Ladies and gentlemen, good day and welcome to the Sheela Foam Limited Q1 FY 2027 earnings conference call, hosted by Dolat Capital Market Pvt. Ltd. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions at the end of today's presentation. Should you need assistance during the 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 would now like to hand the conference over to Ms. Savita Singh from Dolat Capital Markets Ltd. Thank you, and over to you, ma'am.
Thank you, Mano. Good afternoon, everyone. I, Savita Singh, on behalf of Dolat Capital welcome you all to the Q1 FY 2027 earnings conference call of Sheela Foam Limited. I would like to thank the management for giving us this opportunity to host the call. Today from the management team, we have with us Mr. Rahul Gautam, Chairman and Managing Director, Mr. Tushaar Gautam, Vice Chairman and Joint Managing Director, Mr. Rakesh Chahar, Deputy Managing Director, and Mr. Amit Kumar Gupta, who is the Group CFO. I would now hand over the call to the management team for their opening remarks. Over to you, sir.
Thank you, Savita. Thank you very much. Good afternoon, ladies and gentlemen. At the outset, let me thank you all for joining this conference call to discuss our operational and financial performance for the first quarter of FY 2027. I trust you have had the opportunity to go through our results and the earnings presentation, which has been uploaded on our website. This year has begun on an excellent note for us. I'm happy to share that for the first time in the group's history, Sheela Foam has reported a consolidated revenues of more than INR 1,000 crores and EBITDA of more than INR 100 crores in the first quarter of any fiscal year. The group recorded a PAT of INR 62 crores for the quarter, a substantial jump year-on-year.
For the first quarter of this year, our standalone Indian business delivered revenues growth of 20% and standalone EBITDA growth of 13% on a year-on-year basis. Within this, the mattresses value grew by 15% and the volumes by 6%, while our foam business grew by 26% in value and 4% in volume terms. Despite the challenges of volatile raw material prices amid the ongoing Middle East situation, we delivered EBITDA growth and a higher absolute EBITDA compared with last year's first quarter. The moderation in margins was on account of the sharp fall in raw material prices during the quarter. Foam witnessed higher growth than mattresses, which pulled gross margins down. However, this growth was cash accretive and supported better EBITDA generation. One might argue that in a falling raw material environment, we too could have chosen to moderate our foam growth to protect margins.
However, we took a different view. Sheela Foam did not become the industry leader by optimizing for a single quarter. It earned that position by being a partner its customers can depend upon through every phase of the cycle. Consistency of supply is a commitment we do not compromise with, and it is precisely why we continue to carry inventory and serve our customers without interruption. This is what distinguishes us from the unorganized sector, which tends to produce foam only when it is opportune to do so. That is when raw material prices are low. For us, leadership means standing by our customers most reliably at the very moment others choose to step back. We are among the finest research houses in the country in polyurethane foam, and our foam serves as a brand and a benchmark in the furniture and other foam based industries.
While it is our constant endeavor to increase our market share in mattresses, we will always pursue opportunities that generate incremental cash flows. Our e-commerce business continues on a strong growth journey. Sales on our websites, which we call as brand.com, grew by 69% year-on-year basis, while sales on platforms grew by 19% year-on-year. The categories registered an overall year-on-year growth of 30% in Q1 FY 2027, with volumes growing by 23%. We are focused on increasing our category share and expanding the breadth of our portfolio. We are also poised to enter the furniture segment under our flagship umbrella brand, synergizing and leveraging Furlenco design, manufacturing, and logistic capabilities. As a first step, we have launched sofa bed under both the Sleepwell and Kurlon brands, and the early market response has been encouraging.
Scaling this business is a natural extension of our existing strengths. Our extensive EBO and CoCo network provides a ready physical footprint to take these products across the country, while our own brand websites and platforms will drive our online presence. By building on existing infrastructure, we are able to pursue this opportunity in a capital-efficient manner, keeping incremental investment to a minimum. Our U2O, that is the unorganized to organized business, has now expanded to nearly 10,000 dealers across the country. This vast and growing network helped us clock 81% year-on-year growth, with volumes growing by 19%. This substantial growth was driven by the expansion of our portfolio with the introduction of five and six-inch mattresses in the category, which have been received exceptionally well by branding-conscious consumers moving up the chain and resulting in better category realization.
