Sheela Foam Limited (NSE: SFL) Q2 2025 Earnings Call dated Oct. 30, 2024
Corporate Participants:
Rahul Gautam — Executive Chairman of the Board, Whole-Time Director
Amit Gupta — Group Chief Financial Officer
Nilesh Mazumdar — Chief Executive Officer
Analysts:
Anushka Chitnis — Analyst
Ritesh Shah — Analyst
Aniket Kulkarni — Analyst
Vatsal Shah — Analyst
Naman Maheshwari — Analyst
Karan Gupta — Analyst
Rishabh Gang — Analyst
Sahil Soy — Analyst
Rakesh Mehta — Analyst
Presentation:
Operator
Ladies and gentlemen, Good day and welcome to the Q2 FY25 earnings conference call of Sheila Foam Limited, hosted by Arihant Capital. [Operator Instructions]. I now hand the conference over to Ms. Anushka Chitnis, Arihant Capital. Thank you and over to you, ma’am.
Anushka Chitnis — Analyst
Thank you. Good evening and festive greetings to all. On behalf of Arihant Capital, I would like to welcome everyone to the Q2 and H1 FY25 earnings conference call of Sheila Form Limited. I would like to take this opportunity to welcome the management of Sheila Foam represented by Mr. Rahul Gautam, Executive Chairman; Mr. Rakesh Shah, Whole Time Director; Mr. Nilesh Mazumdar, CEO of the India Business and Mr. Amit Kumar Gupta, Group CFO. Now without further ado,
I will hand the conference call over to Mr. Rahul Gautam for the opening remarks. Over to you. Sir.
Rahul Gautam — Executive Chairman of the Board, Whole-Time Director
Thank you, Anushka. Thank you very much and greetings to everyone who has joint in.
Good afternoon, everyone and thank you for joining us for the earnings conference for the second quarter and half-year ended on September 30, 2024.
Let me first take you through the major developments in the company and then I would request Amit to take you through the financials. As you all know, we acquired Kurlon in October last year and it’s been barely one year since that happened. And since then, with a strong focus on integrating Kurlon with Sheila Foam, we have been progressing well. Though the company sold similar products, there was a lot of difference in the ways both the companies operated. I’m delighted to share that we have finally been able to figure out and implement the model where both the companies are working together and progressing.
While successfully integrating the acquisition, would have been a challenge for any company across the globe. However, I’m happy to share that we have demonstrated that both Sleepwell and Kurlon brands can be effectively and sustainably sold in the market.
Next, as a share of our total revenue has now crossed 50% which emphasizes our focus on B2C business and the intent to grow much faster than the rest. This actually leads to one of the basic initiatives of the company which is de-commoditizing the product which means that we are selling more and more of branded goods, more and more of mattresses and focusing more and more on the Indian business.
I’m happy to report, that we have witnessed a healthy volume growth across all the statements and more so on the mattress side. On a like-to-like basis, we achieved a 19% volume growth year-on-year in the mattress segment which is the highest in the last eight quarters.
Sleepwell Volumes, Sleepwell, which is the flagship brand of the company along with Kurlon. The Sleepwell Volumes grew by 40% year-on-year whereas Kurlon volumes grew by 26% on a year to year basis.
Our technical foams and furniture foam segments have also seen good volume growth year-on-year by 18% and 10%.
The other synergy of the integration which is on the savings side, happy to share with you that the savings of the annual run rate of about INR100 crores per annum is already achieved. And we have other initiatives in place which would further augment this annual run rate in Q3 and Q4.
Our forming production is gradually being shifted to the VPF site, which is again a technology that we depend for improving our cost and for ensuring that we give an environment-friendly foam more and more.
We have also shifted foaming from four of the Kurlon plants to Sheila foam plants, which has resulted in around close to 10% saving due to better yield at Sheila foam plants. We also commence home in the Kurlon plants Gwalior which results in further reductions in freight.
Kurlon has adopted and is now in the same mode as that of people and that is the distribution to the distributor model. Kurlon has closed down the regional distribution centers and this has resulted in cost savings and the full impact of that will be felt in the quarter three of FY25.
Yes, you are aware that there was an investment that the company had made in the furniture business and that was in Furlenco. I’m happy to share with you that, Furlenco continues to grow with its subscriber base almost doubled in the last one year.
Our IT arm, STAQO also saw revenue increases by 33% year-on-year basis with EBITDA margins further improving then what they were before. In October this year, we have exercised our option of increasing equity in Furlenco with an incremental investment of around INR100 crores taking our stake to 45% in the company. Earlier, it was 35% and we’ve got this incremental 10% increase without any changes in the cost of it.
This we have been able to acquire at almost the same valuation as the other investment. In spite of the company, in spite of Furlenco becoming more profitable and almost 1.5 times the size when we acquired the initial stake in August last year. The company Furlenco is now generating cash at P&L level with incremental cash only needed to buy new assets and scale up the business for that.
