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Sheela Foam Limited (SFL) Q4 FY23 Earnings Concall Transcript

Sheela Foam Limited (NSE: SFL) Q4 FY23 earnings concall dated May. 18, 2023

Corporate Participants:

Rahul Gautam — Chairman and Managing Director

Nilesh Mazumdar — Chief Executive Officer, India Business

Rakesh Chahar — Whole-Time Director

Davinder Ahuja — Group Finance Controller

Analysts:

Ritesh Shah — Investec Capital Services — Analyst

Nihal Jham — Nuvama — Analyst

Hitesh Taunk — ICICI Direct — Analyst

Hiten Boricha — Sequent Investments — Analyst

Hiren Trivedi — Axis Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Sheela Foam’s Q4 FY ’23 Earnings Conference Call hosted by Investec Capital Services. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]

I now hand the conference over to Mr. Ritesh Shah, Head, Mid-Market Coverage and ESG, Investec Capital Services. Thank you, and over to you, sir.

Ritesh Shah — Investec Capital Services — Analyst

Thanks, Tanvi. We have with us the entire Sheela Foam management. We have with us Mr. Rahul Gautam, Chairman and Managing Director; Mr. Rakesh Chahar, Whole-Time Director; Mr. Nilesh Mazumdar, he’s newly appointed Chief [Technical Issues]. We also have with us Mr. Amit Gupta who recently joined.

Operator

Sorry to interrupt you Mr. Shah, your voice — we are experiencing audio loss from your connection.

Ritesh Shah — Investec Capital Services — Analyst

Am I audible, now.

Operator

Yes. Sir, I would request you to please introduce the management again.

Ritesh Shah — Investec Capital Services — Analyst

Sure. Sorry, for this. So we have with us the entire Sheela Foam management. We have with us Mr. Rahul Gautam, Chairman and Managing Director; Mr. Rakesh Chahar, Whole-Time Director; Mr. Nilesh Mazumdar, who joined recently as Chief Executive Officer for the India business. We also have Mr. Gupta, who recently joined as Group Chief Financial Officer. And we have Mr. Davinder Ahuja, Group Financial Controller.

I’ll request [Technical Issues] take a call [Technical Issues].

Rahul Gautam — Chairman and Managing Director

Operator, are you there? I think we’re facing some connectivity problems with Ritesh.

Operator

Yes. So Mr. Gautam, I would request you to please proceed, sir.

Rahul Gautam — Chairman and Managing Director

You can probably request him to use another device.

Operator

Sure. I’ll just reconnect the line for Mr. Ritesh Shah. Ladies and gentlemen, we have the line from Mr. Ritesh Shah reconnected.

Ritesh Shah — Investec Capital Services — Analyst

Hi, thanks, Tanvi. So I’ll hand over the call to Mr. Rahul Gautam. Sir, I would request you for initial remarks, post which we’ll have a Q&A session. Over to you, sir. Thank you.

Rahul Gautam — Chairman and Managing Director

Thank you, Ritesh. Thank you, Ritesh. And I must apologize to everyone for the little connectivity problems that we had. So I just want to thank you Investec for holding this call, and on behalf of Sheela Foam for our annual results for FY ’22, ’23. I welcome you all on the — at least in Delhi is an extremely hot afternoon. And I must also say that we are in the middle of May, the earlier part of May was an extremely cool [indecipherable] unusual, but like this inclement weather, the business conditions are also suffering almost long COVID and do not appear to be getting out of it.

The macroeconomic average indicators that we see do not tell the entire story as industry segments are each having different performance experiences. For example, we supply to the auto industry, which is doing extremely well. However, as far as consumers are concerned or the B2C business is concerned, for mattresses, they are preferring to postpone their purchases and the footfalls in the stores are extremely low. So I think these are unusually different conditions in different parts of the business, different segments of industries is the norm of the day. However, we expect all this to settle down very quickly. And while — when I was giving you examples of the automobile and the mattress industry, both are, by the way, discretionary products.

