Sheela Foam Ltd
NSE:SFL
Sheela Foam Ltd
NSE:SFL
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Earnings Call Transcript
Other Earnings Calls
Ladies and gentlemen, good day, and welcome to the Q2 FY '25 Earnings Conference Call of Sheela Foam Limited hosted by Arihant Capital. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Ms. [indiscernible] from Arihant Capital. Thank you, and over to you, ma'am.
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 FY '25 Earnings Conference Call of Sheela Foam Limited. I would like to take this opportunity to welcome the management of Sheila form represented by Mr. Rahul Gautam, the Executive Chairman; Mr. Rakesh Chahar, the Whole Time Director; Mr. Nilesh Mazumdar, the CEO of the India business; and Mr. Amit Kumar Gupta, the 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.
Thank you, Anishka. Thank you very much. and greetings to everyone who is joined in. Good afternoon, everyone, and thank you for joining us for the earnings conference for the second quarter and half year ended on 30th September 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 1 year since that happened. And since then, with a strong focus on integrating Kurlon with Sheela Foam we have been progressing well. Though both the companies sold similar products, there was a lot of difference in the way 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 has been a challenge for any company would have been a challenge for any company across the globe. However, I'm happy to share -- and that we have demonstrated that both Sleepwell and Kurlon brand 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 we intend to grow the much faster than the rest. This actually leads to one of the basic initiatives of the company, which is decommoditizing the product, which means that we are selling more and more of branded goods more and more of atlases 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 segments and more so on the mattress side. On a like-to-like basis, we achieved a 19%. I repeat that, 19% volume growth year-on-year in the mattress segment which is the highest in the last 8 quarters. Sleepwell volumes, which is the flagship brand of the company, along with Kurlon, the Sleepwell in volumes grew by 40% year-on-year, whereas Kurlon volumes grew by 26% on a year-to-year basis.
Our technical foams and furniture foams segments have also been -- also seen good volume growth year-on-year by 18% and 10%, respectively. 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 INR 100 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 VPS side, which is, again, a technology that we depend for improving our cost and for ensuring that we give an environment a friendly foam more and more. We've also shifted forming from 4 of the Kurlon plants through Sheela Foam plants, which has resulted in around close to 10% savings due to better yield at Sheela Foam plant.
We also commenced homing in the Kurlon Plant, which results in further reductions in freight. Kurlon has adopted and is now in the same mode as that of April, and that is the distribution to the distributor model. So they had turnaround 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 3 of FY '25. Yes, you are aware that there was an investment that the company has 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 1 year. Our IT a also saw revenue increases by 33% on a year-on-year basis with EBITDA margins further improving than what we were before. In October this year, we have exercised our option of increasing equity in Furlenco with an incremental investment of around INR 100 crores taking our stake to 45% in the company. Earlier, it was 35%. And the purchase 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 1.5x 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 further.
Now I request Amit to take us through the financial highlights of the last quarter and up here that we have disclosed. Over to you, Amit.
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 30th September 2025. For the second quarter, on a stand-alone basis, we reported a total revenue of INR 602 crores, which is a growth of around 42% on a Y-o-Y basis. EBITDA the quarter stood at INR 70 crores, which grew by 54% on a Y-o-Y basis. EBITDA margins were reported at 12% for the quarter. Net profit was INR 43 crores, which was up by about 12% Y-o-Y. For the first half of the financial year, the stand-alone revenues were at INR 1,106 crores, which grew by around 26% Y-o-Y. EBITDA for the period excluded INR 118 crores, which grew by 11% Y-o-Y. EBITDA margins were reported at 11%. Net profit was INR 75 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 Kurlon acquisition. On a consolidated basis, for the second quarter, we reported revenues of INR 183 crores, which increased by around 32% Y-o-Y the quarter stood at INR 69 crores, which was up by 5% Y-o-Y. EBITDA margins were reported at 9% for the quarter. Net profit stood at INR 9 crores, which is a decrease of around 79% Y-o-Y. For the first half, we reported a consolidated revenue of INR 1,522 crores which increased by around 29% Y-o-Y. EBITDA for the period stood at INR 129 crores, which declined by 10% Y-o-Y. EBITDA margins were reported Net profit stood at INR 56 crores, which is a decrease of around 36% Y-o-Y. So that's 2 pointers on this. We acquired Kurlon last year because of which there was 13 debt, which the company 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 though we see improvement in operational performance but by the interest in the depreciation reduces the profit after tax that goes to the bottom line or which do you believe that over a period of next 2 to 3 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 question-and-answer session.