Coming to our foreign subsidiaries, both Australia and Spain delivered an exceptional operating performance during the quarter. In Australia, Joyce, revenue grew by 31% to INR 120 crores, with an EBITDA margin of 12.8% for the quarter, compared with 6.8% in Q1 of last year. In Spain, the revenue stood at INR 133 crores, a growth of 54% over last year, with the EBITDA margins improving to 14.7%, compared with 5.7% in Q1 of last year. Some small part of this growth could be attributable to currency changes as well. The improvement in performance is due both to the strategic yield improvement programs and supply chain restructuring initiatives implemented over the last year, and to the fact that our international businesses carry higher inventory, allowing lower-cost inventory to run longer, thereby clocking higher gross margins.
In addition, the frequency of home price changes in international markets is much lower than in India, which allows higher prices to sustain for longer periods. On Furlenco, the business continues to do well and is deepening its presence in newer cities. Its acquired subscriber base has grown by 36%, while revenue rose by 38%, and the EBITDA grew by 65% year-on-year. Our IT business, STAQO, also continues to evolve and grow exceptionally well. It registered a revenue growth of 67% in Q1 FY 2027 over last year, while maintaining a healthy EBITDA run rate of around 28%-30%. The user base of our flagship ERP product, Presence 360, has crossed 3.2 lakh users, reflecting its wide acceptance and strong market traction. Coming to ESG, it gives me immense pleasure to share that in 2026, Sheela Foam received a category upgrade to strong in the CRISIL ESG ratings.
Also, in the S&P Global Corporate Sustainability Assessment, Sheela Foam moved up to 61st percentile this year from a 51 percentile last year. Separately, as assessed by Sustainalytics, our company received a category upgrade of risk rating, and Sheela Foam's industry rank improved to 218 from 351 a year earlier. Encouragingly, all three agencies have moved us up with our risk rank lowered and our management score strengthened, a recognition that reflects our steadfast focus on sustainable growth. This external recognition is the outcome of a deliberate long-term approach to sustainability that we have embedded across the group. We have anchored our efforts to a clear Sustainability 2030 roadmap built around four United Nations sustainable development goals that are most material to our business. On the environmental front, we continue to expand our renewable footprint through captive solar generation and revamp processed around water and waste management.
These are not one-off measures, but a structural shift in how we consume energy, water, and materials. With that, I will now request our Group COO and CFO, Mr. Amit Kumar Gupta, to take you through our financial highlights. Over to you, Amit.
Thank you sir, for your inputs on our business and strategy. An update on the financial. Our profitability in Q1 continued growing on a strong trajectory supported by healthy top-line and EBITDA growth. For the first quarter, our consolidated revenue grew by 26% year-over-year to INR 1,032 crore, and consolidated EBITDA grew by 45% to reach INR 109 crore. Milestone for the group, as appraised by Rahul earlier. EBITDA margin expanding by 139 basis points to 10.6% from 9.2% in Q1 of last year. This was driven primarily by enhanced sales, better value realization, and a robust, tightly driven cost structure. On a standalone basis, revenue grew by 20% year-over-year to INR 761 crore, while EBITDA grew by 13% to reach INR 68 crore.
As appraised on our last call, with the closure of our derivative hedging instruments, there will be no mark-to-market impact on the derivative and hence our core EBITDA is now the same as our reported EBITDA. With that, I will request the moderator to open the floor for questions and answers. Thank you.
Thank you very much, sir. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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 a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. We have our first question from the line of Ritesh Shah from Investec. Please go ahead.
Hi, sir. Thanks for the opportunity. Congratulations for a good set of numbers. Sir, first question is on the inventory policy that we have. Specifically for Australia and Spain, we have seen commendable gains on gross as well as EBITDA level. Just wanted to understand, is this something sustainable or was there an advantage of, say, low-cost inventory that we have? How much is the inventory that we hold for, say, overseas basket as well as the India region right now?
Ritesh, for the Indian region, we have inventory for 15 days, 30 days at the moment. When the fluctuations are too much, sometimes it just goes up a little bit. Both for Australia and Spain, they are a little different. On a long run, stable conditions, it just doesn't matter. In this period, which has been oscillating quite a bit, the inventories made a little difference. Australia had a little bit of a longer inventory. It always has. Spain also had a larger inventory, which is normally carrying, and there, that had the advantage during this period.
