Ladies and gentlemen, good day and welcome to Sheela Foam Limited Q2 H1 FY27 earning conference call hosted by Emkay Global Financial Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an Operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Devanshu Bansal from Emkay Global Financial Services Limited. Thank you, and over to you, Mr. Bansal. Yes, Hi. Good afternoon, everyone. I would like to welcome the management and thank them for this opportunity. We have with us today Rahul Gautam, Chairman and Managing Director, Tushaar Gautam, Vice Chairman and Joint Managing Director, Rakesh Chahar, Deputy Managing Director, and Amit Kumar Gupta, Group Chief Financial Officer. I shall now hand over the call to the management for the opening remarks. Over to you, gentlemen. Thank you, Devanshu. Just want to make a little correction that Tushaar Gautam is not available at this time. Good afternoon, ladies and gentlemen, and thank you for joining us to share our results for the second quarter, Q2, and the first half, that is H1 of this year. I hope you've had the chance to go through the numbers and the presentations. Let me begin with the environment first, as it has already really shaped this quarter. From February onwards, this has been an absolutely unprecedented kind of time for our industry. On a ballpark, the crude is up by about 50%, and our two key raw materials have moved even more. Since mid-February, polyol, our main chemical, our main raw material, is up by 65%, and TDI by 33%. Sustained increases of this kind have simply not been seen before. The war has disrupted the entire supply chain and logistics. Some of the facilities in the Middle East have been partially destroyed, and others are restricted because of the Hormuz blockage. Additionally, the festive season, which was in late September last year, moved into October this time, resulting in a shift of demand from Q2 - Q3. However, we recognize that these are the times where the strength of a leader shows. Our first responsibility when things get this hard is to keep serving our customers, and that is what we did. We kept material flowing through supplier relationships that have been built over decades, at a time when many of the smaller, unorganized players simply could not source or hold their prices. With the strength of the brands, we've had the advantage of being able to pass these increases onto the market and eventually to the consumer. The consumer has his own affordability benchmarks also. A customer who comes in with about INR 20,000 to spend on a mattress can stretch a bit, but not to the full impact of the large price increase. The same money now buys him a slightly lower category of the product, and that change impacts us even when values may hold up. With demand still soft, we have chosen to spend more and not less on our brands, advertising, and consumer schemes. We went out and launched the Great Sleepwell Festival across the country. It has turned out one of the strongest schemes we have ever introduced for our consumers. This does take off some profitability in the near term, but it has built a healthy pipeline of demand as we go into the festive quarters of the second half. The outcome is that even after a margin hit, we have held our profitability in absolute terms. In a quarter like this, protecting the core of the business while still investing in it was important to us. The numbers tell the story quite clearly. On a consolidated basis, revenue for the quarter grew by about 19% to a level of INR 1,045 crore. The first time that we have crossed the INR 1,000 crore revenue number in Q2, and also our third consecutive quarter of a 15% plus growth. Our operating EBITDA for the quarter was INR 87 crore, almost the same as we delivered in the corresponding quarter a year ago. PAT was INR 46 crore, and that is about five times of last year. Coming to the half year, revenue grew about 22%. To a level of INR 2,076, INR 77 crore, and the operating EBITDA grew 23% to a INR 200 crore mark from INR 162 last year, at a margin of 9.6%. I must also add that the PAT rose to INR 109 crore, that is more than 6x last year. Though we clocked higher gross margins than the first quarter of this year, our investment in brand and marketing kept our operating EBITDA margins muted. I now want to spend a little time on Furlenco, because I believe it genuinely changes the picture of our group. From 1st October this year, Furlenco has become a subsidiary of Sheela Foam. This is not a sudden step. It is something we have worked towards for some time and widened our reach, our scale, and the very nature of what we do. Let me explain the business, because it is very different from our existing business. Furlenco is primarily a furniture rental company. It gives people in our cities access to well-designed furniture, and that too on a subscription basis, without having to own anything or everything. We think nobody would want to rent these things. That is what we have always been thinking. But today, it is not only the floating population, it is people who simply like a change, who want their furniture kept in good shape, who move homes or move cities, are indulging in this offer. Furlenco offers them a catalog of more than 300 products. It is present in more than 30 cities. It has a subscriber base of more than 200,000 or INR 2 lakh subscribers, and it runs a disciplined asset-based model, keeping the asset utilization much above 90%. That discipline is what makes it profitable. What this business has done in a short time says a great deal about our ability to spot value and build it. When we invested in