Sheela Foam Ltd

MS. DEEPALI KUMARI – ARIHANT CAPITAL MARKETS LIMITED

Ladies and gentlemen, good day and welcome to the Sheela Foam Limited Q1 FY ‘26 Earnings Conference Call, hosted by Arihant Capital Markets Limited.

As a reminder, all participants’ lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing “*” then “0” on your touch- tone phone. Please note that this conference is being recorded.

I now hand the conference over to Ms. Deepali Kumari. Thank you and over to you, ma’am.

Thank you. Hello, and good afternoon to everyone. On behalf of Arihant Capital Markets Limited, I thank you all for joining the Q1 FY ‘26 Earnings Conference Call of Sheela Foam Limited.

Today, from the management, we have Executive Chairman – Mr. Rahul Gautam, Managing Director – Mr. Tushaar Gautam, Deputy Managing Director – Mr. Rakesh Chahar, Group CFO – Mr. Amit Kumar Gupta.

So, without any further delay, I would like to hand over the call to Rahul sir for their opening remarks. Thank you and over to you, sir.

Thank you, Deepali. And thank you, Arihant, for hosting this call. Good afternoon, ladies and gentlemen. As is our practice, we begin with our vision statement, so I am going to start with the recitation of that.

We will continue to be recognized as a leading organization in quality comfort products while practicing values of integrity, reliability, proactivity, and transparency, to do business with a smile, for customer delight, and a commitment to society. Thank you very much.

At the outset, let me thank you all for attending this conference call to discuss our Operational and Financial Results for Q1 FY ‘26. I do hope you have gone through our Results and the earnings presentations, which have been uploaded by the Exchanges.

Q1 FY ‘26 saw a robust growth across all the relevant parameters.

Our mattress volumes in Q1 FY ‘26 grew by 10% year-on-year. While Sleepwell registered a growth of 22%, Kurlon registered a growth of 6%. This should have been more. It is an accounting issue based on the integration process that we have been going through. This growth was possible due to steps initiated for integration of Kurlon. Both Kurlon and Sleepwell supported each other in their respective strongholds. There was renewed focus on all the segments and support given by our channel partners.

Let me give you some updates on our business and the initiatives taken, which will pave the way for deeper penetration across Indian markets, resulting in a sustained growth:

1.

The B2C business – Kurlon has a strong brand recall among the consumers. And the strategy is to harness this by deeper penetration into northern and western markets, apart from increasing presence in its existing strong areas, which are both south and east. To further capitalize on the brand strength of Kurlon and Sleepwell, we intend to open about 1,000 new showrooms in the current fiscal year. And let me share with you that in Q1 FY ‘26, we have already signed up for 392 new showrooms, out of which 234 are already operationalized. Majority of these showrooms were Kurlon in north and west part of India. With this, today, we have a strong network of almost 6,000 exclusive brand outlets and more than 20,000 touchpoints. 2.

Distributors and dealers are our preferred partners in distribution. Distributors and dealers help in developing strong bonding and enable us to create feedback on customer preferences and expectations. This helps our research/production and marketing teams to customize and develop and position products as per customer preferences. We will continue to focus on customer delight as a part of this continuous engagement. In Q1 FY ‘26, we organized a distributors’ meet in Delhi and facilitated 33 dealer meets at 11 different locations across India. The interactions enabled channel partners to gain clarity on various benefits and the incentives they would derive out of the various schemes. This helps in further strengthening our channel relationships.

To address the rising consumer demand in the sub-Rs. 10,000 category, whose market is estimated at around Rs. 12,500 crores, we have launched new mattress models for both Sleepwell and Kurlon. Our new products have been well received by the consumers and are in the process of being established.

For our small-town initiatives, both Sleepwell Tarang and Kurlon Aaram are being aggressively marketed and now have presence across 7,000 plus dealers in 4,500 towns. This segment is showing positive results as demonstrated by a volume growth of around 60% year-on-year, thereby achieving an annual run rate of Rs. 80 crores per annum. We are confident of achieving revenues of Rs. 100 crores plus from this value-driven initiative in the current fiscal year.

E-commerce continues to be another strong growth-oriented value driver segment. It registered a value growth of 66% year-on-year on marketplaces and on our own websites. This segment generated a revenue of Rs. 200 crores in FY ‘25 and we expect 50% value growth through this channel in FY ‘26.

We also have some operations in Dubai and I want to take that up. With a lot of Indian diaspora in Dubai, both Sleepwell and Kurlon brand enjoy strong salience in the region, which has encouraged us to establish a strong presence in the Middle East in a cost-effective manner. What we started as a small franchise outlet is now growing faster. We sell our brand mattresses through online and franchise networks, enabling us to have a strong foothold. Today, we have six exclusive brand outlets and seven multi-brand outlets.

B2B business:

This includes the three categories under which we sell foam, furniture cushioning, technical applications, and comfort foam. In Q1 FY ‘26, we have seen high single-digit growth in terms of volume in these segments. Value growth conversions were little subdued, primarily because of reduction in raw material prices. Deeper penetration continues in comfort foam with onboard of new dealers and distributors in unrepresented areas. Due to continuous focus on developing newer products, the company’s dominant position continues in technical foam applications and industries like automotives, footwear, aviation, etc.

Because of various cost optimization initiatives like network redesign, truck upsizing, better fill rates, and geographical realignment of units and distribution points, we are able to improve our logistic costs despite inflationary pressures on account of increase in tolls, insurance premiums, fuel, CNG costs, etc. Post-Kurlon, on acquisition, we could reduce logistics costs by more than a% of sales due to these and other initiatives.

We had undertaken a huge exercise post-Kurlon acquisition to integrate the company with our existing operations. While it has taken around 18 months, the results have been very satisfying:

1.

