Sheela Foam Limited (SFL) Q3 FY23 Earnings Concall Transcript

Sheela Foam Limited (NSE:SFL) Q3 FY23 Earnings Concall dated Feb. 03, 2023.

Corporate Participants:

Rahul Gautam — Managing Director

Rakesh Chahar — Whole-Time Director

Analysts:

Bhavika Choudhary — Emkay Global Financial Services — Analyst

Nihal Mahesh Jham — Nuvama Wealth Management Ltd. — Analyst

Ritesh Shah — Investec India — Analyst

Unidentified Participant — — Analyst

Resham Jain — DSP Investment Managers — Analyst

Amit Bohara — SBI Mutual Fund — Analyst

Presentation:

Operator

Ladies and gentlemen, welcome to the Q3 FY ’23 Results Conference Call of Sheela Foam Limited, hosted by Emkay Global Financial Services. We have with us today Mr. Rahul Gautam, Managing Director; Mr. Rakesh Chahar, Whole-Time Director; Mr. Tushaar Gautham, Whole-Time Director and Chief Executive Officer, India Business; and Mr. Davinder Ahuja, Group Finance Controller. [Operator Instructions] There will be an opportunity for you to ask questions at the end of today’s presentation. [Operator Instructions]

I would now like to hand the conference over to Ms. Bhavika Choudhary from Emkay Global Financial Services. Thank you. Over to you, ma’am.

Bhavika Choudhary — Emkay Global Financial Services — Analyst

Thank you. Good afternoon, everyone. We would like to welcome the management and thank them for this opportunity.

I shall now hand over the call to the management for the opening remark. Over to you, gentlemen.

Rahul Gautam — Managing Director

Thank you, Bhavika. Am I audible?

Bhavika Choudhary — Emkay Global Financial Services — Analyst

Yes, sir.

Operator

Yes, sir.

Rahul Gautam — Managing Director

Thank you. Okay, thank you. Thank you, Bhavika, once again, and thanks to Emkay Global Financial Services for hosting this earnings call, and a very good afternoon to everyone joining us today. It is my pleasure to welcome you all to this conference call for Q3 and the nine months ended of this year, this financial year, FY ’23.

Let me just begin with by saying that both FY ’22 and FY ’23 were full of extreme turmoil. We know what happened last year, the closedowns and the opening up. In such conditions and such varying conditions, actually quarter to corresponding quarter comparisons become very distorted. The nine months to nine months, this being a little bit longer period, is a better reflection of the performance. I’m happy to share that your company has registered a growth, albeit a small percentage only and that, too, primarily on account of retail inflation.

I am also satisfied to share with you that, in spite of, continuing fluctuations at raw materials, we have seen sustained expansion in gross margins. However, at the EBITDA level, the numbers show a sub-10% performance, and this is primarily on account of some expenses, which can be count as one-off, however, have to be adjusted to the expense side according to the IND-AS. There was an increase advertisement to restart post dull or closed COVID period. There were some exploratory M&A expenses, which are, again, one-off and — but however, as per IND-AS, they have to be accounted for. And there were also some non-cash mark-to-market forex losses, which are clearly one-off and also notional, and they are non-cash. The account for all this, we would see that we are reasonably above the previous period. The COVID period had also put a stop to all kinds of market surveys, researches, etc. As soon as it got over, the industry restarted the process and the findings were very encouraging. The shift from unorganized to organized continues, and this was after — this research was after the lapse of two-and-a-half years, and this is very encouraging. Second, the market share of your company, Sleepwell brand and the other brands, considerably increased and it further consolidate its leadership position.

I’m also happy to share that the subsidiaries of the Company in Australia and Spain are continuously increasing their market share as they grow, both have different realities, however, they are performing well. Both have expansion plan and projects, which will come on-stream by the middle of this year, and this will further strengthen their capacities and strengthen their position as far as those markets are concerned. We also recognize that Sheela Foam is not only an economic organization, but also a social organism and sustainability is of utmost importance. I’m also happy to share with you that we are on-track with our ESG or sustainability programs, and our BR/SR report is under preparation for this year.

With this, I hand over to Bhavika, and we will be happy to answer the questions that maybe there. Thank you.

Questions and Answers:

Operator

Thank you very much. We will begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Nihal Mahesh Jham from Nuvama. Please go ahead.

Nihal Mahesh Jham — Nuvama Wealth Management Ltd. — Analyst

Yes, sir, good evening to the management, and thank you so much.

Rahul Gautam — Managing Director

Nihal, you’ll have to speak a bit louder.

Nihal Mahesh Jham — Nuvama Wealth Management Ltd. — Analyst

Just a minute. Am I audible?

Rahul Gautam — Managing Director

Better. Thanks.

Nihal Mahesh Jham — Nuvama Wealth Management Ltd. — Analyst

So sir, my first question was, sir, you’ve alluded that there was a base impact because of COVID last year, but if we compare the mattress volumes even to pre-COVID, there is a slight fall, which has happened. So just wanted to understand this is purely because of the current sentiment or there has been a shift in demand between quarters because of certain marriage-related dates or any other aspects that you may want to highlight?