FY 2024, Furlenco had a revenue of about INR 139 crores and had a subscriber base of 70,000. It was also losing close to INR 130 crores a year. Post the turnaround, this year, we expected to close at INR 500 crore mark with an EBITDA margin of about 40%. From deep losses to a profitable business, with revenue almost 4x in about three years and still growing at more than 30%. That is Furlenco today. The recent trend is the same in the first half for Furlenco. The revenue has grown about 34% to INR 229 crores, and EBITDA was also up by about 69% to a level of INR 89 crores. Its active subscriber base has grown 35% over the previous year. This is a space whose time has come. Furniture rental is finding real acceptance, and particularly with the younger and Gen Z consumers who value flexibility far more than ownership. The capital markets have taken a note as well, with one of the players in this space having listed recently. All of this changes what Sheela Foam as a group is today. We have enlarged our B2C portfolio in many growth areas, a house of more than 13 brands held together by one idea that has guided us from the very beginning, the science of comfort for all the consumers that we deal with. The group today stands on primarily four pillars. First is mattress, where we serve every kind of a customer from mass to premium to luxury. Sleepwell and Kurlon sit at the premium and economy end. Tarang and Aaram give us depth and reach across the value segments, and Chattam & Wells and Nature's Rest take us into luxury. The second pillar is furniture, in both rental and retail, led by Furlenco, and alongside it, our entry into branded furniture retail, also under its flagship brands of Sleepwell and Kurlon. The third category or the third pillar is foam and cushioning. Our technical and industrial foam business under B2B category as well as B2C, with brands such as Feather Foam and Jumpz HR. Et cetera, work well in this area. This caters not only to consumers, but to much wider set of industries, with applications ranging from automotive to footwear, and our foam has long been a benchmark across all of them. The fourth is the international subsidiaries and the IT initiative that we have. Our business abroad, Joyce in Australia and Interplasp in Spain, and our enterprise technology and digital solutions company, Staqo, have all been doing extremely well. Sheela Foam today is a broad-based consumer company with brands at home and abroad, across categories, channels, price points, and markets. As these pieces come together, we expect the combined group to close this year at a revenue of around INR 5,000 crores, with an EBITDA of roughly INR 600 crores, a margin little above 12%. I must also add that the international businesses remain strong and profitable. In Spain, the revenue grew well. We took on new customers during the quarter, and their volumes will begin to show from the second half. The cost of winning and servicing did weigh on Spain's margin this quarter, but that, to my mind, is money well spent for the growth ahead. For the half, Spain has already delivered an EBITDA margin of over 10%, actually 10.7%. In Australia, Joyce did well and ran well at the operating level, with an EBITDA margin of also 10.7% in the quarter and 13.4% for the half year. The reported profit for the quarter has pulled down by a one-off provision we had to take against one of our key customers, A.H. Beard, going into administration. We expect to normalize this very soon. Our newer growth engines also continue to do well. On the D2C and e-commerce side, we are strong and continue to grow at a healthy pace, led by our own website, brand.com. The U2O business, which is the unorganized-to-organized business, which takes us from the unorganized to the organized market and has now reached more than 10,000 touchpoints or dealers and has grown by about 41%. Staqo, as I mentioned, our technology company, keeps growing well while holding a healthy EBITDA margins of around 28%. Let me close here. This was a quarter that tested us on every front. I believe we managed to handle it reasonably well by standing with our customers, investing through the cycle, and holding the profitability of the business to the previous levels. With Furlenco now part of the family, the portfolio is wide, is actually very wide. I am confident that Sheela Foam will continue its growth trajectory going forward. With that, I will ask our Group CFO, Mr. Amit Kumar Gupta, to take us through the financials in more detail. Thank you very much. Thank you, sir. Ladies and gentlemen, now let me take you through the financials for the quarter and the first half of the current financial year. On a consolidated basis, revenue from operations grew to INR 1,045 crore, a growth of 19% over similar quarter last year, helped by both growth in mattress as well as foam, and a very strong growth in Australia and Spain. Operating EBITDA for the quarter was INR 87 crore, at a margin of 8.4%, broadly flat against INR 87 crore a year ago. Reported EBITDA was INR 83 crore. As Rahul sir explained, the pressure came from the sharp rise in polyol and TDI prices and the higher expense behind the Great Sleepwell Festival. PAT for the quarter was INR 46 crore against INR 10 crore last year, close to five times, helped by both operations and by lower finance cost and depreciation. Cash EPS for the quarter was INR 8.3. For the half year, consolidated revenue grew by 22% to INR 2,077 crore from INR 1,696 crore. Operating EBITDA grew by about 23% to INR 200 crore from INR 162 crore, at a margin of 9.6%. The operating leverage of the first quarter