-15% EBITDA margin. Not because the savings could not we could not have gone beyond that. With the amount of savings, we could have gone 2%-3% higher on that. But we need to reinvest on the brand, so the investment in the brand would go up by around 2%-3% of sales, resulting in a net bottom line inflow of around 14%-15% on an India business and plus, around 10%-odd on an overseas business.
All right. So that's very heartening for, for the long-term, trajectory. And sir, for FY 2025, I mean, what kind of consolidated EBITDA margin would we be looking at?
So short-term EBITDA guidance giving is a difficult job, but I can certainly tell you that it would be more than double digits. So 10%+, maybe 11 or something of that sort.
Inshallah, sir. All right, sir. Thank you very much. That's all from my side.
Thank you. Next question is from the line of Manish, who is an individual investor. Please go ahead.
Hi, sir. Good evening, sir. I think you answered my question. I was about to ask about the EBITDA margin. So, because, sir, as you stated, right, sir, so while you're since you've integrated two businesses, initially, if I just look at the EBITDA margin for SSL, it was 13.3%. Now, since you've integrated two businesses, there will be you've integrated the supply chain. You've integrated the warehouses and all. So the EBITDA margin of Sheela Foam should increase rather than decrease. So since you answered my question that you're looking at around 15% EBITDA margin, that answered my question. And, and, sir, I would like to ask one thing. In one of the interview, it was spoken that, you know, if I go to villages and all, what they do is there's a small space.
If I want to have a mattress, what they do is they roll up the mattress and put inside the bed, right? So how are you planning to capture low-income groups, people? Because they also currently use cotton mattresses, right? They don't use foam mattresses. So do you have a future plan of capturing low-income groups or moving towards capturing, what is it, someone in the villages and all?
Yeah, yeah, Manish. Thanks for that question. We have covered this as a part of what we call the small-town India strategy. And that strategy is targeted towards this particular segment that you spoke about, which is the cotton mattress. And how do we upgrade them? Because there is a certain convenience that a cotton mattress has that it can get folded and put into a corner in the house area, etc., it's small. So as we have shared this in the past, we have rolled out a pure PU foam mattress, which is three-fold. So the consumer can actually fold the mattress and put it in one corner, and then they want to use it, they can take it out and unfold it. So we give them the comfort of a foam mattress.
The product comes with a 3-year warranty, price point starting from approximately INR 2,000 upwards for a single mattress. So the lifetime value of the product is much better than a cotton mattress. We have now launched this product in almost 70%-75% of the country. And happy to share that we are seeing quite a positive response with this strategy.
Yes, thanks for the answer, sir. Why you ask this question? Because I come from a small village in Jharkhand. You know, I speak to people around, "Why do you go for cotton, cotton mattress, not for the foam mattress?" The mentality has not changed. So we are bringing the new products to them. We'll give the foam mattress at the same price. How do you intend to change the mentality that, "Hey, this is better than the cotton"? That's more important. Are we trying to figure it out how we'll change that mentality of the people around? Do we have some initiative or some advertisements or some outreach to people around, "Hey, this is better"?
All that I say is that the answer is yes to everything that you said. It will unfold in the course of time, Manish.
Yes, sir. And thanks, sir. Thanks for knowing that we are targeting 15% EBITDA margin. Thank you, sir.
Thank you.
Thank you very much. Last question for today is from the line of Prasad Vaidya, who is an individual investor. Please go ahead.
This question is for Rahul ji. Rahul ji, Sheela Foam from the inception has never been paying dividends. Do you intend to continue this policy, or do you or is there a, a thought of are you looking at a dividend policy going forward? That's question number one. And question number two, going back to revenues, do you believe that we are losing market share currently?
Prasad, you will have to repeat the first question.
Sir, the first question was on your dividend policy. Sheela Foam has not been paying dividends, but it has been making profits. So do you ever intend to change the dividend policy or what are your views on paying dividends? That was the first question.
Okay. So, Prasad, I think there's been a couple of times that we have discussed this issue. It's also debated very hotly as far as our board is concerned. But the few primary reasons is, for example, we kept the money aside for an acquisition like this that has happened. And we always believe that when you give. I know there are advantages of giving dividends. Tax-wise, it's definitely on the negative side. We also believe that the majority of the dividend would come just to the family. And we thought that as far as the shareholders are concerned, the benefits would be far more by through the market processes, in which we expect that this will happen.
I may not be able to discuss exactly what happened in the board the last time, but it's not that we are close to giving dividends. We fully recognize the role that dividends play. Let's hope soon it will come through. That's one. The second one, you were you asked a question about the revenue, and you said that, "Are we losing any market share?" So, look, there are no well-known numbers. And the reason I say that, there are some brand numbers which exist, but the unorganized sector is so large that if you put all that together and that's how you would define the market, the numbers may not be there. But I don't think so that we are losing any market share.
We may not be gaining on any at the moment, but we are not losing any market share. On the other hand, we are expanding the market by the small-town initiatives or the village initiatives that we are doing. And at the same time, we would be also working on the premiumization of the product and doing it. So it's just a question of the noise and the hulla that you hear. You, it won't start believing that we would be losing market share on the mattress front. And please also accept this part that as far as the company and the company's turnover is concerned, it is reflecting not only the mattress and the branded mattress part, but it also includes the technical foam. It also includes the furniture foam, which are going.
These two areas, which are also reasonably large, just because the, the raw material prices have come down, the values of the topline impact of these two has also come down. On the mattresses side, if you would specifically ask this question to, to Nilesh, he will tell you that three-fold has actually grown in numbers, has grown in both value volume and value terms, and it will continue to grow. Kurlon, I would get a little more comfortable or be in a position to share some more numbers with you, by the next quarter. The number that I have for the last quarter, also, it has gone by 5%-6% up. I don't think we are losing out on any, but thanks for bringing this out. One will become a little more oriented towards this.
Thank you. Thank you very much.
Thank you, Prasad. Thank you. Thanks a lot.
Thank you, ladies and gentlemen. That was the last question for today. I now hand the conference over to the management for closing comments.
Thank you. Thank you all for participating in this earnings conference call. I hope we've been able to answer your questions satisfactorily. I'm also saying it with a little bit of apprehension from my own side because I did see the anxiety that all of you have and are expressing it on the quarter numbers. But let me assure you once again that this is a temporary phase on account of the integration process or the phase of integration that we have chosen to. All this should be behind us. Fundamentally, the business is good and strong and will continue to grow. If you have any further questions or would like to know more about the company, please reach out directly to any one of us or through our IR managers at Valorem Advisors.
Thank you very much, and have a good day. Bye for now.
Thank you.
Thank you. On behalf of Elara Securities Private Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your line.