Rahul Gautam — Managing Director

I must confess that the the voice levels, which are coming to me, are rather low. So if could just repeat the question. You were saying the mattress volumes are lower. And the question is that, is it because of market sentiments or is it because of any shift in the consumers, is that correct?

Nihal Mahesh Jham — Nuvama Wealth Management Ltd. — Analyst

Yes, consumer sentiment lower, generally there has been a shift in the wedding dates also seen between Q3 and Q4. If there was any element of that element? Because I’m comparing our volumes to pre-COVID, not from last year, where you highlighted maybe there’s a COVID-based impact. So just comparing it from that perspective.

Rahul Gautam — Managing Director

Certainly. Thanks for the question, and I must say that this — the audio is not so clear. However, let me just say that, yes, there is a little bit of a drop in the mattress volumes as far as we are concerned. However, when we compare it to the kind of surveys, etc., that have been done, it appears that there is some changes in the market as far as the size of the market is concerned. But this is purely temporary, purely on account of inflation. And if there is any aberration, which — or if there is any apparent aberration that is stemming there, it’s only temporary and it’ll shift and go back, because the trends are very clear in the research.

Nihal Mahesh Jham — Nuvama Wealth Management Ltd. — Analyst

Understood. So if I could ask that, have the trends in the month of Jan improved or currently you’re seeing the uncertainty first? If you could just give some sense of that.

Rahul Gautam — Managing Director

So they have — I don’t know how much can I say, but they have drastically improved. And that’s all — I mean, the month of Jan is just over, but the situation has considerably improved.

Nihal Mahesh Jham — Nuvama Wealth Management Ltd. — Analyst

Sir, my last question was on the gross margin side. You highlighted that there has been a significant reduction in both TDI, specifically in polyol. So what proportion of the old inventory that we end up using this quarter? And how much of an impact that had in terms of limitation in the gross margin improvement?

Rahul Gautam — Managing Director

So I think I mentioned that even in the quarter that’s gone by, the gross margin has definitely improved. However, when we come down to the EBITDA level, that is a bit of a drop. And this is on account of raw materials fluctuating, however, moving slightly downwards. When we come — as we move forward, the same trend is continuing, and I would say that even if we account for the opening stocks that we have, there would be a positive impact as far as Q4 is concerned.

Nihal Mahesh Jham — Nuvama Wealth Management Ltd. — Analyst

Just to clarify, so the current gross margin, in a way, more or less reflect our current — the current pricing in both the raw materials?

Rahul Gautam — Managing Director

That’s right.

Nihal Mahesh Jham — Nuvama Wealth Management Ltd. — Analyst

Perfect. Sir, that’s very helpful. Thank you so much, and I wish you all the best.

Rahul Gautam — Managing Director

Okay.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ritesh Shah, an individual investor. Please go ahead.

Ritesh Shah — Investec India — Analyst

Hi. Sir, am I audible?

Rahul Gautam — Managing Director

Yes, Ritesh. Thanks. Go ahead.

Ritesh Shah — Investec India — Analyst

Yeah, hi, sir. This is Ritesh from Investec, not an individual investor. Sir, a couple of questions. Sir, first is, if you could detail what is our strategy to recoup volumes? So basically, what is the end customer or the end channel that we are looking at basically to increase volumes? That’s one. And what I’m referring to here is something beyond EBOs and MBOs that we are already doing. That’s the first question. Sir, second question is on update on the expansion plan, along with the timelines for Jabalpur, Spain, and Australia. You did indicate mid of — middle of this year, but some specifics would help. Third question is on inorganic growth. Basically, what’s the status? Fourth is on the growth engines and it has quarter buckets: mattress for every Indian; the exports run rate; railways, current run rate; and online channel, the current run rate. And I have a fifth question, which is on new initiatives. So would be great, sir, if you could please help with this.

Rahul Gautam — Managing Director

Thank you, Ritesh. I think you’ve gone through the entire portfolio that we have, but I’ll just first begin with your first question and that is on the volumes part of it. I just wanted to say that Sleepwell, we have been operating through the EBOs and the footfalls, etc., have been challenging, as far as in the recent past is concerned. We are well-entrenched on that footfalls. As I said, if I look at January have begun to increase, that will automatically increase the volumes. There is an expansion plan for the EBOs and that’s almost about 400 to 500 extra outlets per year, and that’s also on track.

I must also add that, of course, Sleepwell was not selling through the MBOs, which are also — it continued to be a large number. We address those markets via our other brand which is Feather Foam and Starlite. Now, that we have reached out to or spread out to all of them, our real good push as far as MBOs is going to happen. And we expect that the first initiative of expanding in EBOs and putting through the MBOs both will increase our volumes and that’s our strategy for that.