[Operator Instructions]. The first question is from the line of Ritesh Shah from Investec.
A couple of questions. Sir, first is, can you provide some color on the ramp-up of both Tarang as well as Aram, where do we see these numbers going? I think you had indicated INR 50 crores, INR 300 crores in 2 to 3 years. If you could help us with some broader numbers on contribution for both volume as well as value for Q2 and first half, that would be really helpful.
You want to finish your questions? Or you want them to be answered one by one.
I will finish up all the questions, sir.
Okay. Okay.
Sir, second question is on distribution network. We have been trying to understand the company between multiple states. So sir, a simple question over here is in how many states do we directly supply to the dealers from the factory that is we are actually getting rid of the distributor? And is this something for both Sheela Foam as well as [indiscernible] and is it something new by design if so, I think there will be incremental data on cost margins, which will definitely benefit us. So how are we looking at that particular variable.
Third, number is [indiscernible], basically, broadly, if you could indicate how are we looking to acquire the residual stakes and the sort of synergies that the existing business is deriving out of [indiscernible]. 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 at, I think, 5.7%, 5.8%. What would those numbers be for this particular quarter? Thank you.
So Nilesh, would you be able to respond to the Tarang and Aram situation as to where we are based on our projections that in 3 years, we will go to about INR 250 crores, INR 300 crores. And how are we distributing that?
Hi, Ritesh, greetings of the season to you and to everyone else. As far as Tarang and Aram is concerned, in terms of volume contribution to the total mattress, it 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 high single-digit numbers in terms of the revenue per month that we are doing. Hopefully, by next year, next financial year, we would be looking at touching a number of about INR 100 crores, and I'm talking of FY '23.
Currently, we have ramped up in the entire country, excepting Kerala, Northeast [ Jammu and Kashmir ] and Punjab. So barring these 4 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 Aram into the urban markets in a calibrated manner because -- we see an opportunity there also as the economic end of the market as there are a large number of cotton mattress and [indiscernible] mattress users there,but we will need to do it in a very calibrated manner, so that it does not cannibalize our mainline Sleepwell and Kurlon sales.
Coming? So does that answer your questions on Tarang and Aram, Ritesh?
Yes, sir.
Nilesh, I would request you to -- if you can go along with this for the second one, too, that is the distribution network that we have 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.
So the only state right now, Ritesh, where we are direct in [indiscernible] in most of the other states, we have kept the distributors with us, and they handle both Sleepwell and Kurlon. With the exception of 2 or 3 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 an 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 part 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.
Sir, can you just speak a clarification? Sir, you -- Sir, you indicated for the only state where we don't have a distributor for [indiscernible]. And for Kurlon, you indicated except for 2 or 3 states and South and East, right? Is that reading right?
Yes, that's right. So up North and up West, we are going through the same distributors of Sleepwell.
Okay. And sir, is this something for historical reasons or is it by the time that we intend to go this model because, obviously, we can say a few percentage of margins if we are able to take care of turnaround time, customization, et cetera, et cetera.
So what happens, Ritesh, you need first of all, when we have given Kurlon to our distributors, 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 do away with the distributors, and I will need to set up a far larger regional distributor centers set up all over again. So therefore, while there will be some savings here, but there will be an additional expense that you would look to bear on setting up the [indiscernible], which has Raul just mentioned that we had closed. But more important than that -- we see the distributor 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, 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 through them in these markets, and we see a benefit in the long run.