Optimized the channel network, which is now a combination of both exclusive brand outlets and multi-brand outlets, retaining the strengths of each channel type wherever they were existing. This further enhanced the network of each brand across territories of the other, relying on existing relationships. Example, expansion of Kurlon in the North and West, relying on our existing EBO relationships that Sleepwell enjoyed. 2.

Optimizing the operating facilities of both the companies, resulting in reduction of total number of facilities from 21 to 12. 3.

Efficiencies in purchase of input materials. The combined volumes helped us to become a more dominant purchaser, leading to lower purchase prices. Also, with enhanced volumes, it became imperative to experiment and innovate with new ideas of cost reduction, which have led to huge cost benefits. 4.

Improvement in logistics costs, as mentioned above.

5.

Improvement in overhead costs, as the entire business of the company is managed by one harmonized team instead of two separate ones. The benefits of the same are now reflected in our results, both at gross margin levels and at the EBITDA margin levels.

Now I turn to Furlenco, that is a company that we have invested in and is doing well. Furlenco has shown tremendous growth. More than 40,000 new customers got onboarded, resulting in a 60% increase in subscriber base. Furlenco now operates in 29 cities across India. Another key milestone is that Furlenco registered Rs. 4 crores as PAT achieved in Q1 of this year, which is more than the full-year profitability achieved in FY ‘25. This is mainly due to the operating leverage the company is enjoying with greater volumes. The company is on its growth trajectory.

To further capitalize on consumer demand, Furlenco will raise around Rs. 100 crores to Rs. 125 crores of equity, which would fuel the expansion and would lead the road to levels of Rs. 500 crores to Rs. 550 crores of revenue by FY ‘27.

I would also like to highlight the noble work of ESG that we have been doing. Out of the 17 Sustainable Development Goals which the United Nations has declared, we have adopted four goals as part of our next five-year strategy. These goals are; number one, good health and well- being; number two, gender equality; number three, affordable and clean energy; and four, responsible production and consumption.

For us, protecting the environment, uplifting the social status of the community around us, and streamlining our corporate practices will continue to be focus areas in the future. I am sure a strong operational and financial performance combined with our commitment to adopt and implement a robust ESG framework will go a long time in creating immense value to all the shareholders. All the above have now set the stage for a next level of growth of Sheela Foam, which has already started showing results in the Q1 FY ‘26 that we have just presented.

Now, Mr. Amit Gupta – our Group CFO, will take us through the results which have been posted. Thank you. Over to Amit.

Thank you, sir. Thank you, sir, for updating on our business and the way forward. First of all, the financials.

Coming to Q1 FY ‘26 Results, the key highlights are as follows:

India business constituting of Sleepwell, Kurlon and Staqo reported revenues of Rs. 644 crores against Rs. 612 crores in the corresponding quarter last year, which is a growth of 5% Y-o-Y.

Core EBITDA stood at Rs. 75 crores against Rs. 51 crores in Q1 FY ‘25, thereby registering a growth of 47%.

Core EBITDA margins also stood at 11.7% against 8.4% for the corresponding quarter last year.

The growth is on the back of 10% volume growth and both of our premium brands continue to

deepen their footprint among consumers. Here, core EBITDA does not include the forex loss of 10 crores on the hedge we had taken, which adversely affected our performance this year.

On a consolidated basis, for the 1st Quarter, we reported revenues of Rs. 821 crores against Rs. 810 crores for the corresponding quarter last year, a growth of 1% Y-o-Y. Core EBITDA for the quarter stood at Rs. 85 crores against Rs. 60 crores for the corresponding quarter, a growth of 43%. EBITDA margins were reported at 10.4% against 7.4%. Net profit stood at Rs. 7 crores.

This difference is primarily on account of claims of Rs. 31 crores which were received in Q1 FY ‘25 last year.

The various cost initiatives taken by us for integrating Kurlon into our business and increasing efficiencies of both Sleepwell and Kurlon combined a yielding positive results, which are reflected in our gross margins, which now stand at 43.5%, which is almost a 400 to 400 basis point above the pre-acquisition level.

Kurlon integration, which started 18 months ago, has finally culminated in higher core EBITDA and EBITDA margins. To substantiate, in FY ‘23, Kurlon standalone EBITDA margin was at 6.7%, whereas Sheela Foam’s standalone was at 9.2%. The combined business costs now are improved to 11.1% for these two entities. This was possible because of the various initiatives we had taken, as already enumerated by Rahul ji. This has resulted into a savings of Rs.190 crores and improvement of core EBITDA margins. We are hopeful that the balanced savings of Rs.60 crores would also be realized by the end of FY ‘26. The further improvement in profitability will primarily come from the growth of top lines and we are pretty hopeful on this with the festive season coming in.

Raw material prices dropped from Rs.196 per kg for TDI between Q4 and Q1, and polyol prices from Rs.117 to Rs.110 per kg for the similar period. This has resulted into lower top line growth of our foam segment as these prices are directly passed on to them. If we compare them on an equal input raw material price, we would see that even the top line for these categories have increased by approximately 8% to 9%.

To conclude, we would continue to focus on cost optimization for further improving our profit margins. With this, I will request the moderator to open the floor for question-and-answers.

Thank you very much. We will now begin the question-and-answer session. We take the first question from the line of Rachna from SIMPL. Please proceed.

I wanted to know about our mattress realization, because they have declined on a Y-o-Y and Q- on-Q basis despite us taking price hikes of around 3% to 5% around the early 4th Quarter ‘25 across both brands. So what led to this decline in mattress realizations?

Thank you. Thank you, Rachna. Amit, would you take that question?