As far as Australia and Spain is concerned, so let me take Australia first. Australia has already been doing — has been having almost a 10%, 12% increase, both in its volume as well as in its top line. And the reason for that, as we see, is people spending more and more as far as home improvement sites are concerned. We expected that COVID would finish and this will also slow down, but it has not because people are not craving so much, people have money in their pocket, and people want to –.

Besides this, it’s also the imports that Australia was having. And with the sentiments like Australian beds et cetera, those imports have been impacted. Especially imports from China, and there were also some imports from Europe. We see that as a very good sign, and in spite of a mature market, this expansion will continue to grow or this sentiment will continue to grow.

On our plant, which is being set up in the second foaming plant which is being set up in Adelaide, that has already been installed and it will be commissioned by the first week of March. And we will start then getting it more aggressive as far as the market share is concerned. And we believe that there is a lots — lot of imports and other things, which can be sort of being catered by us, and therefore, increase our presence.

Spain, I have said this many times before, we are a very small part of that large market to only 1%. And therefore, that even though the European market slumped by almost 25%, 30% during the Ukraine war or continuing even after the Ukraine war, in our company, we registered just a 10% drop, which has also, from January onwards began to pick up. In fact, the entire order books in January and February were completely full — filled out, and in February, continue to be filled out.

We have expansion project there where the current capacity will be increased. And so today, what we are doing is about 13,000, 14,000 — 12,000 to 13,000 tons per annum. This will go up to about 17,000 tons per annum. And again, because we are a small plant, we expect that all this will be consumed by the market. Returning back to India, you have also said about the inorganic part of it. So I think the explorations continue. Some encouraging, but eventually, these things happen when they have to happen. But I can only say that this is encouraging.

On the initiative, we’re still pursuing, mattress for every Indian. Again, we have started to receive the machinery, which was — which is delayed on account of the war, and before that, on account of COVID. We started receiving that. We expect somewhere end of this year, that project in Jabalpur to begin to get installed and then commissioned soon thereafter.

Railways has been good progress. I think Railways has also now clearly stated that the product that we supply them is the preferred product for making the coaches and the quantum is increasing month after month.

Anything else? I don’t know. You have asked many questions, Ritesh, [Indecipherable]

Ritesh Shah — Investec India — Analyst

Sir, exports was the other one, and the online channel. And sir, if you can please help us, run rate or something for exports, Railways and omnichannel basically, the online channel?

Rahul Gautam — Managing Director

So run rate on Railways is about INR8 crores to INR10 crores per month at the moment. And exports, I would say that there has been up and down. A couple of reasons we have talked about in the previous meetings. One was that the infrastructure coming up to speed as far as the supply of orders was concerned. And the second part is that US, which is the largest recipient of these exports has also been going through its own inflation and a bit of recession that’s been there.

Recently, there has been the biggest exhibition in the US. For mattresses, it was in Las Vegas. Our people were there, and there is — I mean, at the moment, all I can say is the sentiments are encouraging. They are committed to looking at or creating a source besides China. And in India, we go to the preferred supplier. However, there is not too much to talk about it, let’s say, in the last quarter or in this quarter, but I think the year would finish at about INR40 crores or so.

Separately, a little bit satisfying. Should have been more than INR40 crores, and in coming years, I think you should see a jump up to about INR100 crores. Online, we are treading along or trudging along at a reasonable pace. I think the year should end at about what, Rakesh — no, online.

Rakesh Chahar — Whole-Time Director

Online should [Indecipherable]

Rahul Gautam — Managing Director

Online should also cross INR100 crores. However, as I said, we also changed our strategy a little bit when we were doing it with a different brand. And now we’re doing it with Sleepwell and we have found a way to reduce or almost remove any kind of difference between online and offline and that is picking up. By this year, we should close at about INR100 crores or over INR100 crores, and the next year would be at least 50% to 60% more than that.

Ritesh Shah — Investec India — Analyst

Thank you so much, sir. New initiatives — into living room, I’m looking at sofa’s revenue. That was the last one, and probably I’ll jump back in the queue again with — I have some secondary degree questions, sir.

Rahul Gautam — Managing Director

Maybe I will take that question on sofas. I presume you would have asked many questions for many other people, so that’s all right. I would have [Indecipherable]. So the sofas, we are — manufacturing of sofas, I would be able to talk on this better the next time. Some initiatives on — but as I said, that it will be better if I talk next time on it.

However, on the refurbishment of sofas, which continues to be a big business, it’s fragmented business. It is a very unorganized business and our initiative to put all that together is now taking shape. I mean, at the moment, I’ll share that a pilot is on where the proposal is that we — as we speak, we’ll pick your sofa up and do it, refurbish it and return it back in three to four days’ time.

Ritesh Shah — Investec India — Analyst

Sure, sir. This is very helpful, sir. Thanks for all the answers. I’ll just join back in the queue. Thank you so much.