However, I must also say that there is some kind of stability returning back and we can experience it starting from the highly volatile raw materials that we use. You are all aware of it that our two major ones, polyol and TDI, and they are now back to some kind of normal levels, and with fingers crossed, appear to be steady at least for the past many weeks.

And as you can see from the annual results, the performance has been flat across geographies of India, Australia, and Spain. Though the reasons for this flatness in each of these regions, each of these countries has been different. In Spain, it is the Ukrainian war, which is impacting. In Australia, there was a second bout of COVID in the earlier part of this year. And in India, of course, we are all aware that the uncertainties that kind of prevail. But the reasons are completely different.

The Company is also taking steps, which are different in each country. And we feel that sooner rather than later the economy has to and should look up. For that time, we prepare and ensuring that we do not have any supply constraints then, new plants in India and Australia, and then capacity increase of almost 60% in Spain, are all in their final period of closing. And by Q2, or the end of Q2, we should have each one of them ready to deliver as the markets demand.

Also, happy to share that our long and much-awaited project, which is our mattress for every Indian, has now reached the final stages and it’s ready to be launched. Pilot works have begun and the distribution is soon going to be there. And we expect that from Q3 onwards, it should start contributing to the business of the company. As you all know that this is aimed at the low-income consumers and consumers who are at a distance or far away from existing markets or towns.

We had our Board meeting — the final Board meeting yesterday, and the Board of the Company continues to be of the view that plowing back the profit is in the best interest of the shareholders. I had already mentioned to you the organic investments that we have done in each geography and share that there are also inorganic opportunities. Though, still in work-in-progress status, but are getting nearer to finalization.

Last time, I had shared with you that Sheela Foam does take its responsibilities in the CSR and the ESG areas seriously. Our first BRSR is ready and I’m happy to share that, on a comparison basis, whether with similar industries elsewhere in the world or comparable industries in India, our status and our goals that we take are very good.

I will now hand over the mic to Ritesh bhai for moderating the questions, and me and my team would be happy to take them. Over to you, Ritesh.

Ritesh Shah — Investec Capital Services — Analyst

Yeah, thank you, sir. Tanvi, I would request you if you could please open up the Q&A queue. Thank you.

Questions and Answers:

Operator

Sure. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Nihal Jham from Nuvama. Please go ahead.

Nihal Jham — Nuvama — Analyst

Yes, sir. Thank you so much. Good evening to the management, and good evening, Gautam ji. Sir, the first question was on the mattress business. You did allude to the fact that there is an overall weakness. But just as an observation, if I look at the volumes, they are maybe trending even lower than what they were pre-COVID, whereas we’ve obviously seen an increase in — I would assume, in the sale of Starlites. So just wanted to understand that is it that the impact on the Sleepwell brand, where there is no premium, is much more intense and if you could just give any comments around that?

Rahul Gautam — Chairman and Managing Director

Nihal, you’ll just have to repeat the last part of your question, please?

Nihal Jham — Nuvama — Analyst

Yes, I was saying that the observation was that the volumes were maybe even lower than what they were in FY ’19 for the same quarter. And is it — and I know that we’ve obviously scaled-up Feather Foam as a brand. So is it that Sleepwell as a brand has seen a higher contraction versus pre-COVID?

Rahul Gautam — Chairman and Managing Director

I would say, yes, if you look at Sleepwell by itself. But you must also appreciate that both, Feather Foam and Starlite, are endorsed by Sleepwell, and it is just that we do, it is for catering to the different segments of distribution or different clientele, because for Sleepwell, currently, we have exclusive distribution, and therefore, it will be a good idea to see — look at them and consolidate it.

Nihal Jham — Nuvama — Analyst

Sure, point taken. The only observation there was that given the channels are very different that we have the EBOs who would sell Sleepwell, so that separately would be, as you said, seen lower footfall and maybe the intensity there would be higher.

Rahul Gautam — Chairman and Managing Director

So you’re quite right on that. The footfall numbers, which we measure [indecipherable] has been lower. Now, there are a couple of reasons we believe [indecipherable] and we are taking corrective steps. One is definitely an exclusive mattress store with needs some more stuff to attract consumer. And the other belief is for the other understanding from the market is that there has been an — and the average selling price — pressures on the selling price to come down, especially post-COVID and during the COVID areas. So the journey that we were in, which is to keep pulling up the Sleepwell price and keep adding value and move ahead. But COVID has done this and we are reviewing the entire portfolio and we’ll be taking an action sooner.