Sure. So, if you see, we are growing faster on the online segment and the small-town initiative segment, the price levels of which are lower than the price levels of the mainline segment on our stores what we sell. I can tell you that we have not reduced prices of any of our categories, it is only the average selling price which is coming out is lower is because of these two reasons.

Okay. And I wanted to know more about the Tarang and Aaram brand, how they have contributed to the mattress revenue overall in Q1 FY ’26? And from a long-term perspective, where do you see the share of these Tarang and Aaram brands settling at?

So, in 1st Quarter, we have achieved a run rate of Rs.80 crores per annum. So, around Rs.17 crores to Rs.18 crores is what we sold for in the 1st Quarter for Tarang and Aaram. Going forward, this year we have a target that we should close this year at Rs.100 crores, the run rate of course by the end of the year will be higher. If you ask me what is the potential of this with the quantum of network and the rural areas in India, which is around 65% of the market being contributed by traditional mattresses, I can say that the potential is infinite. We will continue to penetrate into these areas and grow on a year-on-year basis.

Okay. And following up to that, if the market is large for Tarang and Aaram brands, do you think this might dent profitability in the long-term?

On Tarang and Aaram?

No, overall.

Yes, I am coming to that. So, I can tell you that this will not impact profitability. Tarang and Aaram currently enjoys the same or better level of EBITDA margins than our other products on an average combined. Yes, it will be lower than the mainline segment, but if you consider it as overall for Sheela Foam, it is well into the profitability range. So, we do not foresee any reduction in profitability. In addition, Tarang and Aaram are made at our Jabalpur facility which has a variable pressure foaming machine, which makes foam at 10% to 15% lower cost. So, this is sufficiently compensating for any depletion in profit because we sell in a low-price market.

I have one more question --

Sorry to interrupt, Mr. Rachna. Your voice is breaking, ma’am, actually.

Thank you so much. Sorry for the inconvenience. My second question was, our long-term ambition was to capitalize on the Indian market due to the industry tailwinds and thus capitalize on this opportunity. Now, given that, I wanted to know more on the export side, as we are expanding in Dubai, are there any plans to scale down operations in Australia and Spain and shift focus towards B2C business in exports as well?

Rakesh, please.

So, as far as Dubai and the GCC countries, we have made a beginning. The initial response is very encouraging. And we are piloting a few formats of retail. Once we get our learning from there, then there is a plan to scale up in the entire GCC. So, maybe a couple of months down the line, we should have a better visibility of the potential that we will be able to realize in these countries.

And with respect to Australia and Spain, if you could highlight, are there any plans to scale down operations?

So, listen, our focus for the last couple of years has been on the B2C business and the India business. And the potential also lies here. So, there is no plans to scale down the businesses there, but just as a natural outcome of our focus, the percentage contribution of Spain and Australia to our overall kitty is a reducing number. Australia is a mature market, we all know that. The growths are limited, however profitable, but limited. Spain continues to grow, but the growth rates will always be similar or at best a little lower than that of India. And India being a large base and a large size, it will continue to grow much faster. So, there is no intention, but at the same time, it will automatically emerge like that.

One last question. In our annual report, we have talked about the rural focus model. If you could please explain how is the distribution rooted within this model or what are the levels of distribution? And how this model differs from dealer-led distribution in a common market?

Rachna, we again had a period of voice which is not coming through clearly, so you will have to repeat that question.

Yes. In our annual report, we had talked about the rural focus model. If you could explain how the distribution is rooted within this model or what are the levels or hierarchy in this distribution?

And how this model differs from dealer-led distribution in urban markets? And can this model generate some incremental margins? Also, is this a part of a small-town initiative within which Tarang and Aaram mattress products are more focused or some of our legacy SKUss are also distributed through this model?

So, for the rural distribution, we are trying to develop a new distribution with the distributor.

And the aim there is for deeper penetration and also to cater to the smaller outlets, which is furniture, furnishing and loom outlets. So, this same model we will also be using for the urban where there are small, small outlets which sell furniture. Along with furniture, they sell mattress.

So, this distribution is independent of the mainline distribution which is used for Sleepwell and Kurlon network.

Okay. So, this is more like a direct distribution if I understand it correctly?

So, it is through the distributor, but independent distributor which is away from the mainline distributor. So, this is another line of distribution that we are creating to avoid any kind of cannibalization.

Okay. Understood. Thank you and sorry for the inconvenience.

No, thank you. Thank you very much.

Thank you. The next question is from the line of Ritesh Shah from Investec. Please proceed.

Hi, sir. Thanks for the opportunity, sir. I have five questions. I will try my luck. Sir, first is, sir, competition is raising money, multiple players. How are we looking to prioritize or balance growth versus profitability? Specifically, you did indicate about the e-com revenues and the target growth for next year as well, if you could please help us understand this better. That is the first question.

If I get your question right, you are saying that how do you balance growth and profitability?

Yes, sir.

I mean, that is what we all do, which is profitable growth. That is what we try to do. Competition is raising money, you said, and I presume that you are talking because the competition is doing a lot of activities, etc., and we must compliment them, whatever they are doing is to grow the market. My belief is that at the moment there is enough market which is available and we can, in spite of whatever activities that are happening, I think that is doing well for this segment for us to continue with spreading our distribution with our retail showrooms and the growth will happen with profitability. At the moment, we do not need to do anything bizarre out of it. I mean, just standard business practices will get you that.

Okay. Sir, let me put it the other way. E-com, sir, you indicated we did around Rs. 200 crores last year and you indicated a 50% growth. Sir, can this number be higher? Or is it like given the margin profile probably is lower that is where we are comfortable, say, at 50%?