Operator

Thank you. The next question is from the line of Porum Gosar [Phonetic], an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Good evening, sir. I just have one question. We have seen an increase in revenue from that technical team business. So I just want to understand from where the demand is coming from? Did we onboard any new plants?

Rahul Gautam — Managing Director

Thank you, Ma’am. Can I just have your name once again, please?

Unidentified Participant — — Analyst

Porum. [Phonetic]

Rahul Gautam — Managing Director

Okay. Thanks, Porum. So the technical foam, the primary expansion in order has come from the auto sector. And we all know that the auto sector has been, for the last couple of months, has been doing extremely well or continues to do well. And we have almost about 60% — 70%, 75% share in that market, and the growth in the technical side and we are expecting that that growth will continue as that expands.

Unidentified Participant — — Analyst

Okay, thank you, sir. That’s it from my side.

Operator

Thank you. We have the next question from the line of Siddharth, an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Good afternoon, sir. So actually just wanted to ask you that last time you had mentioned that our management’s focus is to increase the productivity of the outlets. So I mean, have you been successful in increasing the footfall? And if not, then when can we expect that to start?

Rahul Gautam — Managing Director

So Siddharth, thanks. Thanks for that question. Yes, our efforts are beginning to show some results. I mean, the productivity is increased on two actions, one is to increase the footfalls coming into the showrooms, and the second is to increase the conversion of whatever is kind of coming in. So second thing first, conversion. We have taken the help of a company called Quest[Phonetic] and got some sales advisers from them, which are — which have been placed at almost about 30%, 35% of the stores, and they are training the people as well as helping to convert whoever is coming in. And that conversion, we can see that the percentage is increasing month-on-month basis. As far as footfalls are concerned, the only way is promotions, advertisements, BTL, ATL activities. And you would have noticed that recently we have begun advertising on the television and even at the local level, and we believe that the footfalls will increase.

Unidentified Participant — — Analyst

All right, sir. That’s it from my side. Thank you.

Rahul Gautam — Managing Director

And of course, as I already mentioned to Ritesh earlier, we are expanding our — the number of showrooms, which definitely will increase the total number of footfalls which we cater to.

Unidentified Participant — — Analyst

All right, sir. Thank you.

Operator

Thank you. The next question is from the line of Ritesh Shah, an individual investor. Please go ahead.

Ritesh Shah — Investec India — Analyst

Yeah, hi, sir. Sorry to bother you again. Sir, just wanted to understand the market sizing. So when we are looking at the INR15,000, INR20,000 crores of total market, I appreciate what we’re doing on the EBOs and MBOs. But how about the market basically, say, for the likes of Pepperfry, IKEA, HomeLane, I think that’s also incrementally a trend. So how do we approach — basically, tapping this particular market or are we already there? And if you’re already there, how does the economics works? So sir, that’s the first question.

Rahul Gautam — Managing Director

So do you want to complete the questions or should I answer?

Ritesh Shah — Investec India — Analyst

Sir, I’d just like your answer over here, sir.

Rahul Gautam — Managing Director

Okay, thanks. So Ritesh, this is — as I am understanding the question, you’re saying that the likes of IKEA and Pepperfry, which are primarily furniture or furnishings outlets, they do cater to mattresses and how are we making our presence felt in that segment. So let me just state that we have already begun looking at what we call as furniture-first stores and these are stores which are not necessarily exclusive mattress stores, however, do furniture as first and consequently sell mattresses along with the beds that they sell, and that expansion has already begun. We are present in — how many markets would we be present at the moment? So about 2,000 we have already got our presence, but as I said, those are not exclusive, and therefore, that has done under the Feather Foam brand, which is endorsed by Sleepwell, and that’s been reasonably well-accepted. So just to sum up, our response to the IKEAs and the Pepperfrys and all that is to go and be present in the furniture-first stores.

Ritesh Shah — Investec India — Analyst

Sure. Sir my question was, basically if you look at the mobile population or say tier-one, tier-two, I think probably the population, which goes to individual stores, it might be reducing. I’m just — given the hypothetical scenario, and there will be more and more people who might be going to HomeLane, Pepperfry, IKEA, but end up — and they were just go to buy a curtain or something else and they end up buying a mattress. So from a sample sizing standpoint, if we have to look at the marketplace, so is furniture-first the solution that we are looking at or are we looking at something beyond that to tap the larger marketplace?

Rahul Gautam — Managing Director

So I agree with you that there are some stores, which are complete furnishing stores. I agree with you that there is a mobile population, which may be very short on time and would not go from a store-to-store and would want to have a one-stop place and to that. But however, those people, we would be attracting them maybe more with the Sleepwell at Home or through the e-commerce platform that we are operating on. And I would say that — I mean, for us really to get into a full-fledged furnishing store at the moment is not [Indecipherable].

Ritesh Shah — Investec India — Analyst

Sure, sir. And sir my second question was specifically on the EPE for — mattress for every Indian, what we have indicated. I just wanted to check, is it for the first time that it’s happening something of this sort In India, or has it been tried by any of our peers in the past?