Nihal Jham — Nuvama — Analyst

That is helpful. I had two other accounting-related questions. The first is on the reclassification that we have done. While I do see the note, maybe incremental details on that I don’t know if I missed. But what exactly have we reclassified both on revenue and expense to see this difference that has happened?

Rahul Gautam — Chairman and Managing Director

I think it’s the — see, the first thing is, of course, that the reclassification has no impact on the profitability [indecipherable]. These are two expenses, which in our belief till now, were supposed to be as expenses, but our auditors felt that the interpretation of the Ind AS would be that if they are reduced from the top line itself, and therefore, that’s the reclassification that has happened. So a few expenses, selling expenses, which have been reduced from the top line, and have also been then removed from the lower portion of the balance sheet.

Nihal Jham — Nuvama — Analyst

Sure, that is helpful. Just one final question. You were obviously mentioning about the fact that there are multiple M&A opportunities that you are evaluating. Just wanted to get a sense, is there a cap in terms of the amount that you want to spend or the number of transactions that we are looking at? Just to put it another way, is there a possibility of maybe looking at maybe more than one target and you’re looking at maybe one or two acquisitions just if I could a sense of that.

Rahul Gautam — Chairman and Managing Director

Nihal, the only thing that I can say is that you do pursue these opportunities and you have sometimes very little handle on when they will be ready for it to happen, and even if you would — you were to plan that they don’t happen all at the same time, sometimes they do because there are so many other reasons for it to happen. On the cap part of it, of course, we will keep that in mind that what is definitely digestible and affordable that we would do. But again, as I said, when you look at the opportunity of 10%, 15%, 20% beside of that side, honestly, you cannot control that.

Nihal Jham — Nuvama — Analyst

Perfect. That is very helpful, and wish you all the best, sir.

Operator

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

Ritesh Shah — Investec Capital Services — Analyst

Yeah, hi, sir. I have a list of questions, sir. First, I’ll start with the rationale for the new management structure. So that would be the first question for you. And after that, if Mr. Mazumdar could come in and give his thoughts on how he sees things over the next three years, five years? That’s the first question, sir.

Rahul Gautam — Chairman and Managing Director

Let’s go question by question [indecipherable]. So look, they were — let’s say, if we cut back to pre-COVID times, [indecipherable] there was — I was in charge of three things, being the Chairman of the Company, the Managing Director, and also looking after the Indian business. And then we made the first change where Tushaar took over the Indian business, and I continue to look after the Chairman and being the Managing Director. Now, we are in the process of Nilesh, who has just joined on the 1st of February, to take over the Indian business. Tushaar would move differently or move up, and we would also get into the stage of splitting the [Technical Issues]. Now, this is all on the cards. We haven’t done any announcements, but this is just a thought process that we are saying. And it was also to provide design to the Indian or at least the Directors or the top management to be able to spend time and energy over inorganic possibilities that we can derive.

And of course, the last rationale or reasoning is that we have all been running the Indian business for quite some time and it definitely needed a different experience at least in the standard parts of business, which is the distribution, the supply chain and logistics, and the brand, etc., and therefore, Mr. Nilesh Mazumdar who comes — who has taken over the responsibility, who comes with a rich background of Asian Paints and Pidilite where these things have probably been already done. So that was the rationale behind. And now Nilesh, why don’t you just tell him about yourself a bit and maybe whatever experience that you have in the last couple of months and what [indecipherable].

Nilesh Mazumdar — Chief Executive Officer, India Business

Sure. Thank you, Rahul ji. Thanks, Ritesh, for that question. As a matter of introduction, I have spent about more than a decade with Pidilite Industries, handling different portfolios there. I have handled the waterproofing, the Dr. Fixit business for the last couple of years. Before that, I have handled the Fevicol business, the Consumer Product business. Before Pidilite, I have largely spent my balanced career of first two organizations. One was Onida in the consumer electronics space, and before that in Asian Paints. So about three decades of experience is what I have looking for strong Indian brands and Indian organizations.