No, I do not think that we are satisfied. But whether we are comfortable or not, I presume we are. A growth rate of anything upwards of 50% also requires many other things to be fulfilled.

There is the logistic side, there is the sizes part of it, there is satisfaction of the systems that both the marketplaces are wanting to do and everything to sort of stick before we can sort of say that a sale has been consummated or closed. Therefore, I think if we try and go beyond 50% or 60%, it will not be a sustainable growth. It will go through the hiccups. It will go through the little ups and downs, because one thing or the other would start becoming a constraint. You need 25,000 things for a sale to happen.

So, I think that this kind, we are able to sustain this and we keep growing. It is also in quick time, in about two to three years’ time that you would have a large number that would be there.

And you are growing higher than the market size than the market is growing. I mean, the markets would be growing at 25% or so. And if you are growing at 50%, I would say, are we satisfied? No. But comfortable, yes.

Sir, that is helpful. Sir, my second question is probably for Rakesh ji. Sir, we have indicated, we look to open around 1,000 new showrooms. I could not comprehend the answer which you gave to the prior question. So, why is this number so high of 1,000? And if one had to look at in context of the existing network that we have, which is very, very wide, if one had to look at the effectiveness of the current network versus what we intend to do with 1,000 new showrooms, how do you put these two pieces together?

So, Ritesh, this number has come out from a study of the micro-markets and the gaps they are in. The number is looking higher because from this year onwards we have taken Kurlon expansion as a main driver to grow sales of Kurlon in both North and West where it is relatively weak. So, in the previous year, it was only Sleepwell and there was an organic expansion that used to happen. Once or twice it used to be higher, but this is being driven more from a Kurlon side.

And even for Sleepwell, I mean, as the markets also keep evolving, we have done this whole exercise once again. And there is also a lot of opportunity because of the two brands coming together where the Sleepwell outlet is ready to open a Kurlon outlet. That is one phenomenon that we are seeing. Second is the Kurlon MBO is willing to now become an exclusive outlet, because this is the first year of this drive and therefore this number is looking high to you. I mean, on a normal basis, my assumption is that it will be more, say, about 400 outlets or so. But this year there is going to be a jump in it.

So, is this a net number that we should look at? Because you said MBO to EBOs, so is this a net number that we are looking at or the net number will be lower?

Net number will be lower because many MBOs will get converted to the showrooms, and which has a high throughput in an MBO.

Fair. Sir, last I will just squeeze one question. You did indicate that we are launching Rs. 10,000 price mattress for both Sleepwell as well as Kurlon. Now, is this a cross channel that we intend to do, e-com as well as the traditional network? And basically, how would we assure that, basically when it comes to the shelf placement, we have found Aaram and Tarang even in Tier 1 cities, so how should we comprehend that the product or the SKU placement is like it does not kill the different market segments?

So, how we are treating this is that, as far as EBO is concerned, for products less than Rs. 10,000, in the urban market we just focus on the placement and then we do not promote it at the EBO, because there the play is to upsell to increase the ASP. But there are customers who do enter the outlet, and instead of going out because they do not have a product of their pocket size, so the EBO can offer it. The main purpose is to drive sales through the MBOs for these sub-Rs. 10,000 products. That is the intent and that is the reason we have introduced this.

As far as Tarang Aaram is concerned, I mean, the major focus there is again on smaller MBOs, which are basically furniture outlets. I mean, you would have also noticed in micro-markets,

there are very small, small furniture outlets. So, that is our focus. EBO will also get Tarang and Aaram but that is again for, let us say, you need an extra bed for the house or you need for your domestic health. The purpose of that is that. So, that is why we are promoting more threefold in an EBO network so that there is minimum cannibalization.

Thank you, sir. I will join back in the queue. Thank you.

Thank you, Ritesh.

Thank you. The next question is from the line of Shrey Gandhi from Abchlor Investment Private Limited. Please proceed.

Hello. So, my question was regarding the Kurlon integration, it is positioned like a major synergy benefits, right? So, we have almost received Rs. 120 crores on the realization, and Rs. 130 crores are expected. So, can you just give a breakdown like of the synergy timelines? And as well as, out of that Rs. 130 crores what will be the breakdown through the EBITDA level like in H1 and H2 for FY ‘26?

So, I think there is some noise coming as background noise. Could you just turn that down?

Yes, now it is clear. Yes. So, the 130 crores which we are going to receive with the Kurlon integration, can you give the breakdown of the EBITDA level, how much will be contributed to EBITDA level in H2 FY ‘26?

Yes. Amit, please.

Yes. So, see, we have to see the savings and whatever is going down the line to EBITDA in two parts. First part is, are we getting this money from our existing system? So, it is not Rs. 130 crores currently. By the end of the 1st Quarter, we have achieved Rs. 190 crores run rate of the savings, right from the date Kurlon was acquired till this date, till the end of the last quarter.

Some part of it is captured in gross margin and some part of it is captured in fixed cost like reduction of administrative cost, reduction of manpower cost, overhead, they are below the line.

But all of them flow to the EBITDA level.

Now, just look it from the perspective when we said that we will do Rs. 250 crores cost saving with new initiatives and benefits of Kurlon integration, they should have got a benefit of around 8% to 9% to our bottom line. So, we were already at say 8%, 8.5% or say 7.5%, 8%, so this should have taken us to 16%, 17%. But that was not the intent.

The business also needed a lot of initiatives to take it to the next level, it was almost stagnant if you see two years back the line. So, we also needed to spend some money into the business, especially in terms of expansion of channel network, especially in terms of incentivizing people to get the required sales, launching of new products like in the online segment and the STI, and also strengthening of management teams across the board in the organization.