Rahul Gautam — Managing Director

No, no, no. I don’t know, you’re connecting the EPE with that mattress for every Indian. So EPE is a completely different product for — which is different from polyurethane foam. Do we do some EPE stuff? Yes, we do, Is it cheaper? It is. However, the availability part of it is still a challenge. It’s an extremely light material to be transported all over the place. Our mattress for every Indian foray is primarily to look at people who are not using any kind of mattresses, modern mattresses at the moment. They may be using cotton mattresses and maybe using daris, chatais, etc. And there are two challenges to it, one is to make the product affordable for them, and the second thing is to make it available to them to where they are, whether [Indecipherable] block or the cluster of villages that they there. So our project, which is coming up in Jabalpur, a new technology that we talk about will help us in both these aspects of affordability and as well as accessibility or making it available to those places.

Has it been done before? To the best of my knowledge, no. And generally, it’s just the — the way that it happens that when you have a new product, a new mattress coming up, it goes to the big downs, then it starts putting down to tier-two, tier-three, tier-four, tier-five kind of levels. Here, we are just trying to go the other way around. We just start from the bottom most area and try to work upwards, and hopefully [Indecipherable].

Ritesh Shah — Investec India — Analyst

Right, sir. Possible — so sir, you indicated it’s PU foam, right? For mattress for every Indian, that’s what we are looking at?

Rahul Gautam — Managing Director

Yes, it could possibly have one or two other materials, for example, but primarily, it is polyurethane foam with the new technology that we would be making.

Ritesh Shah — Investec India — Analyst

Okay. And sir, any timelines over here, I presume it’s mainly the Jabalpur expansion [Speech Overlap] launch?

Rahul Gautam — Managing Director

So Ritesh, I said that right in the beginning, this project got delayed on account of COVID and it got delayed on account of the Ukraine war, because the steel, etc., needed to come from there. Our supplier of this technology is based in UK, but we have begun receiving parts of the machine. We expected to start getting installed anytime by the end of this year.

Ritesh Shah — Investec India — Analyst

Sure. And sir, lastly, I had a bookkeeping question. Would it be possible for us to quantify the one-off variables, which you indicated on the non-cash [Indecipherable] forex losses, exploratory M&A, I think you indicated three variables, probably I can take it offline.

Rahul Gautam — Managing Director

I would say that if you really want to understand that in depth, it would be better offline. However, since you talked about the noncash one, I would say it is like hedging for the equity that we have invested in Spain. And that equity, at the time that we hedged it with something like September, at that time, the euro was just falling and it was being expected that this war would continue forever, and the euro would always be on this side. We wanted to protect that. We wanted that investment of ours.

Generally, we do not hedge equities, but we did that because the euro will — and it was a special condition. So when we’ve hedged that, fortunately or unfortunate number one, the euro has got back. So at that time, we turned from INR78, today, it’s INR87, and there is mark-to-market, it’s gone up by a certain amount. And I said that you have to have mark-to-market and this will be charged to the expenses.

So however, when you have that investment in euros, there is an interest that the bank is giving us, which is almost about INR1 crore a quarter. And that net interest is — as for interest, it has to be in the other incomes and OCIs, and therefore, in track. So you get a double whammy out of it, and it’s all notional. There is no cash impact, there is no nothing. That’s one of the examples. I can offline explain the other areas where, on account of this issue, we have been impacted here.

Ritesh Shah — Investec India — Analyst

Sure, sir. This is very, very helpful. Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Dharma Venkatesan KV, an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Thanks for the opportunity. Good evening, sir. Hope you’re doing well.

Rahul Gautam — Managing Director

Thank you. Yes. Please go ahead.

Unidentified Participant — — Analyst

Sir, my question is regarding the demand in Europe. So how the things have settled down, are we seeing demand slightly? Are the demand — is there any green shoots in the demand and how is this thing shaping up there for us?

Rahul Gautam — Managing Director

So demand in Europe had definitely slumped. The market — if we would look at the market, let me first begin by I think that it is the largest market in the world, the entire European Union, but that market has slumped by 25%. We fortunately being just 1% of that market and having our own strengths. So even if the market size is down, our share and the potential is already going up and has the potential of increasing. I mean, we are far, far away from making any kind of an impact on this entire market.

Unidentified Participant — — Analyst

Okay, sir. And my second question is regarding debt. In the presentation, it was mentioned that there was a onetime marketing expense, so is this onetime or are we going to spend more on brand building from now on? Is this going to be a new number going forward?

Rahul Gautam — Managing Director

So thank you for raising it. Look, it’s not entirely all onetime. There was a time when it was zero time during the COVID and corona times. And then when you want to restart, you obviously have to do a little more than necessary to get the momentum back and that’s exactly what has been done on the marketing and sales side. Would it become completely zero? No. But would it be at this level? Also no. And it will settle down at normal levels as we kind of go on. But it is at this time or this period where you had to kickstart it, and that’s the plan.