Now, I request Amit to take us through the financial highlights of the last quarter and the half year that we have just closed. Over to you, Amit.
Amit Gupta — Group Chief Financial Officer
Thank you, sir. Good afternoon, everyone. Now let me just take you through the financial performance of the company for the quarter ended and half year ended September 30, 2025. For the second quarter on a standalone basis, which reported a total revenue of INR602 crores which is a growth of around 42% on a YoY basis.
EBITDA for the quarter is two, that INR70 crores which grew by 54% on a YoY basis. EBITDA margins were reported at 12% for the quarter. Net profit was INR43 crores which was up by about 12% YoY. For the first half of the financial year, the standalone revenues were at INR1,106 crores which grew by around 26% YoY. EBITDA for the period is stood at INR118 crores which grew by 11% YoY. EBITDA margins were reported at 11%. Net profit was INR75 crores which declined by around 7% year-on-year.
The decline was primarily on account of incremental interest cost on the debt that we took for the Kurlon acquisition. On a consolidated basis for the second quarter, we reported revenues of INR813 crores which increased by around 32% YoY. EBITDA for the quarter is stood that INR69 crores which was up by 5% YoY. EBITDA margins were reported at 9% for the quarter.
Net profit is stood at INR9 crores which is a decrease of around 79% YoY. For the first half, we reported a consolidated revenue of INR1,622 crores rupees which increased by around 29% YoY. EBITDA for the period is stood at INR129 crores which declined by 10% YoY. EBITDA margins were reported at 8%. Net profit stood at INR56 crores which is a decrease of around 36% YoY.
So, just two pointers on this, we acquired Kurlon last year because of which there were 13 debt which the company took to pay off the purchase consideration, which has interest component which comes as an incremental cost. And secondly, the depreciation of Kurlon is also added. So do we see improvement in operational performance?
But by the interest and the depreciation reduces the profit of the tax that goes to the bottom line for which we believe that over a period of next two to three years, we would be able to garner revenues and profitability enough to absorb the same. With that we can now open the floor to the questions and answer session.
Thank you.
Questions and Answers:
Operator
Thank you very much, sir.
Ritesh Shah
Hi. So, thanks for the opportunity. A couple of questions. So, first is, can you provide some colour on the ramp up of both the TARANG as well as AARAM? Where do we see this numbers going? I think you had indicated INR250crores to INR300 crores in two to three years. If you could help us with some broader numbers and contribution for both volumes, as well as value for Q2 and for first half. So that would be really helpful.
Rahul Gautam
I think, you want to finish your questions or you want them to be answered one by one?
Ritesh Shah
I will finish up all the questions, sir.
Rahul Gautam
Okay.
Ritesh Shah
So, second question is on distribution network. We have been trying to understand the company better visiting multiple states. So, sir, a simple question over here is, in how many states do we directly supply to the dealers from the factory? And that is we are actually getting read of the distributor? And is this something for both Sheela Foam as well as Kurlon? And is it something new by design?
If it is so, I think that will be incremental delta on cost margins which will be definitely benefit us. So how are we looking at that particular variable?
Third number is Furlenco, basically broadly, if you could indicate how are we looking to acquire the residual state and the sort of synergies that the existing business is deriving out of Furlenco? That was the third one.
And the fourth one is, more operating numbers. If you can spell out the revenue breakup for Kurlon and Sheela Foam for the quarter? That would be great. And in the prior quarter, we had given marketing expenses numbers on the slide, which was that I think 5.7%, 5.8%. What would those numbers be for this particular quarter? Thank you, sir.
Rahul Gautam
Thank you, Ritesh. So, Nilesh would you be able to respond to that TARANG and AARAM situation, as to where we are, based on our projections that in three years we will go to about INR250 crores to INR300 crores. And how are we distributing that?
Nilesh Mazumdar
Sure. Hi Ritesh. Greetings of the season to you and to everyone else.As far as TARANG and AARAM is concerned in terms of volume contribution to the total mattress, which is approximately about 7.5% to the total mattress volume. Of course, this is at a lower average selling price than what we sell in the main course. So, this will be approximately at about 3.5% to 4% of the total overall mattress value.
We are right now averaging in a high single digit numbers in terms of the revenue per month that we are doing. Hopefully by next financial year, we would be looking at touching a number of about INR100 crores and I’m talking of FY26. Currently, we have ramped up in the entire country except in Kerala, Northeast, Jammu & Kashmir and Punjab. So barring these four states, we are present in rest of the country.
And one more thing that I would want to add is that from this quarter onwards, we are also looking at extension of TARANG and AARAM into the urban markets in a calibrated manner because we see an opportunity there also as the economy end of the market, as there are a large number of cotton mattress and the mattress users there.
But, we will need to do it in a very calibrated manner, so that it does not cannibalize our main line, Sleepwell and Kurlon sales. So does that answer all your questions on TARANG and AARAM, Ritesh?
Ritesh Shah
Yes, sir. That’s useful, yes.