was partly offset by raw material inflation in the second. Sorry. PAT for the first half rose to INR 109 crore from INR 17 crore last year for the similar period. EPS grew to INR 18.7 from a diluted EPS of around INR 9.8 last year. On a standalone basis, revenue for the quarter grew 17% to INR 781 crore, with EBITDA at INR 61 crore, at a margin of 7.8%. For H1 this year, standalone revenue grew by 18% to INR 1,452 crore, and EBITDA grew 5% to INR 129 crore. At the segment level for the first half, mattress grew by 11% and foam grew by 26%, with volumes broadly flat, reflecting the pricing actions and the festive season shift. On the business abroad, Australia and Joyce had half-year revenue of 200. In Australia, Joyce had a half-year revenue of 241 crores, a growth of 16% year-on-year, and an operating EBITDA margin of around 13.4%. In Spain, Interplasp had half-year revenue of 250 crores at a growth of 44%, and EBITDA margin of 10.7%. Furlenco, which became our subsidiary from October 1, had a revenue of around 229 crores, EBITDA 89 crores, and a margin close to 39%. From the third quarter onwards, our consolidated revenue numbers will also reflect Furlenco as a subsidiary. With that, I request the moderator to open the floor for questions. Thank you. Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Harshit Khadka from RoboCapital. Please go ahead. Hello. Thank you for the opportunity. Am I audible? Yes, please. Yes, sir. Thank you. For the past two quarters, we have had another income of INR 22 crores, right? Can you give the breakup of this other income, and what kind of other income can we see in H2 FY27? Other income includes all incomes which are not directly related to operations. We have an investment of around 110 crores, so the return of approximately 10%-12% per annum is a part of it. If there are any asset sales during a quarter, any sales, any gain or loss which comes because of any revaluation, et cetera, those all form part of the other income. They cannot go to operating income. Historically, we have seen that other incomes remain in the range of INR 10 crores per quarter, and going forward, we anticipate that it will be of similar range. Right, sir. Okay. Sir, in the opening commentary, you mentioned that you will do INR 5,000 crores of top line with INR 600 crores of EBITDA. What was the timeline for that? Let's understand, first of all, where this INR 5,000 comes from. We currently, in the current year, are anticipated to do somewhere around INR 4,300-INR 4,400 crores in Sheela Foam consolidated as it stands today. Furlenco this year is anticipated to do around INR 500-INR 600 crores. These combine together to go to INR 5,000 crores. On the EBITDA side, if you see, we last year did around INR 400 odd crores. This time maybe we will do INR 50-INR 100 crores of it more. INR 200 crores will be done by Furlenco. When we add it gives to a number of INR 600 + crores. That is what we have said, that the current run rate will be post Furlenco consolidation. All right, understood. And sir, in Sheela Foam, we are doing like 11% EBITDA margins. Can we see an uptick in the margins, let's say, for 12% or 13% in the next two, three quarters? That was what was anticipated. But currently, with the increase in raw material prices and the quantum of increase that has happened, I think we traded a little bit between the volume of business and the profitability that we can get out of it. We basically focused on absolute profitability that we can get. So the margins are compromised a little bit, whereas in the absolute terms, the profitability is retained. I hope that if the Middle East situation stabilizes and we see at least some level of normalized level of raw material prices, we would see double-digit level of EBITDA. Currently, it is not double digit, it is consolidated level 9%-10%. If the situation comes to a situation similar to pre-February, I think somewhere around 12% would be a reasonable level of profitability that we should see, and this is without Furlenco. If you add up Furlenco, it will be 3 percentage points more. All right, sir. Understood. Thank you. All the best. Thank you. Thank you. The next question comes from the line of Ravi Purohit from Securities Investment Management Private Limited. Please go ahead. Yeah, hi. Thanks for taking my question. So couple of questions. One is, how does this consolidation happen with Furlenco? What is our current stake in the company? And I think there are some convertibles also pending in that company, right? So if you could just kind of help us understand broader picture of how does this consolidation come about? Furlenco, we hold around 43% on a diluted basis in Furlenco. There are certain private equity investors also there. However, they have given up their special rights in the current quarter, which gives us an absolute control over the company, and that in itself give us a right to consolidate or to treat it as our subsidiary. So, that was done from 1st of October onwards. So, consolidation you will see in the third quarter. It will be a line-by-line consolidation both for P&L and balance sheet. And in P&L, the minority interest will be reduced at the bottom. So, both top line and EBITDA will be added. On CCPS, generally in startups, the equities are issued in the form of CCPS. There are many CCPS. Earlier in issuance, when it was done maybe five years, seven years before, and to some extent to us as well, the equity were issued in the form of CCPS, but they are convertible into equity shares at any time at our discretion. Whenever we look at our stake, we look on a fully diluted