So, even at the beginning we said that out of this saving of 8%, 8.5%, approximately 4%, that is 50% of it would flow to the bottom line and 50% would be used by the business to get to the next level. The remaining benefit to the bottom line which we said that we should be able to reach 15% in three years’ time would be coming from operating leverage.

Once we grow, like this year if you see, barring the impact of raw material prices, we grew by 8% to 10%, right, in this quarter which is the same quarter last year. Our intent is to take this growth to at least 15% and run that growth in the next three years. Our fixed cost increased by around 4%, 5%, 6%, this year of course we are not allowing it to increase because of the cost of the initiative. But those 15% growth could lead some portion to the bottom line, which together these two initiatives should take us to a profit margin, EBITDA margin of say around 14%, 15% which we had committed in three years.

Okay. Sir, my next question would be on, in the mattress segment the volume growth has grown 10%. However, our revenue growth has been modest, around 9%. So, there was a pressure on the realization of average selling price, right? So, what steps like we have taken to drive the realization and improve the revenue realization per unit?

No, so top line growth in mattress, value growth in mattress is also 9%. So, 1% difference may be because there is a higher growth rate in small town initiative and online segment, which I mentioned to a question earlier as well. But that is not material. See, it may also be because of certain product mix. In some quarter you sold higher value mattresses more, in some quarter you sold lower value mattresses more. So, 9% or 10% does not make a lot of difference.

But yes, if you look at our foam segment, which is furniture positioning, technical foam and the comfort foam segment, there the volume growth has been at around 6% to 8% whereas the value growth has been only around 2% to 3%, right? That is primarily because raw material prices have come down by around 10% to 12% in the last quarter. And in foam business, whenever there is an increase or decrease in raw material, we have to pass it on. So, the nature of that difference is different.

So, in a falling raw material price regime, the foam business top line would reduce for the same level of business. But it will be true in the reverse as well. So, when the raw material prices rise that volume growth will be lesser whereas the value growth will be higher.

If I can just give you one last question, sir. Like, you have around 18 plants of post-Kurlon integration, so what is the current capacity utilization at the consolidated level if you can just tell? What is the current capacity level? And how do you quantify the cost saving and operating leverage benefits to flow from this consolidation? Capacity utilization at a consolidated level.

Capacity utilization is not a very good metric for our business. Generally, we need to be present in each geography and have manufacturing facilities in each geography which are underutilized but their primary purpose is to service the market at the lowest possible cost and the highest serviceability. So, at the moment, post-Kurlon acquisition what we did is divided the country

into five zones, and each zone has capabilities of making foam and mattresses for both the businesses put together. Capacity utilization in terms of, let us say, okay brownfield we might need a bit of maintenance CAPEX every year, but any fresh CAPEX we do not see anything before 2029, 2030.

Okay, fine sir. Thank you. Thank you so much.

Thank you. The next question is from the line of Nikhil Upadhyay from SIMPL. Please proceed.

Hi, good evening. First, I think a good recovery in the margin profile we have seen this quarter.

Just for the understanding, and you have mentioned in the call also that our idea is to grow at 15% and probably keep our expenses flat. What I want to understand is that, is it that the system has the capacity to sustain 15% growth without much expenses? Or is the bandwidth at the employee level or at the expenses level created for a top line of at least Rs. 900 or 1000 crores?

Is that how one should understand our P&L investments over the last four, five quarters?

So, I think I would repeat what I said in my earlier question. I said that because of the cost saving initiatives, my fixed cost will be flat for this year. It does not mean that it does not have impact of inflation. There is of course 5%, 6% impact of inflation on fixed cost every year. But this year it would amply get offset by the savings initiative. Yes, but from next year onwards, the second year and the third year, yes there would be an inflation of 5% to 6% anticipated currently.

However, if my top line is growing by 15%, even after absorbing the fixed cost inflation of 5% a lot of money flows to the bottom line. So, ultimately if that flows to the bottom line, it will lead to an increase in uptake in the EBITDA margin.

Okay. Secondly sir, you mentioned that at least we are not looking for CAPEX till like probably ’29, ‘30 is the number you mentioned. But if we look at even last four quarters we are doing EBITDA of Rs. 250 crores. But there is Rs. 100 crores depreciation, Rs. 100 crores interest cost, as a result the profit which comes is only Rs. 100 crores. And probably two quarters back our idea was that we want to bring down the debt by selling like non-core assets at least by Rs. 200 crores. So where are we on that path of reducing the debt, which eventually reduces the interest cost also? So, some ground if you can cover on where are we?

Sure. So, the assets which were to be monetized were clearly identified before our earlier call wherein I had committed Rs. 200 crores. As on date, we have already sold three facilities out of them, albeit they were smaller so we have monetized around Rs. 40-odd crores from those assets.

There are two bigger facilities which are yet to be monetized and we are in the process of doing it. Real estate is a very easy sell off, and of course we have no compulsion to sell it off at a very non-bargain sort of a price. So we may take a little bit of time, but yes, those assets are clearly chalked out for monetization. That was one part of your answer. Do I answer you?

Yes. Just a continuation, so by end of ‘26 where should our debt be eventually? Like I understand we do not want to do distress selling, but even based on our own cash generation where should our debt levels be approaching?

So, if you see my current year business, you would find that we should be generating a PAT of somewhere between Rs. 150 crores to Rs. 200 crores from the business. That is something which will go down to reduce the debt. And if this monetization takes place, it will be another Rs. 150 crores, Rs. 40 crores has already been monetized. So we should be able to reduce our debt by around Rs. 300 crores to Rs. 350 crores just with this monetization. Now, where would the debt be? Currently if you see, I have a net debt of around Rs. 700 crores to Rs. 800 crores at a group level. If this goes down by Rs. 300 crores, Rs. 350 crores, we would be sitting somewhere around Rs. 300 crores to Rs. 400 crores on a net debt level.