Unidentified Participant — — Analyst

Okay, sir. Sir, suppose if we are looking at a longer time frame, let’s say, five years or three years, what is the percentage of sales that you ideally like to have from marketing experts?

Rahul Gautam — Managing Director

So generally — I mean, historically, it has been about 4%. But as I think our margins expand, we would like it to go up to 5%.

Unidentified Participant — — Analyst

Okay, sir. Fine sir. Thank you for the opportunity. And all the best for the upcoming quarters.

Rahul Gautam — Managing Director

Thanks. Thanks.

Operator

Thank you. We have the next question from the line of Resham Jain from DSP Investment Managers. Please go ahead.

Resham Jain — DSP Investment Managers — Analyst

Hi. Good afternoon, sir.

Rahul Gautam — Managing Director

Good afternoon, Resham.

Resham Jain — DSP Investment Managers — Analyst

Hi, sir. So a few clarifications and a couple of questions. So first is Jabalpur, when you said end of the year, it’s FY ’23 or like December ’23?

Rahul Gautam — Managing Director

[Indecipherable] will begin at that time, and it may take still a couple of months. So I mean, when I said — I meant really the end of the calendar year. However, it’s — I mean, if I would say there’s full streamlined, good production, FY ’24. FY ’25. FY ’24 is right now, right?

Resham Jain — DSP Investment Managers — Analyst

Right. Okay. This is —

Rahul Gautam — Managing Director

Right now, it’s FY ’23. Sorry, FY ’24 it’s not FY ’25, FY ’24. That is first — starting from 1 April, 2024.

Resham Jain — DSP Investment Managers — Analyst

Okay, that makes sense. Next year only. Okay. And sir, Jabalpur plant will have what kind of capacities, and what kind of revenue one can expect from this plant, let’s say, two, three years down the line?

Rahul Gautam — Managing Director

I will be making a wild guess absolutely, it’s two years time. But I would say that INR350 crores to INR400 crores.

Resham Jain — DSP Investment Managers — Analyst

Okay. Okay. And the second question is on exports. Last time, you mentioned that this plant has the capability — the export-dedicated plant has the capability to do close to INR1 crore to INR1.5 crore per day. So is that understanding right, which means that the plant must be utilized at close to 10%, 12% or 15% utilization only currently, export plant?

Rahul Gautam — Managing Director

So Resham, the Jabalpur plant is for manufacturing of [Speech Overlap]

Resham Jain — DSP Investment Managers — Analyst

The export plant, sir.

Rahul Gautam — Managing Director

The export plant which is close to Mumbai, is that the one that you’re referring to?

Resham Jain — DSP Investment Managers — Analyst

Yes. Yes, yes. That’s what you mentioned last time that you can do INR1 crore to INR1.5 crore per day. So that’s operating at this 10%, 15% utilization right now. Is that correct, sir?

Rahul Gautam — Managing Director

Absolutely. That is correct. That is correct.

Resham Jain — DSP Investment Managers — Analyst

So that plant must be making losses right now, correct? This utilization level, it’s hard to make money.

Rahul Gautam — Managing Director

You’re right that if I just drew up the P&L for that particular plant, it would be making losses. Fortunately, we have not invested too much in the capex side. There is no foaming process that takes place which is the maximum. It’s on rented premises. And of course has mattress manufacturing and compressing and putting them in a box, etc., and doing that. So yes, as a standalone, it is making losses.

Resham Jain — DSP Investment Managers — Analyst

Okay. Right. Sir, the third question is on Spain business. What you’ve told us is that it’s a really small market. We are expanding capacity by some 5,000-odd tons. But is there a possibility for you to expand there, like a step jump kind of thing over there? Or there’s really like 20%, 30%, 40% increase in capacity like that only, given a significantly large opportunity available over there?

Rahul Gautam — Managing Director

This is about Spain, right?

Resham Jain — DSP Investment Managers — Analyst

Yes, sir.

Rahul Gautam — Managing Director

Okay. So the opportunity is much bigger than that. What I’m talking about, number-one. This plant is located in a small town or in an area industrial area there is production of so-far as mattresses chose. And a lot of furniture. We don’t to even cater to 10% of the requirement of that area. This just and this painting the picture to tell you that what’s the opportunity is like here. So that’s — this is the only plant — and in fact, in the entire European — no, there is one more in Italy, small one, which uses a completely green technology for manufacturing foam. Europeans, and the characteristic of green technology has lot of meaning to them, and therefore, this is the only plant that is there.

Third, it’s also not too far away from the US. There have been exports from there. However, because the entire US market has been a bit down, the exports have have come down, but that opportunity has to come and will come. So with these three — three, four advantages is that it has, and having a very small share, and expanding its capacity to at least 50% more than what it is doing now, the future is only extremely bright for it, yeah.