basis, and that is 43% currently. Okay. But as things stand today we own 35%. The consolidation numbers will be proportionate to 35% and 65%, right? It is only when these get converted, we will I will explain that. Accounting perspective, you consolidate only on the basis of percentage of converted equity shares that you hold. As I mentioned that we also hold some CCPS, and other investors also hold some CCPS. From an accounting perspective, currently we consolidate only 35%. That is how the standards define it. But in reality, on a fully diluted basis, our stake is 43%. Going forward, yes, on a line-by-line basis, 100% consolidation will be there. Okay. Below line, the remaining minority interest will get deducted, basically. Yes. Okay. And sir, second question is on the expenses which have gone up. I think our MD had mentioned that we had kind of gone ahead and spent money on market building and ad spend and promotions, given the run-up to the festive season. But if you could just share some insights on what are the areas where we've kind of spent these. Also, I see a significant bump up in the employee expenses. If you could just kind of share some thoughts on the significant. Because at the gross margin level, the gross margins have actually been held up quite well. RM impacts the gross margin, but in this quarter, they don't seem to have been impacted that much. The impact on the EBITDA margin is actually between gross profit and between employee expense and other expense. If you could just spend some time helping us understand the movement in employee expenses as well as the other expenses, that would be helpful. Yeah. I'll take other expenses first. In four quarters of the year, the level of investment that we make in advertising are different. In the festive season, they were the highest. In the third quarter, you will see the highest level of advertising or marketing expenses, and this has been similar in the previous years as well. In the second quarter, it is higher than first quarter. We were anticipated to do a definite level of marketing expenses, but because of the current situation, we believe that it would be beneficial if we spend some on marketing and create a niche for ourselves. We have spent around INR 15 crore -INR 16 crore additional on advertising in the current quarter, what we were anticipated to do. In other expenses, if you see, relative to similar quarter last year, we are higher by around INR 8 crore, and relative to first quarter, we are higher by INR 15 crore. The difference is mainly the impact of advertising cost. Okay. As far as manpower are concerned, manpower has two parts to it. One, around INR 8 crore is because Australia and Spain are converted into Indian rupees, and you would see that both the top line as well as the bottom lines have gone up subsequent to the depreciation of the Indian rupee against the euro and the Australian dollar. So, around INR 8 crore impact is because of conversion from euro and Australian dollars to Indian rupees. That's not an actual expense upward. And around 8%-9% would be the impact of the yearly increments that are there. There is no other incremental manpower cost going up. So, effectively, the thing that you see here, INR 112 -INR 132, INR 22 crore, INR 8 crore is only a difference in foreign exchange, and the expense has gone up by only INR 12 crore. Okay. And there were some provisions that we had mentioned in one of the overseas subsidiaries. What are those provisions relating to? Yeah. So, one of our customers in Australia, which we have mentioned, A.H. Beard, went bankrupt, went into administration around six months back. That administration has been decided by the administrator, and we had to take a haircut of around 38% on the outstandings to them, which amounted in the Indian rupees to around INR 7 crore rupees. So, we had to provide those INR 7 crore rupees between the first and the second quarter. Okay. So, right now, sir, when you adjust for this INR 83 crore and INR 87 crore, essentially the difference is this number. Sorry, can you please repeat? The operating EBITDA which we have reported in our presentation, INR 83 and INR 87, so the normalized is INR 87 and the reported is INR 83. This INR 4 crore is the difference of this, right? Yes, because this is a one-time expense and it won't reoccur in the next quarter. We had given you both the numbers so that you can have an idea of sustainable level of profitability of the company. Right. The last question generally, I think over the last one year, we have maintained that we are looking to hit 13%-14% EBITDA margins, right? Maybe by next year. Now, does it look realistic? Or in fact, we had even at one con call, I think mentioned that we are looking at even 14% to 15% EBITDA margins, right? Does it look a reasonable number if things stabilize today that we should look at, or do you think we will have to keep spending this on ads, spend in marketing? If you could just share some medium-term thoughts on how should we look at our margin path. Yeah. Let's understand the P&L a little bit. If you see my current gross margins are in the level of 38%. Historically, I have been between 40%-42%. Why this difference is still there, because some of the institutional customers that you have, especially automotives and other, and also in the mattress segment, you can increase price to a definite level. We started increasing price as we reached to a definite level, and now since it has gone up, we still recover the cost of raw materials, but recovering margins becomes a little bit challenge. This being a temporary phenomena, we also