Okay. Yes. Fine. Sir, my second question is basically U2O, we have done phenomenally well. Basically, the gap between value and volume is huge. You did indicate two new SKU launches. Sir, possible to give more color over here, U2O will be what percentage of our total volumes? Pricing, rough math indicates now it would have moved up very sharply closer to INR 2,000, INR 2,100 per mattress. Possible to give some flavor over here on the contribution of mattress at the company level and the price increases that we have witnessed gradually?
Amit can take that.
Ritesh, I'll take you a little back. When we launched the U2O category, we launched it at a very, very lower price because we believe that in the region that we are selling, we should be giving it on an acceptable or affordable pricing level. Once the material was on the floor, there were two challenges that we faced. One, the channel margins, of course, were lesser than what we were giving here. Secondly, we had a stretch level of profitability, whereas demand was coming from the market. What feedback we got from our channels was that even if we increase the price, this is going to work well. Primarily because it was a fine full foam mattress with very good fabric.
The suggestion was that you continue with the product, you continue with the good quality, but you may increase a little bit of price. We had taken a price increase last year, and hence, even last year and this year, it reflects that the value growth is much higher than the volume growth. This is now sustainable. The channel is settled. As you have seen, we have now 10,000 dealer points across the country, primarily covering the entire Indian subcontinent. Going forward, this should be the level of the pricing that we have. Yes, during a year, there was this difference between the volume and the value both.
Possible to quantify percentage volumes from mattress from Every Indian, given it's growing also pretty strongly?
Would it-
Would it be closer to 19%, 20% now?
No, volumes would not be. We don't give out volumes or value separately for different categories within the mattress. It is a combination of D2O, online, and offline mattresses.
Okay. Fine. Lastly, on standalone volume growth, Rahul, are you happy with that number of 6% or is it more a reflection of the market conditions and competitive intensity? What is our desired level over here? Some comments on margins over here, taking into account the synergy part of the equation. I think until last quarter, there was INR 40 crore of synergy benefit, which was still pending subject to new machines being installed. Any update over that would be helpful. Thank you.
I think your first question is whether we are happy or satisfied with the volume growth.
Yes, sir
On a standalone basis in India. I would say it's standing around 6% at the moment. I would say it should be another 2%-3%. A sub 10% would be happiness, while the industry, according to us, has grown closer to 5%. That is although we are ahead of the industry, but I think closer to 10% would be more satisfactory. The second question was on the margins part. I would say that this has been times of very high volatility. To adjust to come to any kind of conclusions on being satisfactory or happy about the margins, it may be better for a little more stability to come in, and then we have a look at it.
Ritesh, just to add to what Rahul has said. See, the raw material prices were fluctuating in the range of +40% to -20% in this particular period. It is very difficult for a player like us who also carries inventory to maintain margins in such a period. Though we streamlined our purchasing, we tried to reduce the impact as much as possible and purchase it to the maximum on the spot. At the same time, the voyage time still counts. What we did was we tried to find out what are the other avenues from which we can generate additional money. There was foam, like Rahul also mentioned in his speech, that we sold an incremental quantity of foam because some of the players were at the back.
Some of them were not having raw material, some of them were not getting or things like that. We were able to sell a little bit of more foam from which we could accrue cash. If you see on a cash basis, our EBITDA still grew on a standalone basis by 13%. What we were looking, say, 15%+ sort of a growth, you will see that from a cash perspective or EBITDA perspective, we have still maintained that level. Yes, in terms of margins in such a turbulent period, margins tend to fluctuate both on the positive as well as the negative side.
On the synergy side of the equation, what is pending? What is already baked up?
As I mentioned last time, there is only INR 140 crores worth of synergy that is outstanding. This also I mentioned last quarter that the machine has already come. It is under installation. Maybe some impact you see during this quarter, but full impact would be visible in quarter three.
Sure. I'll just squeeze in two questions. Rahul, if one had to strip out e-com and mattress volume growth.
Sorry to interrupt you, Ritesh. May I request you to.
Let him ask that part.
Sure. I'll join back with you. Thank you so much.