Yes. 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 related, 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 incurred loan? Probably yes, but it wasn't deficient enough. So I think for us, at the moment, it all is the most important part, and we push it I don't know whether that it's going to cost a percent more or a 2% less. But as time goes by, we will take a call on that. More important part is to focus on the sales side. Nilesh while you were there, Ritesh also had a question on the marketing costs, which were INR 5 crores. So would you just fill in?
So the marketing expenses for quarter 2 per case was approximately 5.2%. You wanted the marketing expenses. Right? So quarter 1 was 5.7% quarter 2 was 5.2%.
And sir, one last question was on [indiscernible]
So I'm just coming to that part. So I think your question was that how is Furlenco progressing? And then what is the -- 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, Am I understanding your question correct?
Yes.
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 reviewed [indiscernible] sometimes in March '25 and then before up to December and also need to see that how and what's the direction of [indiscernible]. I mean, eventually, do we do an IPO in FY '27? 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 by itself, it is working very well, and we've seen that over the last 6, 7, 8 months that at the A level that is generally 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%, 90%. And therefore, there'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 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 FY '28 of about INR 500 crores the top line, it should be absolutely on track.
We'll take the next question from the line of Aniket Kulkarni from BMS PL Capital.
My question regarding the other income. So on a trailing 12-month basis, it is around INR 130 crores? This is quite high as we compare it to a trailing 12 months net profit of about INR 150 crores. So my question is, how are we getting to this INR 130 crores of other income. So if you can explain how much cash is deployed in interest-bearing instruments and what rate is it continue? And how sustainable is this level of other income of INR 130 crores for the next 2, 3 years?
Amit, would you take this one?
So currently, if you see our balance sheet, there are around -- until now around INR 550 crores worth of money was invested in these instruments. Of course, we invested INR 100 crores in Furlenco, that is now INR 450 crores. You see a higher accrual of other income primarily because interest rates have been going down and so the debt instruments have been accruing more returns than they are -- they usually do it. In addition to this, we have some other forces of other income also, which is carried on certain instrument, certain scale of scrap and other things, which also due 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 compatible.
Sir, can you give some ballpark figures of the other [indiscernible] or something?
Yes. Yes. Let's say 12-odd percent plus return on investments.
The next question is from the line of Vatsal Shah from Whitestone Capital.
Yes. So I have three questions. So firstly, what is 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 2 to 3 years down the line as the equity base has gone up quite high after the Kurlon acquisition. And that's always be any kind of consolidated growth and EBITDA margin guidance for the year?
So Amit, would you please take the first one, which is the margin between B2B and the B2C business.
So in B2B, we have different types of businesses. We have [indiscernible] is partly branded and partly you can consider as a B2B business. We have comfort home, which is their home that we sell. We have certain specialized homes called the technical homes, which we supply to end user industry like laundry sound protein, automotive and places like that. There are different margin profiles between the different type of businesses. But broadly, we can say that metric command anything ranging between 5% to 8% margin higher than the B2B sort of businesses.
And that's second one also, Amit, you will have to say. He asked for the return profile in about 3 years time.
Yes. So before answering this question, I would just dealt how this equity capital has gone up. So you know that we were at around INR 1,800-odd crores of the equity capital before Kurlon acquisition. Yes, we did the QIP for Kurlon acquisition, which accrued by further INR 1,200 crores. Now when you acquire a consumer brand on the first phase is difficult to get the return on equity right at the base. So we have put for ourselves a 3-year time horizon in which we intend to get back the earlier return on capital of 18% plus that we had been having earlier. 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 3-year period, we would be reaching an EBITDA margin of somewhere around 3% to 5%. Primarily on the back of increased volume or the growth that is coming in and also on the back of the savings initiatives, part of which has already been realized and which will be coming through in the remaining 2 quarters of the year. That should put us in a 3-year time horizon by at a pace comparable to give a return on equity of more than 18%.
Okay. And just a small clarification. The 14% to 15% growth in EBITDA as set that was what consolidated level or India business.
India business.