Rahul Gautam
Okay. Nilesh, I would request you to if you can go along for the second one too. That is the distribution network that you said. So, I just wanted to know that in how many states would there be direct and the commonality of the distributors and the distribution of both Sleepwell and Kurlon.
Nilesh Mazumdar
So, the only state right now, Ritesh where we are direct is in Karnataka. In most of the other states, we have kept the distributors with us and we handle both Sleepwell and Kurlon, with the exception of two or three states in South and east because there it was more an emotional angle about the Kurlon dealers wanting to continue dealing with the company.
So we didn’t want to disturb the market operating practices as of now. What we need to understand is that our distributors have a fairly strong hold and equity and reputation in the market. So therefore, we look at them as an extended arm who help us in also scaling up Kurlon in the markets where Kurlon had a large opportunity, for example, in the northern parts of the country or in the eastern parts of the country.
So in these markets, our distributors have been there with us and they have a fairly strong hold in the market and we would want to continue dealing with them and because we see them adding a lot of value to the business and being able to help us scale up the Kurlon business in these markets.
Rahul Gautam
Thanks, Nilesh.
Ritesh Shah
Can I just seek a clarification over here?
Nilesh Mazumdar
Yes. Yeah, please.
Ritesh Shah
So you indicated, the only state where we don’t have a distributor for Sheela Foam is Karnataka and for Kurlon, you indicated except for two or three states in South and East, right? Is that reading right?
Rahul Gautam
Yes, that’s right. So up north and up west, we are going through the same distributors of people.
Ritesh Shah
Okay and sir, is this something for historical reasons or is it by design that we intend to go by this model? Because obviously we can save a few percentage of margins, if we are able to take care of turnaround time, customization, etc.
Nilesh Mazumdar
So what happens Ritesh first of all, when we have given Kurlon to our distributors, given that there has been increase in the turnover, there has been some marginal amount of rationalization that we have done with the distributor, with their buying. However, you see if I have to go away with the distributor, then I will need to set up a far larger regional distributor centre set up all over again.
So therefore, while there will be some savings here, but there will be an additional expense that you would need to bear on setting up the RDC, which as you just mentioned that we had closed. But more important than that, we see that distributor’s ability to add a lot of value to the Kurlon business in these markets. Because they know the market well, they are very familiar, they have been dealing in these markets for the last 10,15 and 20 years. So there is a tremendous amount of knowledge information about the mattress, category and the dealers that they bring on to the table and that adds a lot of value to us.
So therefore, we would want to continue to deal with them in these markets and we see a benefit in the long run.
Rahul Gautam
Yeah, if I would just add to that, I mean, as a balance, we would see that they are adding more value than the cost part of it. And plus, as Nilesh said, we can of course, do that ourselves. Theoretically, yes. But it takes time to build the entire infrastructure to do that. Was it kind of existing in Kurlon? Probably, yes. But it wasn’t efficient enough. So, I think for us at the moment, sales are the most important part, and we push at it.
I don’t know whether, it’s going to cost a percent more or a percent less. But as time goes by, we will take a call on it. More important part is to focus on the sales part. Nilesh while you are there, Ritesh also had a question on the marketing cost, which were five crore. So would you just fill in?
Nilesh Mazumdar
Yeah. So, the marketing expenses for quarter two, Ritesh was approximately 5.2%.You wanted the marketing expenses, right? So, quarter one was 5.7%, quarter two was 5.2%
Ritesh Shah
Perfect and said the last resolute question was on Furlenco?
Rahul Gautam
So, I’m just coming to that part. So, I think your question was that how is Furlenco is progressing? And then what are the synergies which are there? And the second part to it was that what is the plan as far as acquiring the balance part of it? Is that correct? I mean, by understanding the question correct?
Ritesh Shah
Yes sir.
Rahul Gautam
So, on the acquisition part of it, let me just say that we are at 45 are the largest shareholder, fully control the board and fully control all the other shareholders are much smaller and there are certain rights which have accrued to us as we kind of go along. So as far as controlling or managing the company is concerned, there is no issue on it.
As we progress, we will view this or review this somewhere sometime in March 25 and then before up to December. And also need to see, that how and what’s the direction of this? Okay. I mean, eventually do we do an IPO in FY27, or do we wait for some more time? So, I think based on that, we would be looking at the, as far as acquiring more part of the company is concerned. On the synergies bit by itself, it is working very well and we’ve seen that over the last six,seven,eight months, that at the end level it is generating cash.
The growth at the moment appears to be only restrained or constricted by the assets which are there. We are improving the utility or utilization of these assets, but we are already at about 88% to 90%. And therefore, it’s only small improvement that we can see there. But by and large we would need or the company will need money as it goes along to get more and more assets.
But we took, I mean, our acquisition into the company is not going to be determined by the need of the company for the money, that is already kind of planned out, that the growth ending at the FY28 of about INR500 crores the top line. It should be absolutely on track.