Resham Jain — DSP Investment Managers — Analyst

Okay, okay. And the last one, sir, is on competition. Has that because, on online space, we have seen a lot of players and it seems that some kind of rationality has come back in the market. So any comments on the competition on the online side. And a few of the online players have now started opening offline mode as well. So how are you seeing the overall competition both on online as well as offline side?

Rahul Gautam — Managing Director

So Resham, point number one that I want to say is that, as it has happened at other places in the world where online started much earlier, there is a — what should I say, a dynamic balance between offline and online that will come about. Generally, it has been 15% of the total market. During the COVID — and I’m talking of US, it went up to 20-plus-percent, but now has slipped back to 17%, 18%. And those people measure their numbers pretty accurately. Therefore, as we go ahead, or let’s say, what do we see the endgame like? There will be online and offline, but the online will be about anything between 15% to 20%. If it’s any upwards of 15%, I think that’ll be a great achievement. Currently, we should be tracking at more like 7%, 8%, 9% to 10%, something of that order, so there is that.

The second point is that, as far as online is concerned, we, Sheela Foam and Sleepwell, are also present on it and reasonably strongly present on it. We took our time to get our strategy right, now we have the strategy and we will be doing that. Because of this balance between online and offline, all the people who started online and will continue in the mattress business will have the temptation to go offline, too, because 85% business is going to be there and 15% is only going to be online. So that’s one part.

The second part is that online businesses had been losing money, and with this change in the sentiments, and not only sentiments of the investees, but also the investors, saying that [Foreign Speech] cost, and therefore, we cannot continue to burn money, they have to go offline. So this will happen and online will become or has become just another channel to reach out to the consumers to the customers. Otherwise, there is nothing more to it. Of course, it came, it made it’s [Foreign Speech] and noise and this and that, but at the end of the day, just to reach the 100%, this will have a 10% to 15% way or mode of reaching the consumer.

Resham Jain — DSP Investment Managers — Analyst

Okay, sir. Perfect. Thank you. All the best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ritesh Shah, an individual investor. Please go ahead.

Ritesh Shah — Investec India — Analyst

Hi, sir, thanks for the opportunity again, sir. One last question. Sir, what is it that we are scouting when we are saying that we are open to inorganic growth? And any numbers that you can help us with either side or whether the equation [Indecipherable] can it be EPS dilutive or we’ll ensure that it will be EPS accretive?

Rahul Gautam — Managing Director

Ritesh, you always ask the difficult questions. Let me say that on the what are we looking for. So as far as India and the Indian market is concerned, we look for businesses which would have — which are consumer-facing, that is something that we think or we believe that we understand, which is the consumer. We understand the diversity in India that exists, and by our sheer presence and the number of years that we have been here, I think we do an okay job with that. So we are happy to look at businesses, which are consumer-facing and which would align themselves well with what we do. As far as outside of India is concerned, we would look at businesses which manufacture foam because that alignment comes easily to us, which is procurement of material, formulations, technologies to manufacture, and just to sell foam to other people. We do not understand the markets, the consumer outside India, and we will hesitate or, by and large, we will not touch any business, which does that. That is as far as the strategy or our philosophy is concerned. On the Indian side — and let me just say the opportunities are there — are present. At this point of time, I may be constrained into speak anything more about it. Of course, our effort will be that it is EBITDA accretive. It should help, it may not help right away, but at least on a stable basis, as soon as stability happens, etc., it should be accretive, it should give us [Indecipherable] in the market. So at this time, Ritesh, I’ll not be able to say anything more than that because most of the times these things are work-in-progress and do take their time.

Ritesh Shah — Investec India — Analyst

Sure, sir. Thank you. Thank you so much for the answers, sir. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Amit Bohara from SBI Mutual Fund. Please go ahead.

Amit Bohara — SBI Mutual Fund — Analyst

Yeah, hi sir. I had one question on foam core business as well as technical foam business in India. It has seen a sharp decline in more than 20% almost decline. Any reason you want to highlight or is it only the high base of the last quarter — sequential quarter? Also, the realization in the same seems to have declined by around 2% and 7% or. So how does this price transfer or is it — how does this happen in terms of falling raw material, how do you transfer the pricing to the end customer?

Rahul Gautam — Managing Director

So is it on the foam core side or the technical foam side, which side? Because they are two separate segments. But which one? Or is it both that you’re –?

Amit Bohara — SBI Mutual Fund — Analyst

Foam core, yeah. Yeah, foam core, yeah.

Rahul Gautam — Managing Director

So as far as foam core is concerned, they are generally sold to more, let’s say — not unorganized, but let’s say, lesser organized people, and it’s a business through the distribution channels, and therefore, the pricing is completely determined by us and we change it as and when we think that it is the right thing to do. On the technical — however, on the technical foam side, the customers are B2B, more established, some cases, even bigger than us. And we have formulated for them, which is a rise and fall clause, and we go along that way, we progress that, yeah. These numbers that you see, the shift that you see, honestly — I mean, the quarter is too shorter time really for looking, especially when the fluctuations are far and many. And so there is the inventory, which plays a part, there is changing prices, which play a part. In the long run, eventually they get passed on, but in a short-term — and the way that the accounting is done, you may have this feeling or experience that we have short-changed ourselves or we have reduced somewhere as far as [Indecipherable] points are concerned. In this world, a quarter is too small a period, but we have mechanisms in both to account for changing raw material prices.