look at from the perspective of stability of our customers. I believe as soon as this has receded or normalization comes in oil prices or the logistic prices across the globe and goods start moving freely, we should at least recover those margins. Even if you add 2%-3% to our current margins, you find that we are well where we had mentioned before the start of the war or the last year, the margins that we have mentioned. Next year margins, as you mentioned, we had said, yes, we will do between 13%-15%. Had it been a very normal situation, definitely we would have done that. We were on track to that. Now it depends how much the current situation prevails. If it prevails like this, I believe it's difficult to achieve, but if it normalizes, we will try to achieve it. We will strive to achieve it, for sure. Oh, okay. Great. Thanks a lot and all the best. Thank you. Thank you. A reminder to all the participants, please restrict yourself to two questions. The next question comes from the line of Ritesh Shah from Investec India. Please go ahead. Yeah. Hi, sir. Thanks for the opportunity. I have several questions. Sir, first is, how should one appreciate the gross margin holding up on a sequential basis? That is the first question. I think you touched upon price elasticity to some extent wherein we recovered the raw mat increases, which essentially, if I could infer, it is that we try to pass through everything on the raw mat side. But you did indicate that recovering margins is a challenge. So, how are we looking at it gross versus EBITDA or volume versus profitability? That is the first question, sir. So, Ritesh, I think I will answer your first question first. We still have our unit economics designed in a manner that our gross margin should be 42% +. Of course, that should improve as a percentage of B2C business in the overall business mix improves, which is our intent as well, and we have been making efforts towards that as well. However, when post-February it started, we also tried to maintain that. But as I mentioned in the answer to the earlier question that it is a trade-off. We can go on increasing prices, not taking care of the volume, and we can increase unlimited price and maintain our margins, but that will have a hit on the overall volumes that will be there. So, we always need to strike a balance between them. Had it been a permanent phenomena, we would have pushed it and established that. But since it is a temporary phenomena, it does not make sense to lose business for a short period of time and then lose the growth that we could have achieved on it. As far as elasticity is concerned, I think there is high level of elasticity which we have tested in the current quarter. We never increased price to this extent. We were always cautious that any price increase would lead to a reaction in the market, and that might be detrimental to us. But this time, we went all out and increased prices, rather not once, but multiple times, since raw material price keep on increasing INR 10, INR 20 Indian rupees every 15 days. And that experiment has been quite successful, and we believe this has also given us confidence to ramp up our margins and not think too much about losing businesses or things like that. This current situation is abnormal. 50% price increase in raw material becomes, to some extent, unaffordable also, especially on the part of the consumers. I think, yes, we have lost a little bit on margins. Maybe our 15% growth, we should have earned INR 15 -INR 20 crores of EBITDA more. But I believe when you do business, it is the right thing to pass off these temporary phenomenas and then look to work from the base of strength and gather both the business volumes as well as profitability. As regards volumes are concerned, and we have seen it several times in the business, I still remember three years before, we were growing in volumes by 10% - 15%, but raw material prices were continuously coming down, because of which our top line was almost flat. I think there is some level of relationship between the affordability of the customers and the volumes that remain in the business. And that reflects itself from time to time. If over a period of five years, I think you will look at it, you will find that two-thirds or three-fourths of the growth that would have come would have come from volumes, and one-third or one-fourth would be from value, which should be a normal scenario, I believe. But yes, extreme situations will tilt it towards one side at one point of time and towards the other side at the other point of time. Thanks for the detailed answer. Just a follow-up over here, sir. Sir, will you provide volume growth for the Sleepwell brand? We do indicate for e-com and U2O. How much would be for, say, outside of e-com and U2O? See, Ritesh, the way we look at it is a little bit different. Today, if you see the times, it is of omnichannel, where you generate the lead online and then you make the sales offline. You drive the customer to the offline stores to have actual touch and feel of the product. And on the online segment, they go and try to understand about the products, the different features, what benefits it will give, the different type of materials that use, and what price levels we can expect for different products. Now, he may choose to buy it online, or he may go to an offline store and choose to buy it there. I would say that we don't look at the growth in the two channels differently. Ultimately, it is the Sleepwell or the Kurlon brand that sells. We would suggest that we also look at it from the perspective of the overall brand and not through