Ritesh Shah
Yeah. Rahul sorry. If I just have to interrupt.
Operator
I’m sorry to interrupt, sir. Aniket Kulkarni, BMSPL Capital.
Aniket Kulkarni
Yeah, good afternoon and thanks for taking my question. So, my question is regarding the other income. So, on a trading 12-month basis, it is around INR130 crores. This is quite high, if you compare it to a trading 12-month net profit of about INR150 crores. So, my question is, how are we getting to this INR130 crores of other income? So, if you can explain how much cash is deployed in interest bearing instruments and what rate is it touching you? And how sustainable is this level of other income of INR130 crores for the next two to three years?
Rahul Gautam
Okay. Thanks Aniket. Amit, would you respond to that please?
Amit Gupta
Sure. So, currently, if you see our balance sheet, till now around INR550 crores worth of money was invested in these instruments. Of course, we invested INR100 crores in pearl, so that is now INR450 crores. You see a higher approval of other income primarily because interest rates have been going down. And so that debt instruments have been accruing more returns, than they usually do it.
In addition to this, we have some other feature of other income also which carries on certain instruments, certain sale of scrap and other things which also agree to other income. Yes, if you say going forward the trajectory of other income, it will not be as robust as you see it now. But we are pretty comfortable that it would be in a very comfortable range.
Aniket Kulkarni
So can you give me some ballpark figure of the other income? How it would be something?
Amit Gupta
Yeah, we expect a 12%-odd plus return on investment.
Aniket Kulkarni
Okay. Alright. Thank you so much. And best of Luck.
Amit Gupta
Thank you.
Operator
Vatsal Shah, Whitestone Capital
Vatsal Shah
Yeah. Hi, am I audible?
Operator
Yes sir.
Rahul Gautam
Yes. Yeah.
Vatsal Shah
So, I have three questions. So firstly, what will be the margin difference between the B2B part of the business compared to the mattresses part. The second question is, what kind of return profile are we looking at two to three years down the line? As the equity base has gone up quite high after the Kurlon acquisition. And the third will be, any kind of consolidated growth and EBITDA margin guidance.
Rahul Gautam
So, Amit, would you please take the first one, you know, which is the margin.
Amit Gupta
Sure.
Rahul Gautam
In the B2B and the B2C business.
Amit Gupta
So, in B2B, we have different types of businesses. We have a furniture foam, which is partly branded and partly, you can consider as a B2B business. We have comfort foam, which is their foam that we sell. We have certain specialized foams called the technical forms which we supply to end user industry like laundry, sound proofing, automotive and places like that. There are different margin profiles between these different types of businesses. But broadly, we can say that matrix commence anything ranging between 5% to 8% margin higher than the B2B sort of businesses.
Vatsal Shah
Got it. That was helpful.
Rahul Gautam
Okay and the second one also, Amit, you will have to say. It is asked for the return profile in about three years’ time.
Amit Gupta
Yes sir. I’ll take it.
Rahul Gautam
As the equity base has gone up.
Amit Gupta
Yeah. So, before answering this question, I would just build a little bit on how this equity capital has gone up. So, you know that we were at around INR1800 crores of equity capital before Kurlon acquisition. Yes, we did the QIP for Kurlon acquisition which approved it by further INR1,200 crores. Now, when you acquire a consumer brand, on the first day, it is difficult to get the return on equity right at the base. So we have put for ourselves, a three year time horizon in which we intend to get back the earlier return on capital of 18% – plus that we have been having earlier.
So, if we look at other return profiles, in terms of growth and profitability that you mentioned, we have already guided the market earlier that from 2025 onwards, we would be looking at a consolidated India business growth of around 14% to 15%. And in a three-year period, we would be reaching any better margin of somewhere around 14% to 15%. Primarily on the back of increased volume or the growth that is coming in and also on the back of the savings initiative, part of which has already been realized and which will be coming through in the remaining two quarters of the year.
And that should put us in a three year time horizon by 2027 at a place comfortable to give a return on equity of more than 18%.
Vatsal Shah
Okay. And just a small clarification, the 14% to 15% growth EBITDA set, that was on a consolidated level or India business?
Amit Gupta
India business.
Vatsal Shah
India business and consolidated any number?
Amit Gupta
Consolidated so, I expect overseas business. See Australia is a saturated market if you know, we are the leaders in that market with 40% market share. So, there we expect the growth to be a little bit muted, say between 5% to 7%. Whereas in Spain, we are very small player in the overall European market. We have recently the bottle neck our capacity which has enabled us to do a turnover of around EUR80 million which is an increase of EUR30 million from our earlier capacity. So, there we expect the growth to be double digit growth in the next three to five years.
So probably you can assume, somewhere between 7% to 10% group for the international business.
Rahul Gautam
So total consolidated, he’s asking for. Amit, so when you look at somewhere.
Amit Gupta
Between 13% to 14%. Sorry, 12% to 14% sir.
Vatsal Shah
Got it. Thank you for that.