India business. And consolidated any number?
Consolidated. So I expect overseas business Australia is a saturated market. If you know, we are the leader 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 it [indiscernible] we are a very small player in the overall European market. We have recently debottleneck our capacity, which has enabled us to do a turnover of around EUR 80 million, which is an increase of EUR 30 million from our [ earlier ] capacity. So there, we expect the growth to be double-digit growth in the next 3 to 5 years.
So you can assume somewhere between a 7% to 10% growth for the International business.
Not totally consolidated is asking for Amit. So what you look at become...
Somewhere between 13% to 14% or sorry -- equal to [ 13% ].
The next question is from the line of [ Naman Maheshwari ] from [ Reston ].
Hello operator, am I audible?
No, sir, your audio is not that clear. I would request you to use your handset, please.
I hope I'm audible now.
Yes, sir.
Much better, thank you.
Thank for the opportunity and congratulations on a steady set of numbers. Sir my question is twofold. One is on the 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, right?
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 would be a stable level of inventory in the channel and how it would progress during the rest of the half of the year?
So Amit, can you first take the inventory question?
Sure, sir. So normally, we -- our inventory there is depending on seasonality. So for the festive season, it is higher, whereas for shorter periods, it is lower. We have a turnaround time of [ 24 to 72 ] hours for delivery of products. It still we need to maintain inventory somewhere between, say, 20 to 30 days on an average. However, we are putting in place payable solutions by which we intend to take out the working capital from the [indiscernible].
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.
Right. Right because it has come down from the [indiscernible] of 17 odd's level to about 45 [indiscernible] level. So what is the reason for this decline?
To be high would be an exception, maybe because of the [indiscernible] reason it was there, but normal inventory would be somewhere been less than 30 days for us that we are targeting now.
Okay. And the first question. [indiscernible] are you still there on the line?
Yes, sir [indiscernible].
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 how what kind of strengths do we have for increasing prices or so that as the volume grows, the value also continues to grow.
Yes.
So [ Namal ], that's a good question. We need to first understand that the biggest opportunity for us to grow the category is look at both segments. One is to get nonusers into users which is what we are trying to do with [ Tarana ] initiative. And then the unorganized sector consumer moving them into the branded play of [ Callon ] and [ TPL ]. Now both of these are large opportunities 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 8 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 end currently is fairly large, and that's what is driving the current volume growth.
Sir, sir, that is to say that we would most likely be in the range close to about INR 4,200 -- INR 4,500 ballpark, [indiscernible].
No, not really will be. You're talking of a single mattress price actually, we'll look at pricing from a double mattress sizing. We will [indiscernible] in the region of about INR 11,500 to INR 12,000 in the mainline business. [ Tarena ] will be different. They are far more economical.
Okay. Thank you. I'll jump back in the queue.
The next question is from the line of [ Yash Mehta ] from [ Art Ventures ]. Mr. Mehta, I have unmuted your line, kindly proceed.
As the current participant is not answering, we'll move on to the next question, which is from the line of [ Karan Gupta ] from [ Invest Savi ].
Hello?
Yes. Yes Mr. Gupta go ahead.
So my first question on the basis of what's the percentage in the revenue breakup and the nature cushion and comfort from cushing in overall revenue [indiscernible] very current [indiscernible] of the revenue.
Yes. So comfort foam plus we have comfort [indiscernible].
Furniture question is your question, right?
Yes, yes.
So that will be about 25% of the total.
Okay. Okay. And you told that you are doing some practices to your commoditized product. So can you just elaborate on this [indiscernible], what are the steps that you are taking? Are you taking assets to reduce this raw sales of the cushion into the market or any other thing?
Okay. So I don't think the -- we would say that 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 for 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.
Okay. Okay. But the other thing will be [indiscernible] I mean that could some break on the volume side of this comfort foam and [indiscernible].