Thank you.
Thank you, Ritesh.
Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to only two per participant. Should you have a follow-up question, we request you to rejoin the queue. The next question is from the line of Pritesh Chheda from Lucky Investment Managers. Please go ahead.
Yes, sir. Any comments between last three year growing at double-digit volume in India business and a single digit in quarter one? Any comments there in terms of comparison of the demand or Similarly, on margins where there is some reductions, any comments there? That's one question. Second, on the Furlenco side, the JV associate profit seems to be reduced, QOQ. Any comments there as well?
On the Furlenco, let's take that first question. Amit please.
Yeah. Furlenco, if you see, in the last quarter, because the company became profitable for the first time, it was in losses since its inception. There was certain deferred tax assets which were recognized, which was added to net profit. Out of the INR 60 crores net profit that it declared around INR 33 was the net profit from the operations, and remaining INR 27 crores were from deferred tax assets. This year also, there might be some deferred tax asset recognizable because the profit levels will be higher and hence the projected profits will be higher. That exercise is done at the end of the year and would be visible, if any, in the fourth quarter. If you refer to operating profitability last year, it would again be, say, in the range of INR nine odd crores per quarter. First quarter, they had a little bit of expenses.
It is a little bit lower. During the full-year, definitely they would be achieving additional profitability at PAT level because of the increased volumes that are expected at the company level.
Just clarifying here on Furlenco itself. You're saying quarter one, there is no operating profit growth, but for the full-year there will be operating profit growth. That's one observation. 9 crore is some quarterly number of operating profit that you mentioned. Second, on a QOQ basis, the contribution that comes here in our P&L difference is a function of deferred tax asset, which gets recognized at the end of the year. Hence, it should not be looked QOQ. Correct? These are the two observations.
No. A little bit different. It is not a degrowth from the last quarter. We hold around in terms of the portion that we get out of the net profit is 35%. 35% of 9 crore would be approximately at the same level what we have reported this year. It's not a degrowth. Yes, deferred tax asset is the comment that you mentioned is correct.
Furlenco has grown for quarter one, correct?
Yes.
Okay. Yeah. On India business?
On revenue.
My question on India business was, we have a single-digit volume growth and margin reduction in quarter on vis-à-vis. We were clocking double-digit volume growth until the exit of last year. When you see the general consumption, et cetera, and all the other companies with respect to consumption, the growth has only accelerated. Any comments?
In value terms, our growth has also accelerated. If you see, we have reported on the 15% and 26% growth in revenue terms. Volume growth, whenever there is price hike of such a quantum, there is always a balance between the price that you charge and the volume that you can sell. If the price had been 10%-15% sort of an increase, the volume growth would have been double-digit again. We are pretty confident that as this volatility subsides, we would again be on the same trajectory. For the year, definitely we hope to get double-digit growth overall in both foam as well as in mattress volume.
On the margin?
I think margins, if you take out the variance in gross margins because of the raw material volatility, we are better in margins than what we even reported in quarter four. As soon as this volatility subsides, I think you should be able to see those margins.
Thank you.
Yeah.
Thank you. A reminder to all participants, please restrict yourself to only two questions per participant. Should you have a follow-up question, we request you to rejoin the queue. Next question is from the line of Pankaj Tibrewal from Ikigai Asset Manager. Please go ahead.
Good evening, Rahul. Good evening, Amit. First of all, congratulations on a decent set of numbers. This is the comeback we all shareholders were expecting for the last couple of quarters. Do we think now that the volatility in terms of profitability, which we saw for the whole of last year, most of them, is something we have?
Pankaj, a little louder. The voice suddenly seems to have gone down.
Can you hear me now?
Much better. Thank you.
Should we assume this to be the new normal for Sheela in terms of the profitability and from here on we escalate? The second question is that, the return on capital is still lower on an overall basis. How should we think from a next couple of years perspective that the return on capital should move, and where we should settle down and which would make us satisfied overall from a return on capital? Last question is on the balance sheet. Can you give us some color on how the balance sheet will look like towards the FY 2027 end? Will it be a debt-free balance sheet? We will have some debt left. How should you think about from incremental growth perspective? These are the three questions. Also, I didn't hear this time on the 15% target on the margins.