Rahul Gautam
Yeah. Okay, thanks.
Operator
Naman Maheshwari, Rescon
Naman Maheshwari
Hello, I hope I’m audible.
Operator
No sir. Your audio is not that clear. I would request you to use your handset please.
Naman Maheshwari
I hope I’m audible now.
Rahul Gautam
Much better. Thank you.
Naman Maheshwari
Great. Thank you. Thanks for the opportunity and congratulations on a steady set of numbers. So, my question is twofold. One is only mattress pricing; it has remained quite flattish quarter-on-quarter. And we haven’t seen any uptick on that. So, the first part is that, how are we seeing the price trends now? And what will be the drivers of this price point increasing?
The second question is on the lines of inventory. We have seen some inventory level going down. So can we have some insights on what the stable level of inventory in the channel would be and how it would progress during the rest half of the year?
Rahul Gautam
So Amit, can you first take the inventory question?
Amit Gupta
Sure sir. So, normally our inventory varies depending on seasonality. So, for the festive season, it is higher whereas for other periods, it is lower, and we have a turnaround time of 24 hours to 72 hours for delivery of products. Still, we need to maintain inventory somewhere between say 20 days to 30 days on an average. However, we are putting in place the payable solution by which we intend to take out the working capital from the business.
Rahul Gautam
And I think the impact of closures of the RDC would have also reduced the inventory. I think that is what Naman is referring to.
Naman Maheshwari
Right. Yeah. Because it has come down from, 70-day odd level to about 45-day odd level. So, what is the reason for this decline?
Amit Gupta
70 odd level would be an exception. Maybe because of certain reason it was there, but normal inventory would be somewhere within like, less than 30 days, for us that we are targeting now.
Rahul Gautam
And the first question. Nilesh, are you still there on the line?
Nilesh Mazumdar
Yes, I’m there.
Rahul Gautam
So the question is that mattresses are growing, that’s all happening. But on the value part of it, it’s not growing. So Naman wants to know that what kind of strength do we have for increasing prices or so that as the volume grows, the value also continues to grow.
Nilesh Mazumdar
Yeah. So, Naman that’s a good question. We need to first understand that the biggest opportunity for us to grow the category is, look at two broad segments. One is to get non-users into users, which is what we are trying to do with the TARANG and the AARAM initiative and then the unorganized sector, consumers moving them into the branded way of Kurlon and key. Now, both of these are large opportunities are and are more at the economy end of the market. And therefore, the volume growth right now that we see is higher than the value growth.
But having said that we are also playing on all the price segments. And as we move ahead, the mid end and the high end also are areas that we will look at, but at least over the next eight to 12 months, as we see volume growth will possibly be higher than the value growth that we will see. Because the opportunity that we see at the economy and currently is fairly large and that’s what is driving the current volume growth.
Naman Maheshwari
Okay. So that is to say that we would most likely be in the range close to about 4,200, 4,500 ballpark? Just take.
Nilesh Mazumdar
No, not really. You’re talking of a single mattress price. Actually, we look at pricing from a double mattress sizing. We will be in the region of about 11500 to 12,000 in the main line business. TARANG and AARAM will be different. They are far more economical.
Naman Maheshwari
Okay. Thank you. I’ll jump back in the queue.
Operator
Yash Mehta, Art Ventures. Mr. Mehta, I have muted your line. Kindly proceed. As the current participant is not answering. We’ll move on to the next question. Karan Gupta, InvestSavvy.
Karan Gupta
Yeah. Hi, so my first question on the basis of what the percentage that’s a revenue breakup in furniture cushioning and comfort foam cushioning. In overall revenue, is like around one-third of the revenue.
Nilesh Mazumdar
Yeah, so comfort foam plus furniture cushioning, is your question, right?
Karan Gupta
Yes.
Nilesh Mazumdar
So that will be about 25% of the total.
Karan Gupta
Okay. And in the opening remarks you said that you are doing some practices to reduce your commoditized products. So, can you just elaborate this thinking, what are the steps that you’re taking? Are you taking steps to reduce this, raw sales of this cushion into the market or any other thing?
Nilesh Mazumdar
Okay. So, I don’t think we are trying to reduce a particular category. It is that the branded business, we are trying to grow more rapidly. So, if you see in our results also the volume growth that you see in the mattress, is significantly higher than the other segments. And that’s how we would want to increase the share of the branded business in our overall portfolio.
Karan Gupta
But okay. But the other thing will be, that you will put some break on the volume side of this comfort foam and for furniture cushion.
Nilesh Mazumdar
See we will not put a break. It is just that whatever, will do profitable sales. So, if you see as a strategy, even if you were to look at the mattress business, if you’ve been following us. We initially had a number of flanking brands. We have brands that we were selling on e-commerce, for example, which were at all, almost zero or less margin like SleepX, etc. So, we took a conscious call of discontinuing them because we wanted to be there in the profitable segment of the branded business. As far as comfort foam, furniture cushioning is concerned we will be doing the business in a profitable manner and not with negative margin. However, the whole idea will be that we grow the branded business of Sleepwell and Kurlon more rapidly. And that is how in the overall structuring of the business, we will be more a branded players in the composition of the portfolio.