[indiscernible] It is well that whatever is we will do profitable sales. So if you see as a strategy, even if you will to look at the mattress of the [indiscernible] following us. We initially had a number of flanking brands. We have brands that we were selling on e-commerce, for example, which were almost 0 or less margin like [indiscernible], et cetera. So we took a conscious call of discontinuing there because we wanted to be there in the profitable segment of the branded business.
As far as the comfort foam furniture cushioning is concerned, we will be doing the business in a profitable manner and not with a negative margin. The whole idea will be that we grow the branded business of [ Sleeper ] and Kurlon more rapidly and that is how in the overall structuring of the business, we will be more a branded player in the composition of the portfolio.
Okay. And last one is how [indiscernible] situation when we are selling the [indiscernible] cushion in the comfort foam, right, and other players, local players or just putting the mattress cover and the time with their local brand. So now the acquisition with your economical product and those products.
That is very much a part in the market. So therefore, let me try and answer that. Those -- you are absolutely right. There is a market where slab of foam has taken and the cover is put on that locally, and it has passed off as a mattress. So we have the strategy that we 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 [ Fittest ], which you will see in our new product portfolio, which is a mattress with a 25-year warranty and the product starts at the pricing of INR 15,000. So if I end up and the mattress as a profiling which a local manufacturer who is just doing a [indiscernible] foam will not be able to provide.
So therefore, I have a value proposition for that consumer by which there was attraction for him to buy an unbranded mattress becomes far less and he is able to afford a sleep [indiscernible] mattress and buy into a branded offering.
Okay. Okay. And now going back to the first question again. So what happened if you reduce your foam distribution to the local market and focus more on -- I mean, more on the branded products and selling less this foam product in the local market. So when that helps you increase your brand selling in the market? In place in the other manufacturers because you are the largest manufacturing [indiscernible].
First of all, you need to understand that the foam that is sold in the market goes into various applications. Only a little -- some part of it goes into mattress. It goes into sofa making, it goes into various different applications. So that segment is slated to buy the foam that we sell and we are not saying that we are going to reduce selling that. I hope that, 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 to [indiscernible] and we are not saying that we are going to, in any way, that market.
Okay. Fair enough.
The next question is from the line of [ Rishab Gang ] from [indiscernible] Family Office.
Am I audible, sir?
Yes. Yes, please. Please proceed.
So the furniture that was rented in [ Sri Lanka ], right? Is that -- are we making it in-house? Or like what is the -- how do we make it?
You're asking about the mattress system?
Sir, [indiscernible]. So the furniture that we rent out there, right? Are we making it in-house?
[indiscernible] is made in-house, there is a small attach [indiscernible] which is on [ 381 ], we do that. And we also outsource. So there are specialized predictors. For example, [indiscernible] for something else has run from ond of the factories around Bangalore and this so far, manufacturing is in-house, and it's called [ Create ]. So it's a mix of both.
I actually wanted to ask, like, do we have any experience center, right, with the main branding of Sleep Well, right, where we are also showing other furniture of the home, right? Like I went to [indiscernible] store, right? They sell mattresses as well as furniture. And that really helps me cross-selling. And I've seen that [indiscernible] has been made to my assembly. So as Sleep Well one of the biggest -- like the biggest brand in the mattress business, do we also think of adjacencies?
Yes. [indiscernible], that part of yours is absolutely bang on. We have already begun experimenting with that, and there is a pilot going on in [indiscernible], how many stores are we doing the piloting where [indiscernible] furniture is also being the place for [indiscernible].
Right now, it will be about 8 stores. And [ Carlino ] also has an experience center in Bangalore [indiscernible], 2 [indiscernible] centers actually.
So those are experience sectors, but I guess [indiscernible] eventually prices should be shown and everything being gross cap, it will help set a [indiscernible]. So I see 8 areas where it's being piloted within the last stages, it's in the positive direction, and this will be expanded to wherever possible as far as the EBOs where the other stores of [indiscernible].
Okay. So like by when, right? Because if you actually put it in your EBOs, it will have to be a very big [indiscernible] because of that all the [indiscernible] can be there. Like by when do we think that maybe we will have 40, 50 stores like this around the country -- across the country?