the channels from which it is sold. Sir, let me ask you the question very directly. What I was trying to understand is, how are we thinking on the volume mix? Because for Sleepwell brand, e-com, and U2Ooo, I think the underlying products are different. Given the underlying products are different, the TDI plus polyol cost for all the three buckets will be very different, and hence the cost of increase will be very different for all the three channels. Just wanted to understand how the pricing strategy is to extract better volumes without compromising gross margins. Ritesh, I will come in here. What has happened with the multiple price increases that our prices, there is a large size of market which is below a price point of INR 10,000. With these multiple price increases, we have gone above that, and we are sitting somewhere INR 11,000 to INR 12,000 +. We have recently adopted a technology wherein we will be making a support layer which will go into the product, which we plan to position around less than INR 10,000 with a margin similar to what we have in the mid-segment. There will be no margin dilution while we will get the customer base at that price point. That is the strategy for getting the volume back. We were also focusing on premiumization. That is one end of the activity that we are doing. At the same time, also the sub-INR 10,000 price point market, which is, to my mind, even now it is about almost 40% of the market is lying there. Sir, just a follow-up, last one. Sorry for interrupting, Mr. Shah. Please rejoin the queue for more questions. Sure. Thank you. Thank you. The next question comes from the line of Dikshi Jain from InCred Research. Please go ahead. Hi, thank you for taking the question. My first question is regarding the festive sales. As last year Navratri were in Q2, and this year it came in Q3. What has the response been so far, Amit Gupta? Have you been able to see a volume uptick in the festive season days that have gone by? This is the first question. Dikshi, I don't think we can comment on the current quarter on this call. We can only comment on the last quarter. Oh. But I think the market has definitely picked up overall. I mean, what we saw in September, October definitely, and going forward, the marriage season, they definitely look better. Okay. My second question was regarding the volumes of U2O. This particular quarter, we did not see a very good growth in the U2O segment, even though the base for U2O in itself is very low. Going forward, have we increased the touchpoints in Q2 as well? What is the plan going forward to keep up the volume momentum for this segment? Two points there. One is that, as I said, U2O also had price increases. We did vacate some sweet spots, which were at the price range of about INR 8,000-INR 9,000. That is one. And as a response, what we have done is to increase the distribution depth. That is one. And second, we are also introducing a product with a new technology, which will keep our margins intact, and which again cover the price point which we had vacated. These two actions should bring the volume growth back for U2O. How much is the total price increase we have taken in the last one and a half years? One, one and a half years? Since the advent of the Middle East war, we have taken around 35%-40% price increase in foam and around 25% odd in mattress. Okay. Thank you for taking the question. Thank you. Thank you. A reminder to all the participants, please restrict yourself to two questions. The next question comes from the line of Rahul Agarwal from Ikigai Asset. Please go ahead. Yeah. Hi, good evening. Thank you so much. I also had multiple questions, but I restricted it to two. So firstly, just on the festival shift, how should we look at mattress volume growth for second half, sir? First half has been flat year-over-year. Second half, should we look at double digits? Any sense, any outlook can you give us? So, hi Rahul. So this all, Rahul, will depend on how it pans out. If it remains like this, if you see more disruptions in the Middle East and further increases in raw material prices, I think the strategy will continue to remain to protect the profitability or the margins, which may have some impact on the volume. But if it remains flat or maybe starts softening, yes, what you are saying should be a reality. Okay. Secondly, when I look at next year, FY28, if things go back to normal, what happens is volumes will pick up, pricing will go down, and then revenue growth goes down to single digits. Is that correct understanding, or how do you look at the business for next year? So, interesting, Rahul. I think the current 15%-18% top-line growth that we see is because mainly of the price increases. If prices go back to the same level, which I don't believe would happen, yes, prices will go down, but they will stabilize somewhere between the current levels and the levels pre-February. If that happens, you are right, some portion of the growth that has come in will be eroded, and some portion of growth will come from increase in volumes or the incremental efforts that we will make. The intent will still remain that we should have a 15% growth on a CAGR basis, on an year-to-year basis, and we feel that all the initiatives that we have done should be sufficient enough to give us 15% growth, irrespective of the environment. If the environment loosens, it will be volume growth mode. If the environment doesn't loosen, it will be value growth. Got it, sir. Lastly, on the minority interest, what is the percentage of minority interest we should assume to deduct after we 100% consolidate on line by