I joined on 1st of, and I have had a brief look at the kind of opportunity that both the category of mattress cells and the brand Sleepwell. And I must say that, it is extremely exciting. I think as far as the entire category is concerned, there are two large opportunities that I see. Number one is the trends that we are seeing across most of the industries, which is movement from the unorganized to the organized segment, so that is one big opportunity. And the second is lock at the bottom of the pyramid, which is why upgradation of consumers who are using cotton mattresses, dari, chatai, etc., to using [Technical Issues].

So these are I think the two big opportunities in India, as I see today, and this will be possible to be exploited if we have, A, the right sales and distribution channel so that we are able to reach the product as close to the consumer as possible. Number two, we have the right product offering at different price points for different segments in the market with the right to win. And third is being able to connect the brand, Sleepwell, with the consumer, and that’s how we’ll be able to position the brand in the mind of consumer space. It’s — obviously, Sleepwell as a brand is a couple of decades old in the country and has a strong equity. In some parts of the country, we are fairly strong. So how do we build on that further. And also gain share in some of the comparatively weaker markets as we move ahead. So broadly, that’s the structure and format that I have in mind of how we will be taking ahead the India business.

Ritesh Shah — Investec Capital Services — Analyst

That’s useful. I have a few more questions. Tanvi, you can make an announcement if anybody has any questions, as probably I have like list a few more questions.

Operator

[Operator Instructions] In the meanwhile. Mr. Shah, you may continue.

Ritesh Shah — Investec Capital Services — Analyst

Yeah, of course. Thank you so much. Coming back to Rahul Ji, I think a couple of quarters back, you had indicated export was clocking around INR1.5 crores, which was quite low from a utilization standpoint. Is there any uptick over here? Are we looking at green shoots? We understand the challenges in the US, European market on the inventory destock or the overhang, which is there. So that was one. Second is basically Indian Railways, any incremental numbers that would be very useful. Third is based on our checks, we do find people from Quest at EBOs and MBOs are trying to move around things. So are there any new initiatives to increase footfalls convergence from our MBO, EBO count standpoint or incentivizing more of our own people from a variable component and things like getting Quest folks on the stores to increase conversion. So I asked like a few questions. First was export, second was Indian Railways, and third was related to footfalls and conversions.

Rahul Gautam — Chairman and Managing Director

Thanks, Ritesh. That’s [indecipherable]. Anyway, as far as the exports and Railways, Rakesh would you be able to take care of those two areas, the exports and Railways?

Rakesh Chahar — Whole-Time Director

Yeah, I will. As far as exports are concerned, so they are still hovering around 1.5 per month. The markets are still slow, but recovering. So we are getting orders of re-inventory, which is very low. So that process has started, which is a good sign. We have also changed a bit the strategy of also working with retail brands to develop product for them. So those are a little long-term program, but the process has started. On the Railways side, the traction in quarter four has been good. It was on line with what we had anticipated. And going forward also, besides the product that we have [indecipherable] we are also in the process of developing a new product, which will also increase our share in the market. So that process is also on. So on both sides, I think Railways is definitely more promising and export is really coming along.

Ritesh Shah — Investec Capital Services — Analyst

Okay. So would you like to put some numbers on Indian Railways, how much have we clocked or how much we aspire to reach, say, in a year or two years, three years?

Rakesh Chahar — Whole-Time Director

So it is — we have done more than around INR60 crores [indecipherable]. So now in the coming year, the target is more, but at the same time, there are also more players who are coming and bidding for the tenders. So we are — as far as the potential is concerned, potential definitely is much higher. So we are also — besides catering to the current requirement, we are also developing a product, which will give us a competitive edge by which we can increase our market share substantially. So which is under process and that will give us a good competitive edge.

Rahul Gautam — Chairman and Managing Director

So Ritesh, I can try and put some numbers, and Rakesh, I’m sure you will agree that, at the moment, the estimate of the market is about INR800 crores annually for the seats and cushions. In about three years’ time, we should be looking at about INR300 crores to INR350 crores number.