Can you give us some color on that? Couple of questions on that side.
Thank you, Pankaj. Thank you. I think the first question was on the volatility that is existing or we are experiencing at the moment, and what would be our response to whether this will continue or this will be the new normal that we have to live in. Our expectation is that at least for a couple of months, this volatility will be there. My expectation is October or up to even November that this would be. I know it is related to the war, and anyway, the war is not over as yet. Even after it is over, for a couple of months, we would expect that this because it has disrupted the supply chains and the other things during this, both the routes of Suez Canal and the Strait of Hormuz, et cetera, being blocked.
The expectation of profitability, I would say we are doing our best. We expect it to be better than what we are seeing this time. Whether it will accelerate to the end of the year, maybe another quarter and I will give you a better answer to this. Will it be better than this? Yes, of course, it will be. On the return of capital and the balance sheet part, I will ask Amit to respond and to the question on the debt that how will it.
Sure, sir. Return on capital employed. Our capital base is not increasing. It remains almost the same, and our profitability is increasing. We still remain committed to our target of 15% growth with a 15% EBITDA margin. You see in the first quarter also, we clocked 20%. We targeted 15%. Yes, because of incremental foam sale, we got to 20%. We are pretty confident that for the year we will get more than 15% sort of a growth. The incremental profitability that would come because of that would again aid to go for the increase in the EBIT levels, which should take return on capital employed to a higher level. I think to your question, what will be the trend in the next two to three years?
The growth and profitability trend should be similar. If it continues to be similar, definitely it will have a very positive impact on return on capital employed. We hope in the next three years, we should be able to reach somewhere around, say, 20%-25% INR return on capital employed. Currently, I believe it is around 10%-odd, if I'm not mistaken. In terms of balance sheet, you are right. Whatever free cash flow we will generate this year it will go towards the repayment of debt. However, the balance sheet will not be debt-free by the end of the year because the incremental amount of cash that would be generated would be somewhere between INR 150-INR 200 crores. Our debt currently, based on the balance sheet, is a little above INR 300 crores at the India level. Again, INR 350 crores at the overseas level.
We will take another one year to close out the debt in India. International debt, of course, will be paid over five years with its own cash flow, which it will be generating on a regular basis. I think, Pankaj, I have answered 15% target. Yes, there is no change in stand on the margin. We have a target of 15% EBITDA margin for the next year.
Okay, great. Thank you. Wish you all the best. I hope the last two quarters' performance accelerate and we deliver better numbers going ahead also. Thank you. All the best.
Thank you, sir.
Thank you.
Thank you. We have our next question from the line of Dikshi Jain from InCred Research. Please go ahead.
Hi. Congratulations on good numbers. My first question was regarding the foreign operations. For Australia and Spain, what will be the sustainable growth rate that we can see from here for the next two years? Also, what would be the sustainable EBITDA margins without the gains from inventory currently and also foreign exchange fluctuations?
Foreign operations definitely this quarter has been exceptional for them. Combined basis, they are at around 13%-13.5% sort of an EBITDA margin. Yes, whereas volatility has hit us adversely in India it has been positive for the international operations. However, these are not as an ongoing sort of event. As we expect improvement in India, there would be some moderation of these profitabilities over there. As communicated earlier, our international operations, as they are in matured economies, should be growing at around 5% on a euro and AU dollar basis in their respective countries, and should have EBITDA margins ranging between 10%-12%. This year it should be higher because already the momentum has strengthened from a higher level. One another thing we have done certain improvements in Spain which has fastened their growth rate.
They are able to cater to more industries now. They have certain programs which are giving them higher volume. I would not be surprised if they clock a higher growth rate as they have done in the first quarter. They have done a total of EUR 12 million in the first quarter. Whereas they used to do around EUR 9 million-EUR 10 million on a regular basis. It's a 20% growth in euro terms. 20%+ growth. They might be clocking a little higher level of growth. Overall, if you see, last year we did around INR 800 crore-INR 850 crore with both the operations combined. This year we are very confident of crossing INR 1,000 crore and an EBITDA of say around INR 120- odd crore.
Okay. Thank you. My next question was regarding the 41 new stores that we opened. What is the CapEx that we invested for these stores? How big are these stores and what territories have these stores opened in?