line? So will depend on what the equity conversion. Somewhere between 35% - 3% will be ours. So 100% minus 35% or 43%, whatever is ours will be the minority interest that will be reduced in other comprehensive income, not from PAT. Right. Just coming to that quarter, I just wanted to confirm that. How much should we take as minority interest right now from an accounting standpoint? Please rejoin the queue for more questions. It is just a follow-up. I am not asking new questions. No, no, please. I will answer your question. Sure. Suppose the equity conversion at that time is 40%, that is, we hold 40% of the converted equity shares, the minority percentage will be 60% of that of Furlenco. Got it. Does that answer your question? Yeah, that is fine. Thank you so much, and wish everybody a festive greetings to everybody. Thank you. Thank you. Thank you. A reminder to all the participants, please restrict yourself to two questions. The next question comes from the line of Keshav Garg from Counter Cyclical PMS. Please go ahead. Sir, my first question is on Furlenco. Sir, I wanted to understand the business model. Is the understanding correct that Furlenco first manufactures the furniture and then capitalizes it on its books and then rents the furniture? Yeah. Earlier, I think five years back, they used to take assets on lease and then rent it out. But now, since their capital position is quite good, they buy the asset, book it as fixed assets in their books, and then rent it out. So, in which case, EBITDA is pretty meaningless because finance cost is the main cost in a rental business. Secondly, by consolidating Furlenco, in which we hold, in the best case, between 35% and 43%, why not just take our share of interest in associate? Even though we are controlling it, we can just add our share of profits rather than full consolidation, which will just distort the picture for the whole entity, in my humble opinion. Thank you, Keshav, for your opinion. Sir, now secondly, out of INR 600 crore EBITDA for this year, what is the contribution from Furlenco that is expected? As I mentioned earlier also to reply to one of the question, the INR 600 crore is our 100 pro forma basis. So INR 200 crore is Furlenco, and INR 400 crore -INR 450 crore will be ours, the existing Sheela Foam consolidated. Understood, sir. Sir, out of this INR 450 crore, around INR 250 crore is the- Sorry for interrupting, Mr. Garg. Please rejoin the queue for more question. Thank you. A reminder to all the participants, please restrict yourself to two questions. The next question comes from the line of Shantanu Basu from SMIFS. Please go ahead. Hi, good afternoon. Thank you for the opportunity. Most of my questions have been answered, barring one. That is with respect to the debt outlook. What would be the debt outlook for the company FY27, and how much do you expect to pay up? What would be the closing debt figure for FY2027? And beyond- Shantanu- In FY 2028 as well? Yeah. Shantanu, that I will explain in two parts. One is, at the current Sheela Foam consolidated level, we have around INR 600 crores of net debt as on date. By the end of the year, we expect it to be somewhere between INR 500 crores - INR 550 crores, and this I am referring to consolidated debt. But since Furlenco will be consolidated, Furlenco will have a net debt of INR 250 crores, so it will be somewhere around INR 800 crores on EBITDA of INR 600 crores. Okay. Okay. FY 2028 onwards, how much do you expect to pay? From our existing Sheela Foam consolidated, whatever free cash flow is generated, which would be somewhere between INR 150 crores -INR 200 odd crores, that will be used to reduce debt. Furlenco, of course, uses up whatever cash it draws because it is anticipated to grow at more than 30%, so there would be no reduction in net debt there. Maybe a INR 50 crores reduction or so. So you will still find maybe a INR 200 crore per annum reduction you can take. Okay. Thank you. Thank you. Thank you. The next question comes from the line of Resham Jain from VVD Asset Managers. Please go ahead. Yeah. Hi, good evening, team. I have one question on the overall investment in Furlenco and the value creation through that. Rahul sir did mention initially that there is one other listed company in the similar space. How would you unlock value for shareholders through Furlenco, given that it is going to be 43% subsidiary and there will be lot of minority interest in that company? Is there any timeline which you are thinking about this year? Resham, thank you, Resham. The very first task that we had in hand was to turn around Furlenco. Listing is also maybe proposed for the next year, but that is also a consequence of the private equity holders that are there, and they have a right to go public to have an exit route. Otherwise, listing was also not needed. I understand where you are coming from as to how the value that has been created in Furlenco will ultimately be benefiting the investor. This is a little bit complex topic. We have started thinking on it, and maybe in some time we would be able to tell you as to how we anticipate to give it. To be honestly enough, till now we were only focused on creating value in the company. Okay, right. The second part is again related to Furlenco, but the synergies which you can get in the core Sheela Foam and Kurlon business in terms of furniture, because I did saw in your press release, that you are looking to enter the furniture business within the core brand business as well. If you can explain what will be the strategy around that would also be helpful. For sure, Resham. With Furlenco coming to our