Karan Gupta
Okay? And one last one is of, how you are dealing with the situation when you’re selling the furniture cushioning in the comfort foam, right? And other players, local players who are just putting up the mattress cover and then selling with the local brand.
So now the competition with your economical product and those products.
Nilesh Mazumdar
So, that is very much a part of the market. So therefore, let me try and answer that those you’re absolutely right. There is a market where, a slab of foam is taken, and the cover is put on that locally and it is passed off as a mattress. So the strategy we have that we are taking on out there is that, what is it that we can offer to a consumer who is buying into that, which will be meaningful for him.
So, for example, we have introduced a mattress called Fitrest, which you will see in a new product portfolio, which is a mattress with a 25 year warranty. And the product starts at the pricing of 15,000. So, if the mattress has a profiling which a local manufacturer who is just doing a slab of foam will not be able to provide. So therefore, I have a value proposition for that consumer, by which therefore the attraction for him to buy an un-branded mattress becomes far less and he’s able to afford a Sleepwell or a Kurlon mattress and buy into a branded offering.
Karan Gupta
Okay. And now coming back to the first question again, what happened if you reduce your foam distribution to the local market and focus more on the branded products and selling less this foam products look in the in the local market. So will that help to increase your brand selling in the market or the local place will source other manufacturer because you are the largest manufacturer?
Nilesh Mazumdar
See, first of all, you need to understand that the foam that is sold in the market goes into various applications. Only some part of it goes into mattress, it goes into sofa making, it goes into various different applications. So that segment is catered to by the foam that we sell. And we are not saying that we are going to reduce selling that. I hope that is clear, we are saying that we will do it in a profitable manner. The mattress business that we are doing the branded mattress is where the resourcing and investment will happen. But there is a market for foam in various applications which goes beyond mattress that we will continue catering. And we are not saying that we are going to, in any way exit that market?
Karan Gupta
Okay, thank you.
Operator
Rishabh Gang, Sancheti Family office.
Rishabh Gang
Hello, am I audible sir?
Rahul Gautam
Yes, Rishabh.
Rishabh Gang
Thank you for the opportunity. So, the furniture that is rented in Furlenco right? Are you making it in house or like how do we make it? Like.
Rahul Gautam
You’re asking about the mattress system?
Rishabh Gang
No, Furlenco. So, the furniture that we rent out there, right? Are we making it in house?
Rahul Gautam
So quite a bit of it is made in house. There is a small attached back to 100% subsidiary of it, which is called create one. We do that and we also outsource. So, there are specialized furniture for example, boxs are done from Jodhpur, something else is done from one or two factories around Bangalore. And this sofa manufacturing is in house, and it’s called Create One. So, it’s a mix of both.
Rishabh Gang
I actually wanted to ask like, do we have any experience centre? Right. With the main branding of Sleep Well, right, where we are also showing other furniture of the foam, right? Like I went to Wakefit store, right? They sell mattresses as well as furniture and that really helps in cross selling. And I’ve seen that such sale has been made to my family. So, as Sleepwell, like the biggest brand in the mattress business, do we also think of adjacencies?
Rahul Gautam
Yes. Rishabh. That part of yours is absolutely bang on. We have already begun experimenting with that and there is piloting going on in six or seven stores. Nilesh, how many stores are we doing the piloting with Furlenco furniture is also being displaced.
Nilesh Mazumdar
Right now will be about eight stores. And Furlenco also has an experience centre in Bangalore of the reign.
Rahul Gautam
Two experience centres actually. And so those are experience centres, but I guess this means that eventually furniture should be sold, and everything being grossed up and which will help Sheela Foam. So, at the eight areas where it’s being piloted, it’s in the last stages. It’s in the positive direction and this will be expanded to wherever possible as far as the EBO and the other stores of Sheela Foam market.
Rishabh Gang
Okay. So, by when, right, because if you actually put it in your EBOS, it will have to be a very big EBO because of that, all the furniture and all can be there. So like by when do we think that maybe we will have 40 stores, 50 stores like this across the country?
Rahul Gautam
One is on the size of the store that you say, it’s also possible, you could have a few pieces being displayed, but at the same time, you could also have a catalogue around and make the best of whatever that small store is. However, the question as far as getting to a level of about 50 stores doing it, would you have an answer Nilesh on that?
Nilesh Mazumdar
April 2025 something like that. After we get the learning, then we will be able to come back with an answer. Right now, it will not be right to respond with the timeline. We will get the pilot learning come back and then the second is.
Rishabh Gang
Yeah, absolutely fine, sir. My next question is, I saw in your investor presentation that you have mentioned about savings of annual INR100 crores on track right because of the acquisition. So, can you provide a breakup of this INR100 crore? From which function are you getting the refunded cr.