We already had 22 stores, which were continuing from last year, so we have upgraded them. The plan is to take this number to 50 stores. Already about 42 stores are in operation. As far as the CapEx is concerned, Amit, would you like to come?
Per store, we invest a CapEx of around INR 27 lakh, and another INR 20 crore- INR 22 crore is spent on the working capital. CoCo store, I am saying. In terms of franchisee stores, it is very small. In terms of CoCo stores, we have an investment of around 50, sorry, not crores, INR 50 lakh per store, and opening of the 50 odd stores would cost around INR 25 crore plus. Territories. Currently we are covering the key urban areas where our competitions also have that sort of a store. We also need to give those sort of MBO size, et cetera. These stores are generally around 2,000 sq ft size. We are opening in those areas and I think for another few stores we will continue to open in core urban areas, these CoCo stores.
What are the sizes of the stores that we opened?
Around 2,000 sq ft. It ranges from around 1,800 sq ft- 3,000 sq ft, depending on different places and the cost of real estate in those places, rentals like that.
Okay. Thank you. Thank you for taking the question.
Thank you.
Thank you. We have our next question from the line of Garvit Goyal from Serene Alpha. Please go ahead.
Hello, am I audible?
Yes, we can hear you.
Congratulations. Good set of numbers, sir. It is on question of volume growth. Some of parts is answered already. The part I want to know that, do you expect any volume recovery over the coming quarter or it's some near-term softness likely to continue?
There would definitely be volume recovery. I would say we would go back higher than what the volumes we clocked last time. Just understand it from the perspective, the third quarter is the best quarter, which is the festive season, and the fourth quarter is the next best quarter. Just compare it on a YOY basis, the respective quarters. If you see, first, second quarters are generally a little bit lower. This year also, we are pretty confident that we will exceed the volume growth of last year.
Okay. Good to hear, sir. Another question is on cost side. Could you give us an update on TDI and polyol price stand today? How much of recent spike has already been absorbed into our cost basis versus what's still flowing through? Also, is there any structural gap between when cost rise and when you are able to reprice it? Does that lag itself becoming a margin risk, volatile price environment like that?
See, currently the prices are very volatile, so it is not moving in one direction. Like when Iran war started on February 28th, in March we saw huge spike in the prices, but from April onwards the prices started coming down. Now the war has again reignited about a month back, and the prices have gone up again. Very difficult to say as to what is the quantum of increase in prices. I can assure you that whatever is the quantum increase in prices, we are doing commensurate price increase for our customers.
A little bit of risk for us only because of the, if the volatility is very high, it moves very fast from top to down, then we may have certain in-channel inventories, in-pipe inventories, like on the high seas, which may impact us a little bit on the margin, which you could also see in the first quarter. Rest we are pretty covered.
Okay. Good to hear, sir. Thanks, sir. That's all from my side.
Thank you.
Thank you. We have our next question from the line of Rachna Kukreja from Simpl. Please go ahead.
Thank you for the opportunity and congrats on a good set of numbers. I have a few questions. We had guided for 12%-13% EBITDA margins for FY 2027 and around 13%-14% for FY 2028. Do we still stand by that guidance given the current operating environment?
No. We guided for 11%-12%. We never guided for 13% for the current year. Yes, we do stand for it. Looking at the current volatile environment, it's very difficult for us to comment on it. We are pretty confident that we are on the same track.
What would be the levers for margin improvement if the condition eases down?
You see our gross margins have come down by more than what we had, like more than the margin we have to achieve. Even if it goes up by 2%- odd, we would be there. We would be better than what we have committed. It is simply volatility to go away.
Okay. Second question would be on any new product launches or initiatives that we are planning to undertake to sustain growth in the near long term.
Yes, one is that we have also introduced set of new products, which is to increase our ASP. We are also started consumer-led promotion. That's also something that we tried out, and the results were quite encouraging. Going forward, the strategy is more on the consumer side, where we will be increasing our spend towards the consumer, which will draw footfalls because we already had a large footprint of EBO and working on the conversion. There are programs which are also running to improve the conversion in the stores.