Ritesh Shah — Investec Capital Services — Analyst

That’s encouraging, right?

Rahul Gautam — Chairman and Managing Director

Yeah. And at the moment, we’re doing annually about INR60 crores, so — and the rate the growth is [indecipherable]. Ritesh, so the second part of your question, which was on Quest, and the footfalls and the conversions, etc., Nilesh, I would like — with the fresher look that you’ve had, you can.

Nilesh Mazumdar — Chief Executive Officer, India Business

Yeah. So Ritesh, frankly, the two drivers of business for us is footfall and second is conversion. Now, the Quest initiative was really to try and see if we can get a higher uptick on conversion. Now, conversion, what we are realizing is already a pretty healthy percentage for us. Our conversion rate is anywhere between 50%[Phonetic] and 60%[Phonetic]. So the challenge today for us as a brand is really footfall and how do we, therefore, get footfall for the brand in the marketplace. So A, is, in the footfall, which is happening in the marketplace, how do I participate in that mode and that can happen to having an intelligent channel expansion in markets where I’m not currently represented adequately, and therefore, that’s a drive which we can forward from quarter four onwards, and hopefully, we will start seeing some results of that as we move into quarter two.

Going down the [indecipherable] data also to towns which are smaller in size and seeing how we increase our representation there, that’s the other program that we will have. We’ve also engaged with a new advertising agency called [indecipherable]. And as we speak, sometime in quarter two — end of quarter two or beginning of quarter three, we will have a new campaign around Sleepwell in order to connect with the consumer. So these are some of the initiatives that besides, of course, what Rahul ji in the beginning mentioned about our program for upgrading the bottom of the pyramid, that pilot is, as we speak, just about starting. But by the end of quarter two, we would have seen some results of that initiative, which is to upgrade the important mattress users. So that’s the other part that we are looking at. So it’s basically between footfall and conversion. Footfall, how to get more footfall is really the business challenge, which we have to solve for.

Ritesh Shah — Investec Capital Services — Analyst

Sure. And sir, would it be possible for you to comment whether do we have a variable component for the workforce, and the incentive schemes, I think we had taken a backseat, I think, during COVID. But has all of it got imposed again, how are we looking at it?

Nilesh Mazumdar — Chief Executive Officer, India Business

Yes, very much, we have now a variable pay, which is a substantial portion of our workforce, our sales force total salary and CTC. So that’s been brought back now.

Ritesh Shah — Investec Capital Services — Analyst

And sir, incentives for the channel?

Nilesh Mazumdar — Chief Executive Officer, India Business

Sorry, I missed that question.

Ritesh Shah — Investec Capital Services — Analyst

Sir, incentives for the channel, for distributors, retailers?

Nilesh Mazumdar — Chief Executive Officer, India Business

So for retailers also, the performance-based incentive is back. For the sales force, it is back. For employees, it is back. So the variable component, the performance-linked incentive for all stakeholders is now at play.

Ritesh Shah — Investec Capital Services — Analyst

Sure. Tanvi, I’ll request to take Hitesh please for the question. I’ll join back in the queue. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Hitesh Taunk from ICICI Direct. Please go ahead.

Hitesh Taunk — ICICI Direct — Analyst

Thanks for the opportunity. Sir, my question on the demand front, again. Most of the discretionary space universe, be it paints or be it electrical consumers, also be it pipes, which are generally used for a home improvement, have seen a kind of [indecipherable] double-digit growth, at least for a year-on-year basis, but we haven’t witnessed kind of improvement in demand. That’s a bit surprise to me. I just wanted to know whether we are — we have lost any market share or is it a kind of an industry where the demand was lagging? This is my first question. And the second question, sir, again, on the gross margin point of view. I mean, despite raw material prices are coming down, and we have been introducing a new product category. The gross margin profile still lower than our pre-COVID level margins, so now when the raw material prices on a declining mode, do we see a further recovery on the gross margin from here on or are we going to focus on the market share? These are the two questions as now for me.