So [indiscernible], one is on the size of store that you say, it's also possible you could have a few pieces being disputed, but at the same time, you could also have a catalog 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? Maybe April 2025, something like that.
After you get the learnings when we will be able to come back with an answer right now, it will not be right to [indiscernible] with the online. You will get the pilot learnings on last and then the second [indiscernible]
Absolutely fine. My next question is, so I saw in your investor presentation that you have mentioned about savings of annual INR 100 crores on track right because of the acquisition. So can you provide a breakup of the 100 [indiscernible] from which function are you getting the 100 [indiscernible]?
Amit?
Yes, sure. So [ Richard ], this is broken into multiple parts. The primary of them being raw materials. So when we combine [ Silao ] foam and [ Carlo ] capacity, the quantum of raw materials that we bought was much higher. So there are certain benefits which due because of that. There are certain incremental benefits which do in other purchase of things like in [ 13 February ], 13 type of ancillary materials, certain port of colors, et cetera which also you got because of that.
Secondly, we closed down 2 units of Kurlon because they were very near to our existing units. They were producing home, which we could produce at a much more efficient level. So when those units were closed, all their manpower cost overheads, et cetera, has gone away. We are in the process of doing it with [indiscernible] near Bangalore as soon as we do that, the incremental savings to that.
So I would say that most of it lies in raw materials and some of it [indiscernible] manpower costs and overhead.
Can I say that 60% to 70% is raw material and around 30% or so is manpower and other cost?
That would be a good estimate.
Also, on the raw material side, like what kind of volume discounts are you able to get because of this? Because I did that you would be getting volume response. So like how -- like volume response of 60, 70 CLS a big amount. So just curious to understand, can you give some more details on it, possible 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 [indiscernible] 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 approved there. But sorry, I cannot give you how much discount on this particular raw [indiscernible].
And what was the gross margin of Kurlon before the acquisition?
So [ Parallon ] would be somewhere around 41%, 42%.
All right. And then next question on the inventory side. So when I actually made a purchase from [ require ] was like got delivered. I think they use [ GIT ]. So what kind of inventory system do we have? Like do we also have the same time that we manufacture when a product is ordered or how does it work?
So let me take that question, Amit. Just to understand that the waste business model is completely different from us. There are largely a B2C brand. And therefore, you are buying either from the mostly the sales either to their website or on the former platforms and our strength lies on the off-line space. So it is very different business margins 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 [indiscernible].
But do you think that to reduce the inventory [indiscernible]?
That will happen as we move ahead in terms of both the consolidation, et cetera, happening. But we don't do that as a major concern today that we are at with a very high inventory level, et cetera, because when you are servicing an offline business, it's a very, very different model that we are publishing 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, sub-suppliers, et cetera, 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 inventories are not about the finished book. It's also about the impact inventory that we are [indiscernible]. So we are developing our supply chain system accordingly with [ CAC ] that we are able to operate at optimum levels.
Correct, makes sense. Just a last question. So I did add you are setting -- you have recently set up a manufacturing plant at Jabalpur to cater to the traditional market cotton mattresses. So just a question like majority of the cotton mattresses are unorganized, right? So these players have advantages in the sense, these are unorganized players. So they have -- 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 like, are we able -- because of these advantages like, which they have, what is the strategy for this quarter metric? Like what is our pricing strategy there?
We have covered such length in serious infections. So maybe it might make sense to areas because we have responded to it, but very [indiscernible]. It is not that we are just sitting on the Jabalpur factory to cater the cotton mattresses. It is a completely different technology of foam manufacturing, which is economical, far more environment friendly with which we manufacture foam. We are able to compress that home 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 Fed cost.
We are doing it at the pricing, which is economical and therefore, has value for that cotton mattresses because it is quarter 3-year warranty cotton mattress cannot use to be. So there is a complete discussion of strategy to [indiscernible] you have had in the past? And maybe we can engage separately to explain this model.
Got it. I will read that. Thank you so much for your insights. You were very helpful.