Okay. Also, on the new products introduced over the past few years, how have they performed and what contribution they make to revenues, and how do the profit margins look like? Additionally, also wanted to understand the strategy behind launching mattresses exclusively for the e-commerce channels as seen in this quarter's presentation. What role do you see this channel-specific mattresses playing in future growth and profit margins?
They would definitely positively impact the profit margin. That is one of the reasons for introduction of products. The performance of the new product normally is good because that's the reason in the first place that we introduced them. Existing product, because of price increases, competition activities, they at time lose the value to money equation. It's an ongoing process, but this time we had also tried to simplify the portfolio and make it more compelling mix.
Thank you.
Thank you. Ladies and gentlemen, the management line has been disconnected. Please stay with us while we reconnect. Ladies and gentlemen, thank you for your patience. We have the management back with us. We'll move on to the next question from the line of Dikshant Gupta from Geojit PMS. Please go ahead.
Good afternoon, sir. I just wanted a clarification, like the gross margins were hit more because of the foam segment or because of the mattress segment or an equal combination of both?
It was because of raw material price movement.
Okay, segment-wise, it would be equally distributed because the raw materials would be the
Foam segment uses more foam, whereas mattress uses proportionately much lesser foam. You can say that from a margin perspective, mattress would have been hit lesser than the foam segment. Yes, foam was the primary reason because it uses those input materials, polyol and TDI, because of which the margins were hit.
Understood. What percentage of the COGS does TDI and polyols form?
If you refer to COGS, it would be as high as 70%- odd. 65%-70%.
Okay. Just last one from my side. Directionally, is there any trend like the share of premium, mid-premium, or economy mattresses has grown?
I would say that we have ASP, which is reflective of these various segments. The ASP has marginally gone up, and therefore it's easy to say that there is some premiumization that is already happening.
Okay, understood. Okay, thank you so much.
Thank you. We have our next question from the line of Vansh Solanki from RSPN Ventures. Please go ahead.
Hi. Good afternoon, everyone. My question is on the overseas companies that you told that they bought the company's carry higher inventory. That's why the GP margin is not lower. How much of inventory is still pending with this company so that when the new polyol and TDI prices will affect maybe in the Q2 or it will carry forward to Q3?
The impact, they will come to normal levels in Q2. Of course, now we are managing the inventories very closely. We have also reduced some level of inventory at those places. Of course, we cannot reduce it to a large extent because the voice time is more. Yes, in the Q2 you should see normal inventory level, the normal levels of raw material prices.
Okay. The second question is on employee expense, quarter four has a very high employee expense. Was there any one-off in quarter four?
Generally if you see last year in quarter four, our growth was very high, which increased the growth rate for the entire year. We had not taken provisions for those incentives in the first three quarters because they were not becoming due at those levels of profitability. But in the fourth quarter, because of higher level of profitability, the growth for the year became higher. Because of this, those incentives became due, and hence we had to provision them.
Okay. That's from my side. Thank you.
Thank you.
Thank you. We have our next question from the line of Naveen from iThought PMS. Please go ahead.
Good evening, sir. I hope I'm audible.
Yeah.
Yeah. Congratulations on the great set of numbers. Just had one simple question. Basically, I was wondering if RentoMojo, the company just filed for DRHP. Would you consider them a like for like competitor? Or would you say there are substantial differences that you'd like to highlight between Furlenco's business and RentoMojo?
We are in the same area of business. If you see, RentoMojo is more on the mass segment, whereas Furlenco is more on the premium segment. Furlenco as a brand is more premium. The second difference is RentoMojo does a lot of utility. The proportion of utilities to furniture in their overall sales mix would be higher. Whereas in our case, furniture component will be higher. We should be categorized as some level of premium to RentoMojo. Yes, the area of business is the same.
Got it, sir. Very clear. Thanks a lot for the clarification, sir.
Thank you.
Thank you. We have our next question from the line of Arjun Agarwal, an individual investor. Please go ahead.
Hello. Am I audible, sir?
Yes, please.
Yeah. Congratulations, sir, on a good set of numbers in this volatile environment. Sir, actually, I'm new to your company. I just want to know, is the integration is finally done with the Kurlon? Are all the synergies as expected during the time of acquisition are playing in line with that? This will be my first question, sir.