Rahul Gautam — Chairman and Managing Director

Thanks. Thanks, Hitesh. So let me take the first one first — sorry, the second one first on the gross margin part of it. So if you would see the last couple of years, just because the raw materials have been fluctuating so much and so widely that it may not be fair to just talk of pre-COVID and post-COVID. And my response to your question regarding gross margin changing as we go forward is that, if Q4 is any — not any indication, is the indication for the stability of raw material prices contributing to the gross margin, this is going to continue. And therefore, if we would look at the gross margins for Q4, I think it was more like 11.9% or 12%. Davinder, is that right, 12%? And as we go forward, this will only increase because of the stability that’s coming in the raw material prices.

Going back to your first question of saying that, in the discretionary stage or space, there has been double-digit growth. And therefore, the question is that are we kind of losing out on market share? So one of the indicators of the market share is that this industry goes through regular market researches, which was — which are done every half year. And the last one that has come out has only shown that the share of Sleepwell, and of course, we are including Feather Foam and Starlite in that has increased as far as the industry is concerned. So which definitely indicates that the market share, there has not been any loss of market share. However, on this part that comparing it to the other discretionary space, why is mattresses kind of lagging behind, all I can say is that it’s just a question of one following the other and it will happen, it has to happen and that is the reason why it is lagging behind a little bit. Anybody else from our team who would want to sort of add to this.

Rakesh Chahar — Whole-Time Director

[Speech Overlap] I think [Technical Issues] responded well [Technical Issues] happening in the market and [Technical Issues] the industry also experiencing a pent-up demand. So that’s also impacting the current — the purchase cycle. And the footfalls, especially on the mattress side, we have [indecipherable]. So we have a clear understanding of the mattress market and the footfalls coming in. So there is definitely a slowdown both on the furniture, furnishing, and on the mattress side.

Rahul Gautam — Chairman and Managing Director

Okay.

Davinder Ahuja — Group Finance Controller

Yes, one updation from my side — Davinder Ahuja this side, sir. So EBITDA margins are [Technical Issues] margins have improved to 39% vis-a-vis last year quarter four, 32%. So we have seen a journey of 5% improvement over a year’s time in our gross profit margins level.

Rahul Gautam — Chairman and Managing Director

Okay, thanks, Davinder.

Operator

Mr. Hitesh, do you have any further questions?

Hitesh Taunk — ICICI Direct — Analyst

Yeah. if I can allow for another two questions. I have two more questions.

Operator

Please, sir.

Hitesh Taunk — ICICI Direct — Analyst

Sir, I understand there was a delay — maybe delayed in demand. Sir, can you throw some light how our advertisement expenditures have moved over the last one or two years. I mean, as a percentage of sales, if you can guide. And what is our plan to take it forward? If you can quantify some numbers on that front, the first thing is that. And the second thing is, if you can share what is the channel — what is our distribution channel network as of now in terms of number? And in your opening remarks, you said like the focus is on channel expansion in Tier 2, 3 cities. What kind of expansion growth are you expecting or are you planning anything on sort of that going forward? That will be my two questions. Thank you.

Nilesh Mazumdar — Chief Executive Officer, India Business

Rahul ji [Speech Overlap]. Sorry. Do you want me to take that?

Rahul Gautam — Chairman and Managing Director

Yeah.

Nilesh Mazumdar — Chief Executive Officer, India Business

So Hitesh ji, as far as advertising expenses are concerned, obviously, during the COVID times, etc., we would have cut down majorly on advertising, for obvious reasons. But going forward, I would want to keep advertising expenses between 5% and 6% of the net sales, and that’s how we will plan as we move ahead with higher spends happening during certain quarters when we have some amount of seasonality in, let’s say, in quarter two, quarter three to invest on ATL campaigns, digital, etc. So that’s as far as advertising planning is concerned. As far as the network expansion is concerned, we usually have an addition of, say, 8% to 10% may be happening in a year that was the plan, but we are taking a little bit more aggressive. We were looking at almost about 20% expansion in active channel, which means over the next three months at anywhere between 800 to 1,000 outlets for Sleepwell as a brand. So that’s the channel expansion plan that we’re looking at, especially looking at those markets where we are not adequately represented.