Okay. And last question, you mentioned that we have made some investments in Dubai and the market is good and probably we may expand, is it we are selling under our own brand? And how is the structure of the market as of now, like what is the growth rate and how many brands are existing, some idea if you can share? And why does that market excite you?

So two reasons; one is, there are lot of Indian expats, that is one. Second is, those markets are predominantly spring mattress markets and we feel that there is a case for a value added home mattress which we are very good at in India. So, we have initiated some retail formats and the initial response from the formats, both on the product and pricing, is very good. Because it is a matured market so the price points are quite high, in fact, our gross margins are much higher than what we realize in India. And this gives us the confidence of scaling the right model that we will discover in another two, three months and then start scaling the process up. And basically these are own brands, we are using Sleepwell and Kurlon, and both these brands are registered in all seven GCC countries.

And it would be through a distributor model or we would be putting –

Sorry to interrupt, Mr. Nikhil. It will be direct through the retail. Sure. I will come back in the queue.

Thank you so much. We take the next question from the line of Monil Gada from Equentis.

Hi, team. Thank you for the elaborate presentation. So, my question was, you briefly covered over Furlenco wherein you touched that we are doing a recent raise of Rs. 100 crores, Rs. 150 crores. Given Sheela Foam’s existing investments over ‘22 to ’24, will we be doing any incremental capital infusion in Furlenco? And how do we see going forward turning the

company, do we want to acquire the whole Furlenco like we did in Kurlon's case, or would we be not interfering in their operations?

So, thank you. I just want to say that, yes, the current requirement is between Rs. 100 crores and Rs. 125 crores. It is around. We may participate a little bit to ensure that we do not get diluted. But otherwise, at the moment we would let some kind of equity flow in from outside, too. We have reasonable, I would not say control, but let us say support in the management of the company, we have majority at the board level. And at the moment, there is no desire right away to acquire the company. We will let it grow, let it go on as it is at a good high growth level.

And at the end of maybe FY ‘27 take a call as to what we want to do, whether it will go through an IPO process or it will go through an acquisition process or whatever. But I think it is a little bit early. Right now we are just focusing on the growth part of it

Okay, thank you. And the last question would be, you said by FY ‘27 the revenue would be projected around Rs. 550 crores, any projections on FY ‘26 numbers for the entity? And how confident are we in Furlenco’s ability to achieve those numbers, any risk we foresee in the path of growth?

So, FY ‘26 our projection is Rs. 370 crores. We are well on track of that, whatever few months that have gone by. And we do not feel any big challenge towards achieving this goal, this should be on track.

Okay. And last question would be, do we also supply any foam from our entity to Furlenco? And is this at ambient price or we do offer some preferential rates? And we are also helping them get a distribution channel access through our firm, so how is that affecting our cost?

So, first on the form part of it. Yes, we do supply some foam. Their needs for form are not as great as we would think it tends to be, it is a small number but we supply the foam and the pricing is all at an arm’s length, there is no issue on that. As far as access to our show rooms is concerned for selling their furniture, we just need to appreciate two things. Number one, at the moment they are a furniture rental company, they do sell some quantity absolutely. And in the furniture rental part of it there is a constant demand for cash for making assets which are needed/required for the high growth to be fulfilled. However, we are piloting a few stores where the Furlenco furniture can be sold and that is, at the moment, an independent entity, except being part of the same association we make a few things happen, and looking at how does it perform, how does it look, etc. Because some of our show rooms, our actually quite a bit of the show rooms do sell furniture. So it is at a pilot stage, but it is something which is a synergy waiting to happen.

Okay, thank you. I will get back into the queue.

Thank you, Monil.

Thank you. The next question is from the line of Rakesh Mehta from Goodwill Investments.

Good afternoon, and thank you for giving me the opportunity. So, I have a question on Furlenco.

So, in last call you mentioned the ARR reached Rs. 300 crores, so first, what would be the split of sale of products versus rental subscription revenue here?

I think the rental would be 95% and 5% would be selling of the products.

Okay, got it. And on this rental subscription revenue, what would be the monthly AOV?

What is AOV?

The average order value for rental subscription, on this 95% of the revenue the average order value per month would be around Rs. 2,500 to Rs. 3,000 I suppose?

That is a tough one to answer, Rakesh. But offline we can find that out and share that.

Sure, sir. Fair enough. And also, just wanted to cross check, you mentioned the subscriber grew 40,000 in Q1, so by FY ‘25 it was, if I understand correctly, by FY ‘25 it was 1 lakh, so now the total subscriber base for rental is around 1,40,000, right? Would be understanding be correct?

No, I think some confusion, maybe we missed out something. 40,000 was during the last year.

So they increased the subscription of 40,000 during the last year, which was a 60% growth over the corresponding last year. So against ‘23 - ‘24 they grew by 60%, which is 40,000 subscribers in ‘24 - ‘25. And now on ‘25 - ‘26 they anticipate to do a similar growth, so I missed writing Q1 there, but this 40,000 growth figure is for Financial Year ‘25.

Okay, sure, understood. Sure, thank you.

Thank you so much, sir. The next question is from the line of Varun Singh from Alpha Accurate.

Thanks for the opportunity. So firstly, congratulations on good set of EBITDA margin number.

Sir, my first question is on the India mattress business where maybe the maximum amount of hard work that we are doing to grow. Sir, 9% volume growth in this quarter, I mean, do you think that this is impact of may be some consumer demand slowdown, etc.? And secondly, going forward, like in second, third, fourth quarter, how comfortable you are with may be 14% to 15% kind of revenue growth? 10% and then 14%-15% for next three quarters, I mean, what is your feel?