Amit Bohara — SBI Mutual Fund — Analyst

Sure, sir. Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Rakesh Kumar, an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Hi, thank you for the opportunity. Sir, I had a couple of questions. First on, what is your view on how the competitive scenario in the offline mattress industry is evolving across different regions? That’s the first question. And second, across the different economic buckets or, let’s say, ASP buckets, where is — where do you see the volume growth really coming from in the mattress space, and what will be the impact on the margins going forward?

Rahul Gautam — Managing Director

Thank you, Rakesh. So competitive scenario in the various regions, historically, most of the organized mattress manufacturing companies have been based out of South, and that’s because, historically — and I’m talking of 20, 25, 30 years back, the coir and rubberized coir mattresses were primarily the dominant ones. So at the moment, that number is definitely changing, North and West, a little bit in the East are increasing. The companies on the organized sector are increasing, however, South continues to be — because of historical regions, and its share maybe reducing, but still would be the largest as far as the organized mattress market is concerned.

On the products, I would say that, traditionally, because South has been the coir market, more products are coir, coir-based products. East also has been a bit of a coir market. They are like that. North and West have been more foam-oriented. The change from coir to foam is happening, but there is a baseline numbers which we got there. Besides these two, there is the spring mattress, which continue to grow. They have a small baseline. They continue to grow, and I don’t think that there is any regional delta or a differential in their growth. They are there, they just need to see [Indecipherable] challenges of site [Indecipherable] and the kind of beds that are used, and that’s almost all across the country.

Your second question was on ASP, so I would say that, currently — and this is for a single mattress, INR15,000 to INR20,000 number, it’s for a single mattress. Is that right, Rakesh?

Unidentified Participant — — Analyst

No, sir, my question is slightly different. My question was across different price bands, let’s say, one in which, for instance, Starlite and Feather Foam would belong, and the other one in which sort of, let’s say, the Sleepwell brand would belong. Across these two buckets, where do you see the growth really coming from? And second, on a longer-term basis, as this plays out, what do you see the impact on margin to be?

Rahul Gautam — Managing Director

Undoubtedly, the growth will come on a slightly lower ASP, undoubtedly. The effort of all the manufacturers and including us, and we need to lead that way, we have to keep adding value to the product and keep trying to increase the ASP. It’s a slow process. Quite impacted — adversely impacted during the COVID times, however, that effort will always continue. Currently, if I was to look both the Feather Foam and Starlite that you are saying, definitely have larger potential for growth in the areas or in the price ranges that they are operating, which is close to about INR10,000 number.

Unidentified Participant — — Analyst

Okay, understood, understood. Sir, on my first question, if you don’t mind I just had a follow-up. My question was more around how do you see the competitive dynamics in different regions evolving, and as you pointed out, the number of organized players in the South is very, very high compared to the other regions. I just wanted to understand how the competitive dynamics different and how are we performing across different regions?

Rahul Gautam — Managing Director

So first, your last question first, which is to say how we’re performing, and definitely, our real strong areas are North and West, our share in the South is increasing, but we are definitely not leading that position there, there are others who lead that. And it’s still a relatively small market, but that market two — I mean, we would be number two in that area. But it’s also a small market [Indecipherable]. How do we see that unfolding in the future? Rakesh, I would say that there would be more consolidation processes going on. There would be M&As, which will be on account of that. And because the — it’s all because of so many [Indecipherable] every company sort of unfolds in its own kind and somewhere or the other does hit a bit of a hurdle in its progress, and COVID has also not been very generous to us. So if I see the next two years or so — two years, I see a lot of consolidation happening here.

Unidentified Participant — — Analyst

Understood. Very helpful, sir.

Rahul Gautam — Managing Director

And we are well-placed for that. That’s all I can say.

Unidentified Participant — — Analyst

Understood. No, very helpful inputs, sir. Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments. Over to you, sir.

Rahul Gautam — Managing Director

Thank you. Thanks a lot, and thank you for conducting the call and thank you all for participating in this call. I sincerely hope that we have been able to answer your questions as well as we could, but however [Technical Issues]. I would say that if there are any more follow-up questions, please reach out to us, or you can reach out to us through our advisors, Valorem. I can say on behalf of myself and the entire team that, as always, it has been a good learning exercise for us and we take this interaction extremely seriously and follow it up with whatever that we have done. So thank you very much, and wishing all of you a very good weekend and see you again in the next call. Thank you.

Operator

[Operator Closing Remarks]

Rahul Gautam — Managing Director

Thank you.