Rahul Gautam
Amit?
Amit Gupta
Yeah, sure. So, Rishabh, this is broken into multiple parts. The primary of them being raw materials. So, when we combined Sheela Foam and Kurlon capacities, the quantum of raw materials that we bought was much higher. So there are certain benefits with due because of that, there are 13 incremental benefits which flew in other purchase of things like certain fabric, certain type of ancillary materials, certain sort of colours, etc. which also you got because of that.
Secondly, we closed down two units of Kurlon because they were very near to our existing unit. They were producing foam which we could produce at a much more efficient level. So, when those units were closed, all their manpower cost, overheads, etc had gone away. We are in the process of doing it with the third one near Bangalore. As soon as we do that, these will be implemented savings to that place. So I would say that most of it lies in raw materials and some of it lies in manpower costs and overhead.
Rishabh Gang
So, can I say that 60% to 70% is raw material and around 30% also is manpower and other cost?
Amit Gupta
That would be a good estimate.
Rishabh Gang
Also, on the raw material side, like what kind of volume discounts are you able to get because of this? Because I read that you will be getting volume discounts. Like how, like volume response of INR60 cr, INR70cr here, that’s a big amount. So just curious to understand, can you give some more details on it?
Amit Gupta
No. Competitive sensitive information. So, I would not be able to disclose it, but I can tell you it in some other way. So, if you see, Sheela Foam gross margin was around 40% prior to Kurlon acquisition. And now together we are at a gross margin of 44%. So, you can see those savings being accrued there. But sorry, I cannot give you how much discount, on which particular raw material, I think because these are competitive sensitive information.
Rishabh Gang
And what was the gross margin of Kurlon before the acquisition?
Amit Gupta
So, Kurlon would be somewhere around 41% to 42%.
Rishabh Gang
All right and the next question is on the inventory site. So, when I actually made a purchase on Wakefit, it was like got delivered, I think they use JIT. So, what kind of inventory system do we have? Like, do we also have just-in-time, that we manufacture when a product is ordered or how does it work so far?
Nilesh Mazumdar
Let me take that question on it. You need to understand, that the Wakefit business model is completely different from us. They are largely a B2C brand and therefore we are buying either from their, mostly their sale is either through their website or on the commerce platform. And our strength lies on the offline state. So it is very, different business model that we are operating with.
So the inventory levels that they would carry and what we would carry, we would not benchmark with them in terms of those operating parameter because we are building the business in a very different matter.
Rishabh Gang
Hm. But do you think that to reduce the inventory days?
Nilesh Mazumdar
That will happen as we move ahead, in terms of the consolidation etc happening? But we don’t see that as a major concern today that, we are starting with a very high inventory level, etc. because when we are servicing an offline business, it’s a very, different model that we are servicing with. So, and the inventory that we carry today is not a major area of concern as we see it, because we integrate with our back end suppliers, service suppliers, etc, where we can operate at minimum level and have the sourcing closer to the units and the factory so that we don’t need to maintain very high level because the inventory is just not about the finished book. It’s also about the input inventory that we have to carry. So as we are developing our supply chain system accordingly, with PC that we are able to operate at optimum level.
Rishabh Gang
Correct. It makes sense. Just a last question. So, I read that you have recently set up a manufacturing plant at Jabalpur to cater to the traditional market, cotton mattresses. So, just a question like a major of the cotton mattresses are unorganized, right? So, these players have advantages in the sense, these are unorganized players. So, they don’t have to pay taxes, indirect taxes and all, whereas we as a player have to pay. Also logistically, they are placed very nearby to the customer’s location. So, they have a logistical expense benefit also. So, because of these advantages, like which they have, what is the strategy for this cotton mattresses? What is the pricing strategy there?
Nilesh Mazumdar
See we have covered with that length in previous interaction. So maybe it might make sense to engage separately because we have responded to it. But very quickly I will touch upon it. It is not that we are just setting up the Jabalpur factory to cater to the cotton mattresses. It is a completely different technology of home manufacturing which is a economical, far more environmentally friendly with which we manufacture foam. We are able to compress that foam at a far higher degree and ship it to different mattress manufacturing units which can therefore make the mattress closer to the market and be able to service it at a lower set cost.
We are doing it at a pricing which is economical and therefore has value for that cotton mattress users because it has got a three year warranty with a cotton mattress cannot give today. So, there is a complete discussion and strategy. This conversation we have had in the past and maybe we can engage separately to explain this.
Rishabh Gang
No, got it. I will read that. So, thank you so much for your insight. You were very helpful. Yeah.
Rahul Gautam
Thanks. Bye.
Operator
Sahil Soy, HSBC
Sahil Soy
Hi. Can you hear me sir?
Operator
Your audio is too low.
Sahil Soy
Okay. Is it any better?
Operator
Yeah. Please proceed.