Just two comments on that. I think the volume growth numbers that are there at the moment, the only point I would make is, July was better than June, June was better than April, and July is better than June. So the level of growth is accelerating on the back of market share gain on to accounts from other brands as well as unbranded to branded. So we are not depending on demand growth and GDP growth and consumption growth and all of that, the complete strategy around that is on market share growth irrespective of what the market does. That is one. And like I said,

as we are accelerating the growth percentage numbers both on value and volume month on month, I think exit run rate at the end of Q2, at the best end of Q3, we will be at that 15% number.

Understood, sir. And secondly on the realization front, sir, I had two questions. One is, what is the primary reason for revising the rate downward by 5% which brings optically the revenue growth in this segment around 9%, because I think compared to the earlier numbers the growth would have been plus 4% odd. I read your PPT but I could not understand the accounting entry. And in that context, the Rs. 3,900 realization that we have recorded in this quarter, do you think that this is a run rate which should be a fair assumption for other three quarters or we can expect a better realization for the next nine months? That is my last question.

Yes, so I guess your two questions. One is, why did we revise the base from last year? The only thing that we have done is, from gross revenue to net revenue there was an IndAS discount, which earlier we used to allocate equally to all businesses. Instead of allocating equally to all businesses, we have just recalibrated that based on the sales incentives and discounts and all of that to accurately allocate to matters separately, to foam separately, to B2B separately to cushioning separately.

As you would see, there would be no change in volume numbers, there would only be revenue based that would have changed from that account. So it is just to make apple-to-apple comparison, because if this quarter we allocated our mattress differently than we did last year, we would see different revenue numbers or revenue growth numbers compared to what is accurate. So that is one.

On the ASV, so you can take base line of Q1 as the base line. And like I said, multiple actions, both on the side of volume growth as well as on the side of premiumization, whether it is whatever activities we need to do in showrooms and for the consumers for getting ASVs up in showrooms, but at the same time not losing track of penetration on Tarang, Aaram, e-com where ASVs would be a bit low.

So, it is fair to assume that you might get a few quarters where volume growth is actually higher than revenue growth, or vice-versa or very close to each other, depends. For example, Q3 is extremely high for e-com so you might get volume growth which is much higher than revenue growth in Q3. But it will come back to normal in Q4, so probably those things will keep playing.

Got it. Okay, sir. Thank you very much and wish you all the best.

Thank you. The next question is from the line of Gopi Kishan from Kumar & Associates. Please proceed.

Good afternoon, gentlemen. As you mentioned about Furlenco earlier, the run rate for the year being Rs. 300 crores, could I get the monthly run rate latest available?

Gopi, you will have to repeat.

Tushaar Gautam I think Rahul ji already answered that. So current rate, I cannot connect on July numbers, but of course June numbers projected to 12 months is Rs. 350 crores run rate, and growing at whatever high-double-digits every month-on-month.

Right. And the latest active subscriber base as of last month?

Active subscriber base, we will get back to you off line. I am not very sure on the numbers at the moment. Base keeps changing because you have new subscribers, then you have returns and all of that. So to get active subscriber base, we will just have to get back to you on this.

Okay. Not an issue. Thank you.

Thank you. The next question is from the line of Suyash Bhave from Wealth Guardian. Please proceed.

So regarding our warranties that you give for our mattresses, I have a few questions. First is, what is the duration of those warranties? Second, what are covered under the warranties, as in, do we give returns, repairs, replacement, etc.? And third is, on an average, what is our warranty cost per annum for the last few years?

I will just quickly respond to that. It is an extremely detailed policy, I will have someone send it out to you. It is different by model, it is different by brand, it is different for many various reasons. On average, for mattress, both companies put together would not have warranty claims more than 0.7%, 0.8%, 0.9% a year of sales.

Alright. So, do we have returns and replacements? Because from what I understand, handling of mattresses since it is a bulky material, there would be some logistics costs involved to it, right?

There is, but like I said, it is an extremely detailed process, it is been running for multiple years, I will have someone get back to you off-line on the complete policy. In terms of replacement, yes, for the first year it is a full replacement, post that it is a pro-rated. Like I said, it is a complex policy. It will be good if you could have a read on the policy offline. And then if you have any other questions, somebody can certainly respond back on that.

All right, I will follow up on this offline. So I have just one more question regarding seasonality for our business and for our mattresses as a whole. Which is our peak season, and which is our most muted season?

So, Q2 would be the most muted. Q3, Q4 are high. Q3, of course, would be very high, primarily on account of north, east, a little bit on the west. South is fairly consistent across the year. So, it depends on the festive season. This year would be a bit earlier. So yes, we might see some benefit in Q2 as well.

All right, sir, understood. Thank you. I will connect offline for the warranty-related questions.

Thank you. The next question is from the line of Jayesh Gandhi from Harshad H. Gandhi Securities Private Limited. Please proceed.

Sir my first question is regarding Furlenco where you said that you are thinking of raising Rs. 100 crores. What kind of a valuation are we aspiring here, sir? I mean, enterprise value for the company?

I think we are still in the process of discovering that. As we go out, like Rahul ji said, Sheela Foam will probably put a little bit of equity in to retain its investment. But Furlenco’s management is in the process of going out and looking for fresh equity. And in that process, it is still in the middle of a discovery process.

Okay. And I have two bookkeeping questions. First is, the MTM loss, in which line item in the P&L do we show?

Other expenses.

And sir, this quarter our other income is closer to Rs. 9 crores versus that Rs. 30 crores year-on- year and Rs. 60 crores Q-o-Q. What is this other income, by the way?