Hitesh Taunk — ICICI Direct — Analyst

Hello?

Operator

Hitesh, do you have any further questions?

Hitesh Taunk — ICICI Direct — Analyst

No, thanks. Thanks. I’ll come in the queue if I have more.

Operator

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

Ritesh Shah — Investec Capital Services — Analyst

Yeah, hi, sir. A couple of questions. First is, sir, can you spell out how much [Technical Issues] on the online sales and B2C in FY ’23 and any guidance on this number going forward?

Rahul Gautam — Chairman and Managing Director

[Speech Overlap] Sorry, I didn’t quite hear it. Is it a question on online sales?

Ritesh Shah — Investec Capital Services — Analyst

Yes, sir.

Rahul Gautam — Chairman and Managing Director

Okay. Nilesh, do you want to take that?

Nilesh Mazumdar — Chief Executive Officer, India Business

Yeah. So our current sales on online will be approximately between 8% to 9% of the mattress sales.

Ritesh Shah — Investec Capital Services — Analyst

Sure. And sir, probably I’ll link it with the next question that I had. How do you see this number going forward or how would you look to balance volume growth versus profitable growth for D2C and traditional business?

Nilesh Mazumdar — Chief Executive Officer, India Business

You see, mattress, as a category, if you were to look at even internationally, the online sale is in the developed currencies, what I’m given to understand, is about between 12% to 15% because this is, as a category, where the consumer would want to have a touch and feel of the product before buying it. Of course, the ratio — the percentage of the online sales went up during COVID. But after that, even internationally, what I understand is that it is hovering around that level. So for us, it is just not about online sales, what we have to be clear on that there is obviously a lot happening on the digital experience and digital marketing, which is required because consumers would do search online perhaps and then go and buy offline after a touch and feel of the product. So our ratios would perhaps remain at that level of around 10%. But if the question is around that, what do we need to do for the more digital-savvy consumer, yes, a lot of searches happen digitally and there we will need to enhance our presence.

Ritesh Shah — Investec Capital Services — Analyst

Sure. This is helpful. And last one for Rahul Ji. Sir, we had earlier indicated that we were looking to extend and move — extend it to living room from bedroom wherein we were looking at so far some options over there. I do understand from our check that we did some pilot runs in mainly around markets. Any takeaways from that? Are we looking at any initiatives on that side?

Nilesh Mazumdar — Chief Executive Officer, India Business

May I also take that, Rahul Ji?

Rahul Gautam — Chairman and Managing Director

Yeah, absolutely.

Nilesh Mazumdar — Chief Executive Officer, India Business

Yeah. So frankly, given the current level of performance, what we have internally strategically decided is that since given the fact that the volumes are under pressure and we need to get the volume and the top line delivery online, so we are now focusing on the core more. So hence, the focus on mattress and furniture cushioning and the technical foam would be far higher. And for the moment, we are saying that we may do small pilots here and there to just get an understanding of the category, etc., but strategically, for this quarter, the next quarter, our focus on the core is going to be higher.

Ritesh Shah — Investec Capital Services — Analyst

Sure. Thank you. Tanvi, I’ll request if you could please take Hiten for the next question.

Operator

Yes. [Operator Instructions] Next question is from the line of Hiten Boricha from Sequent Investments. Please go ahead.

Hiten Boricha — Sequent Investments — Analyst

Good evening, sir. Thanks for the opportunity. Sir, most of my questions have already been answered, so I have only one question left. So as you mentioned, the demand in export market as well as the — you can see some kind of recovery in demand in Indian market as well. So just wanted to understand what kind of growth we are looking as a blended as a company. And also, on the margin side as TDI and other RM prices are coming down. So any scope of margin improvement from here [Technical Issues] our operating leverage is also going to play. So just some thought on that.