Sahil Soy
Okay. Thank you very much for the opportunity. Just a couple of follow ups on the Furlenco acquisition. So, your company increases taken for Furlenco despite Furlenco losses in FY24. Could you help us understand your turn around plan and the vision you have in mind for the company? And, and if you could also help us with some numbers, how are they looking for Furlenco, in the first half of this year on top line and bottom line? And where it is heading?
Rahul Gautam
Amit. Could you take that question, please?
Amit Gupta
Yeah. So, you’re looking at ’23 ’24. I think we have now given half yearly numbers. I would request you to look at that, see what has happened. We had our investment in August. The company took around four to six months to deploy those funds and create the assets which were needed to ramp up. Before that, they were constrained for capital because of this, they were not able to add assets and hence not able to grow.
So the bottom line was of course, when the business becomes upscale, it erodes and that is why you were looking at the losses. The break-even point of this business or this company I can say is around INR190crore. Currently, if you see the results that we have published, we have already reached a run rate of around INR210 crore. And that’s why, we say that it is PBT-positive and because it has a depreciation of around INR2.5crore to INR3 crore per month, the company is generating that much equivalent plus PBT as cash.
So the situation now is completely different from what it was appearing in ’23 ’24. It is a profitable company now generating cash and only investment that we do is needed to further ramp up the business by providing it more assets.
So also it is in a segment which is very big which has a lot of scope to grow. We are currently only six centres across the country. There is a scope to grow across the country in this business. And that was what led us to make incremental investment into the company and take our stake to 45%.
Sahil Soy
Okay. That’s very helpful and very clear as well. Just another follow up question I had on Furlenco was like, how are you looking at this company? Like is it the focus is more right on the sale of furniture and the appliances rather than the rentals?
Could you help us to give some colour on what’s the mix between sales versus rentals as of now? And how are you looking at the outlook, let’s say two to three years down the line? I think you have also given us the FY28 target of INR500 crores, if I’m not wrong. So, what’s the mix of rental versus the sales we’re looking?
Amit Gupta
So, Furlenco is primarily a furniture rental company and that is the primary business of the company currently and going forward also we intend to keep that as the primary business of the company. However, when you rent it out there are certain customers who look to buy furniture, maybe because they like some piece of it. And if we don’t sell that furniture to them, potentially it exposes you to competition, they go somewhere else and buy that furniture. So, we have offered an option to our consumers, that in case they want to buy, they can buy also. But that does not shift our focus from rental business.
Currently, if you see 95% of our business is rental business 90%to 95% and only 5% to 10% is sales. Sales may grow a little bit in the next three years and maybe say around 10%to15% to 20%. But it’s still the major portion of the business will continue to be rental.
Sahil Soy
Okay. And I would assume even the FY28 target that you have INR500 crore. So even that would have the primary mix coming from the rental itself.
Ritesh Shah
Very clear, very helpful. Thank you so much and wish you Happy Diwali. Thank you.
Rahul Gautam
Thank you. Sir.
Operator
Rakesh Mehta from Goodwill Wealth.
Rakesh Mehta
Thank you, sir. For giving the opportunity. I have a follow up question on Furlenco again, I think in the beginning, you mentioned 33% YoY growth. Was it in revenue or was it some other metric which you were talking about if you could help with that?
Amit Gupta
Sorry. I didn’t get your question if you can repeat.
Rakesh Mehta
In the start, when you were talking about Furlenco, you mentioned 33% YoY growth in one of the metrics. Was it related to?
Amit Gupta
That much Furlenco, we said 1.5 X. So, if you see last year was, INR145crore and current run rate is around INR210 crore.
Rahul Gautam
Amit, I’m just studying the 33% is for STAQO you know, but it’s probably has been read like that. That was 33%, Rakesh was for the STAQO.
Rakesh Mehta
Okay. sir. Got it. And for H125 we are looking at an annual revenue of INR210 crore based on the run rate. And we are looking at, I mean as of now it’s break even and PBT positive. And what I could understand for Furlenco.
Amit Gupta
Second part is right. First part I’m saying we have reached in September, the run rate of INR210 crore, we started from INR150 crore, so the total revenue will lie somewhere in between. In the second half, this will start from a run rate INR210 crore and maybe reach run rate INR250crores to INR260 crores. And so, the total revenue will lie somewhere in between.
Rakesh Mehta
Okay, sir. Very clear. Thank you.
Amit Gupta
Yes.
Operator
Thank you, ladies and gentlemen, we will take that as the last question for today. I would now like to hand the conference over to Ms. Anushka Chitnis for closing comments. Over to you, ma’am.
Anushka Chitnis
Thank you. On behalf of Arihant Capital, I would like to thank the management for giving us the opportunity to host them and for their valuable insight.
Amit Gupta
Yeah. Thank you all for participating in this earnings conference call. I hope you have been able to answer your questions satisfactorily. If you have any further questions or would like to know more about the company, please reach out to our IR manager at Wellham Advisor.
Thank you.
Operator
[Operator Closing Remarks]