The next question is from the line of [ Sahil Suri ] from HSBC.
Hello, can you hear me?
Sir, your order is too low.
Okay. Can you hear me better?
Yes. Please proceed.
Just a couple of follow-ups on the Furlenco acquisition. So you your company increases [indiscernible] for Furlenco despite Furlenco increased losses in FY '24. Could you help us understand your turnaround plan and the region you have in mind for the company? 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?
Amit, should you take that question, please?
Yes. So we are looking at 2024, I think we have now given half yearly numbers. I would request you to look at that, see what had happened? You had put in our investment in August. The company took around 4 to 6 months to deploy those [indiscernible]. Before that, there are some strains 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 subscale, it erodes and that is why you were looking at the [indiscernible].
The breakeven point of this business or this company, I can say, is around INR 190 crores. Currently, if you see the results that we have published, we have already reached a run rate of around INR 210 crores. And that's why we say that it is PBT-positive. And because it has a depreciation of around INR 2.5 crores to INR 3 crores per month, this some generating that much equivalent plus PBT cash.
So the situation now is completely different from what it was hearing 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, if there's been a segment which is very big, which has a lot of scope to grow. We are currently 6 centers across the country. There is a expose to grow across the country in this business. And that has -- that was what led us to make incremental investments into the company and take our [indiscernible].
Okay. That's very helpful and very clear reason. 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 nature and the appliances rather than the rental. Could you help us to give some color on what's the mix between sales versus rentals as of now? And how are you looking at the outlook, let's say, 2 to 3 years down the line? I think you have also given us the FY [ '20 ] target of INR 500 crores if I'm not wrong. So what's the mix of rentals versus the sales we're looking [indiscernible] versus currently?
Yes. So Furlenco [indiscernible] is a rental company, and that is the primary business of the company currently. And going forward also, we intend to keep that as a 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 the furniture to them, potentially it exposes you to competition and 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% ] [indiscernible] sales it may sales may grow a little bit in the next 3 years and maybe say around 10% to 15% to 20%, but it's still a major portion of the business will continue to be [indiscernible].
Okay. And I would assume even the FY '25 target that you have INR 500 crores. So even that would have the primary mix coming from the rental?
Yes.
Very clear, very helpful. I wish you happy Diwali.
We'll take the next question from the line of [ Rakesh Mehta ] from [ Goodwill Well ].
I have a follow-up question on Furlenco, I think in the [indiscernible] you mentioned [ 33% ] Y-o-Y growth. Was it in revenue? Or was it some other metrics which you were talking about, if you could please talk at that.
Sorry, I didn't get your question. If you can repeat.
Yes. So in the past when you were talking about Furlenco, you mentioned [ 53% ] Y-o-Y growth in one of the metrics, as it related to...
Furlenco, we said 1.5x. So if you see last year was INR [ 145 ] crores and current run rate is around INR 210 crores. [indiscernible].
[indiscernible] I'm just saying the [ 33% ] is for [indiscernible], but it probably has been like that. That was 33% [ Ratios ] for [indiscernible].
Okay. Okay. And for -- okay, so for H1 '25, we are looking at an annual revenue of INR [ 200 ] crores based on the run rate. And we are looking at -- I mean, as of now, it's breakeven and PBT positive what I could understand for Furlenco.
The second part is right. First part I'm saying we have reached in September the run rate of INR 210 crores. We started from INR 150 crores. So the total revenue will lie somewhere in between. In the second half, this will start from a run rate of INR 210 crores and maybe a run rate of INR 200 crores, INR 250 crores, INR 260 crores. And so the total revenues will lie somewhere in between.
Okay. That's very, very clear.
Thank you. Ladies and gentlemen, we will take that as a last question for today. I would now like to hand the conference over to [ Ms. Anushka Capes ] for closing comments. Over to you, ma'am.
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.
Yes. Thank you all for participating in this earnings conference call. I hope we 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 managers at [ Valorem Advisor ]. Thank you.
Thank you, members of the management. On behalf of Sheela Foam Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.