So, other income comprises of two parts. One is the income from the investment, that is the Rs. 450 crores in cash that we have, we park it in government securities, so that comes from there.

And the second part contains a lot of items which may be the waste that we sell. There might be certain income not related to operations which comes like sale of assets, and pretty similar type of details.

So this quarter the other income is less mainly because of the income from assets, I mean, income from investments?

Yes. We park this in a gilt fund, which if you see any gilt fund of any mutual fund, you will find that the value of the paper at the beginning of the quarter and the end of the quarter was almost the same, rather less towards the end of the quarter. This happens because at times the market perceives, expects more benefits from the monetary authorities, which gets reflected into the price of the bond. But when that does not materialize, it falls. So, by May end or early June the gilt fund sell, which of course will get normalized over the course of the year because it carries a definite coupon. But for the quarter, we did not get that income or had to incur that shortfall during this quarter.

Just one more question. What would be the normalized other income? I mean, in a normal case.

Should it be closer to Rs. 30 crores, Rs. 40 crores?

No, it would not be. For a quarter, it should be somewhere between Rs. 17 crores to Rs. 20 crores. But that also depends on, because the nature of the other income, some of the part, like the gain on sale of assets, that is not which you can predict, there will be certain absolute assets which you sell off. But our general trend has been that it ranges between Rs. 5 crores to Rs. 10 crores, apart from interest. And around Rs. 7 crores, Rs. 8 crores to Rs. 10 crores would be from investment.

That is it from my side, sir. Good luck for the future.

Thank you. The next question is from the line of Aishwarya from ithought. Please proceed.

Hello, sir. Hello to the management. I have one question regarding the new developments that we have made. Now, we are also into the technical foam, we are now supplying it to the industry as well. I am solely interested to know how we will be getting in the sales, the top line growth.

Now we are also having Furlenco under the umbrella, and we are increasingly expanding the number of industries where we can supply our product to. Are we actively looking for any more acquisitions?

And when I read the previous concalls, I also came across the statement where we said that Kurlon also did some bit of sofa manufacturing and all that. Do we have that in the Kurlon stores available? And how will a Kurlon experience store look like in the future? Like we have Sleepwell experience stores, and now you told that we will have the Kurlon experience stores as well, how will the two be different? And how will the future experience store look like?

So, Kurlon already has stores. There are about 350, more than 350 stores, which are similar to the Sleepwell, the one you were referring. So we intend growing that number, which I said earlier. And that is going to drive sales for Kurlon.

As far as sofa is concerned, yes, Kurlon had a small factory to make sofas. So, we have continued with the business, but not making ourselves, but outsourcing it. Because now, right now, we have Furlenco as a part of the group, so we intend to even kind of integrating or taking advantage of this synergy from Furlenco for sofa manufacturing, so that work is under process.

And as far as aviation part that you said, yes, we have kind of developed that foam. We are the only company in the country who makes aviation foam. We have started supplying to the secondary market. And we have also attempted to get ourselves certified as a Tier 2 supplier to the Boeing. So that I think is also a work in progress.

Understood, sir. Just one more question. Since the Kurlon integration has been EPS dilutive for us, when will the company be better for the shareholders? I know once you integrate or acquire

a company, it is obvious that EPS will dilute for certain years. Because of the interest and appreciation, we have seen that the margins are pretty stressed. When do we think that we can come back to the normal levels, the March ‘22 levels, or something around that?

So, we have already guided on what sort of growth we are looking from here, and what sort of profitability we are looking from here. I think that should be sufficient to figure out as to how our EPS will move going forward.

Yes, sir. Yes, I will look into it. Thank you so much.

Thank you, Aishwarya. Thank you.

Thank you. The next question is from the line of Ritesh Shah from Investec. Please proceed.

Hi, sir. Just one question. Sir, how much was the volumes from Aaram and Tarang this quarter?

And on volumetric terms, corresponding period last year, please?

So, I think Amit has already said, it is about 60% is the value growth.

Volume would be similar.

Volume should be similar, yes.

Sir, earlier we have indicated a number of around 6%, 6.5%, has that number actually moved up? I think we gave a number of Rs. 18 crores, Amit gave that number, I think. But just on a volumetric terms, will it be like 6%, 6.5% of the volumes?

So, Ritesh, just I am not getting your question. But to clarify, I can speak out what we have said.

Last year we were at Rs. 65 crores. This year, current run rate is Rs. 80 crores per annum. We intend to cross Rs. 100 crores for the current year. For the 1st Quarter, it was Rs. 17 crores, Rs. 18 crores, which I mentioned. That is the statistics. So, if you see growth rate on a year-on-year basis, it is approximately 60%, what we are targeting this time. Growth rate on a month-on- month basis would be, if you work out from it, 3%, 4% sort of a growth rate month-on-month would be there.

Right. Sir, I am looking at the volume contribution, of the total mattresses, how much will be Aaram and Tarang? This number earlier what we have given is around, I think, 7% in Q3 and Q4. So, for Q1, what that number is?

So, Ritesh, I do not have those numbers separately. Maybe we can get in touch and I can give you those numbers.

Sure, sir. No worries. Thank you so much.

Thank you. As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.

Thank you, Deepali. Thank you for conducting this conference. Let me just begin by saying that Q1 FY ‘26 has been a robust performance. We look forward to it going or getting better and better as we move along. I just want to thank each one of you for all the questions. It has been learning as usual for us. And if for the paucity of time or any other reason or otherwise we have been unable to answer the questions, please feel free to reach out to Tushaar ji, to Rakesh ji, Amit, or myself. And in the meantime, till the next call, I would just say thank you very much and Jai Hind, and all the best.

Thank you. On behalf of Arihant Capital Markets Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.