Rahul Gautam — Chairman and Managing Director

So on the growth side, and as I said, of course, this is a bit of an if to say that things begin to stabilize and are stabilizing as they are appearing right now. It should be a double-digit growth and should be more like 12%, 13%, 14% growth per annum. And on the — just the blended one, that is [indecipherable] exporting the domestic flights[Phonetic]. And on the margin side, I have already indicated, I said that we are experiencing the expansion on the margin, so the Q4 was an indication of that. And as we move forward, this should be higher than the 12% that we have achieved in Q4.

Hiten Boricha — Sequent Investments — Analyst

So we can expect at least 100 bps of margin expansion this year, right?

Rahul Gautam — Chairman and Managing Director

Yes.

Hiten Boricha — Sequent Investments — Analyst

Okay.

Operator

Thank you. Hiten, do you have any further questions?

Hiten Boricha — Sequent Investments — Analyst

No, thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Hiren Trivedi from Axis Securities. Please go ahead.

Hiren Trivedi — Axis Securities — Analyst

Yeah, thank you for the opportunity. Just wanted to know this data point on what part of your demand for mattresses is coming from replacement versus those which are buying it for the first time. So is there any observation or any number you can share with us?

Rahul Gautam — Chairman and Managing Director

Does anybody want to take this question? Otherwise, I will attempt.

Nilesh Mazumdar — Chief Executive Officer, India Business

I will take that question. So you see — and this is basis the understanding that if a consumer is buying more than one mattress at a point of time, it would probably be a new house that he is occupying, and therefore, buying a mattress for that. And whenever a single mattress is being bought, it is probably as a replacement. So it’s one we’re working with that assumption. Then currently, from our understanding about 42% of the business is from new and balance is from replacement.

Hiren Trivedi — Axis Securities — Analyst

Thank you, sir. Thank you. That helps. Yeah.

Operator

Thank you. [Operator Instructions]

Ritesh Shah — Investec Capital Services — Analyst

Hi. Tanvi, I’ll just take the last one for the — Rahul Ji, I would request if you would like to spell out some guidance for next year. I think margins you did indicate. But any specific volume value guidance for the next fiscal and any closing remarks, that would be great, sir. Thank you so much.

Rahul Gautam — Chairman and Managing Director

Thank you, Ritesh. January and February[Phonetic], in these kind of uncertain times, I would not hazard any guesses as to what kind of future are we looking forward to. But let’s say the indications or the directions that we see and the steps that we have taken, and I will go a little geography by geography. I am already expecting that Australia should have a high-single-digit growth, and this is mind you in the environment or a market where there is complete saturation. However, there is a change that is happening post-COVID and that’s a bit of nationalistic feeling coming in and people want to buy Australian made stuff, and therefore, I expect that there are all the imports of mattresses that are happening in Australia, there would be some part where we will have some part to play in that.

Spain, I have indicated that many times that the entire European market, we are in an extremely small part of it. In the last year, there has been a reduction in the market size by almost about 25%. While we have suffered a fall of about 7%, 8%. And that’s indicating that we are doing — or gaining on market share. The opportunity is large both for manufacturing in Spain itself and the second is the bit of exports that takes place across the Atlantic to the US. I expect that Spain would grow again by low-double-digit numbers. As far as India and all the steps that we have taken, whether it’s the new product, which is the mattress for every Indian, the — all the steps that we are taking to strengthen the Sleepwell brand, the steps that we have taken to increase the footfalls, and in general, stability and improvement in the economy that we all expects to happen, it should be again a double-digit growth that we should experience this year.

And as the closing thing, Ritesh, I want to thank you and your company for — Investec for hosting this call for us. Thanks a lot to Tanvi for doing a great job and coordinating everything. And of course, thanks to all the investors and all the questions that you have put forward. Like always, they are iterative[Phonetic], they are a learning exercise for us. Maybe some of the answers that we knew, but it definitely helps us to focus on areas where we may have — they may have slipped[Phonetic] out of our data. I also take this opportunity to — because we just concluded our Annual Board Meeting yesterday, so to thank the Board members and all the senior management and the Company for helping in the year that’s gone by. And of course, last but not the least, I thank the team, which has been there with me on this call. So thank you very much, and look forward to seeing you soon.

Operator

[Operator Closing Remarks]

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