Yeah. Integration is almost complete. I would say at 96%, 97%, whether on the back end front or the upside of it, or the front end side of it. On the capital side, where we have reduced the number of operating units down to 12 from a total number of 21. The integration of the HRs, the human resources, as well as the integration of the IT side, all that is complete. Regarding the synergies, I would say that about 80% or so, 75%, 80% have been realized. There are some 15%- odd or 15%, 20% which are on way to getting realized.
Thank you, sir. Glad to hear that thing. Sir, I just want to know one more thing that regarding the market share that we currently hold as a combined entity in the Indian mattress market, and what we envisage for next two to three years means launching of the new products and which segments are we targeting? Because as per best of my knowledge, we are pioneers in our individual segments, both Sleepwell and Kurlon. What will be the next growth phase for next two to three years, being new product launches and other things? Thank you, sir.
As far as market share is concerned, unfortunately, it depends on how you define the market. If we look at the organized mattress market, we would have a combined share of close to 20%. Looking at the future, we see that once the integration is complete, we would now start taking advantages of each brand and each zones and each areas, and the support of the other brands to grow, both for Sleepwell and Kurlon. Next two years, the synergies of growth will be realized post the integration, and that's how we see ourselves.
Okay, sir. Thank you. Thank you for your answer. Sir, if you could just spend two minutes regarding the new product launches. Are we trying to enter the segments, that means the mattresses that can be fully rolled on and delivered online or something different, some new products that we are targeting?
Arjun, we are already doing that. Rolling the mattresses, compressing a rolled mattress and sending to the consumer, we are doing that on the e-commerce side. We are present on both the EBOs and MBOs and on ground and offline and online. Segment-wise, we are present in virtually all the segments. We do have a segment which is a U2O segment, where we cater to people who are stuck with the unorganized sector. At the moment, on the mattress side, we do not foresee any new areas or any segments or sub-segments that we would be introducing. We do see synergies of furniture with Furlenco that would be available and that would be introduced into our stores in the coming time. There would be areas of absolute luxury and higher-end products.
There would be accessories like pillows and mattress toppers and bedding accessories that we intend to grow. That's how the scenario is going to look in the next couple of years.
Thank you. Thanks a lot, sir, and all the best. Thank you for being so candid. Thank you, sir.
Thank you. We have our next question from the line of Akash Shah from UTI Mutual Fund. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. Sir, just wanted to ask, now Furlenco products will be present in how much percentage of Sheela Foam stores or Kurlon combined? I mean, combined store network, how much percentage of it will be having Furlenco products?
Currently we are in the process where we are ramping- up the number of stores. Our first target is to reach 100 stores. We are at around 40- 50 stores where Furlenco furniture has been put in a shop-in-shop sort of a format. However, we intend to expand it pan-India. The number of stores currently is very difficult to say. Wherever Furlenco sees their sort of a micro market which fits into their philosophy of selling, I think in those stores, they would put up their stores. Overall, in India, we have 3,500 exclusive brand outlets. Yes, Furlenco would be present only where it makes sense for them.
Understood. Right. Sir, also just wanted to understand this. Sir, how the management team, I mean, Rahul sir, Tushaar sir, Rakesh sir, Amit sir, you, how the responsibility would be divided between the top management team? If you can just very quickly share, if possible.
Akash, I'll just give you a very broad picture on that.
Yes, sir.
Rakesh sir is looking after the sales and the operations side and the supply chain. Tushaar sir is looking on the newer products and newer growth areas that we have. Together, we solve all the problems that come out of it. Amit sir is, of course, looking after the finance and accounts and everything related to that. As far as I'm concerned, I'm coordinating all this and looking after some of the services which go into this organization, like human resources, like IT, like marketing, and that's how we divide the work.
Sure si r, thank you so much.
Thank you. Ladies and gentlemen, that would be the last question for the day. I now hand the conference over to the management for closing comments.
Thank you, Manav. Thank you, Savita. It has been an interesting session. Thank you for all the people who congratulated us on the performance. We are happy to receive their good wishes and blessings for the coming quarters. As usual, the questions have been insights, and we always learn from them and things that we can do in the future. With those words, once again, a big thank you, and hope to see you next time. Thank you very much.
Thank you. On behalf of Dolat Capital Market Pvt. Ltd., that concludes the conference. Thank you for joining us, and you may now disconnect your line.