fold, we have a unique advantage. Though they are a furniture rental company, but they still have the entire value chain for furniture designing, furniture manufacturing, logistics control for the suppliers, and handling consumers in that particular segment. Furlenco also makes some part of its furniture, but most part of its furniture is outsourced. They get it manufactured on an outsourced basis. With Furlenco being there, we are now using them as our backend. They will design furniture for us. Of course, there is a full marketing and sales team here in Sheela Foam which will coordinate with them and do the marketing and sales for those products. But as far as manufacturing, designing is concerned, manufacturing is concerned, and logistics support is concerned, that will be entirely given by Furlenco. This will be beneficial for both the companies. We will not need to invest a lot of CapEx for starting this business, and we will have unlimited potential to grow in case the market supports us. At the same time, it will be a good opportunity to Furlenco to make some extra money on the sales that they will be doing for us. That is the modus that we have adopted, and we have already launched Sleepwell and Kurlon beds and recliners in the online segment. Very soon it is going to be available in some of our stores, which will gradually expand. Okay. Understood. Thank you and all the best. Thank you, Resham Jain. Thank you. The next question comes on the line of Dikshant Gupta from Geojit PMS. Please go ahead. Hi. Am I audible? Yes, please go ahead. My question is on Furlenco. I just want to know, could you disclose some economics, like whenever you take a furniture, what is generally the payback period for that furniture, and what is the kind of IRR that you generate on it? I can tell you that for the company, the return on their assets, return on capital employed is around 25% currently. But as far as payback or IRR is concerned, you understand that this is a competition-sensitive industry, and those type of KPIs cannot be disclosed. Okay. Does Furlenco manufacture its own furniture also, or is it just buying most of it from outside? Sorry, please repeat your question. I was asking that, does Furlenco make its own furniture, or does it buy most of it from other players? They make around 20% - 30% of their furniture, and the rest they outsource. In the past two, three years, if you see, the major investments that they have done is on rentable furniture, because capital was limited and we were the only suppliers of capital to them. Of course, going forward, they would improve this ratio, and maybe some percentage of manufacturing comes in-house. But yes, outsourcing will remain there, and that will remain a major portion of their manufacturing capabilities. Sheela Foam and like Kurlon and Furlenco, if more manufacturing is done in-house, there could be some synergies as both would require in-house manufacturing. Yes, but you have to strike a balance, because manufacturing facilities will need a lot of CapEx, and on outsourcing basis, it is also good economics. It is rather, if you calculate the cost of capital and the depreciation that occurs, I think outsourcing, if you do it on a volume, with volume, it is more efficient. Secondly, you are also working in an industry which may see its good times or the bad times, so you don't want yourself to be flooded with a lot of capacities which might lie vacant in a bad period. Understood. Thank you so much. Okay, thank you. Thank you. The next question comes from the line of Rishi Mody from Mody Advisory. Please go ahead. Yes, hi, can you hear me? Sorry, your voice is not a bit clear. Yes, we can hear you. Yeah, okay. Is this better? Yeah, go ahead. All right. My first question, just a quick bookkeeping. I saw your cash flow from operations. You got a INR 33 crore cash back, as in tax payment reversal. I just wanted to know where this is coming from, and also, once we consolidate Furlenco into our accounts, will we get any benefit from their accumulated losses to offset Sheela Foam standalone profits? We are consolidating them, but we are not merging them, so there will be no tax benefit of their losses. Yes, but they will continue to get the benefits of their past losses. What was your first question? In your cash flow statement, I see a INR 33 crore Yeah, tax matter. Benefit, yeah. Exactly. So, there are certain intangible assets which were created, like brand, customer contracts, et cetera, subsequent to Kurlon acquisition, and they are tax amortizable. So, we created a deferred tax asset at the time of merger of the two companies, and these deferred tax assets are now being amortized. So, it is an amortization of deferred tax asset and not an actual tax paid, and that is why you see them as cash in the company. The INR 23 or INR 33 crores which you would have seen would be because the merger was effective from 20th of October 2023. So, for those years, the income tax returns were revised, which then gave a refund of the tax that we had paid in those years. So, that is the amount that is there. Is there any further benefit expected, or this is your final end of it? Yeah, I think the amount is around INR 150 crore, so I think it will last another year or two more, where we might not have to pay taxes. Okay. Got it. Second, I just wanted to. In your opening remarks, Rahul, you mentioned that because of the Middle East crisis, there are certain factories manufacturing polyol and TDI which have been decimated or damaged. Just to understand now, how much capacity gets wiped out from the market because of this? By when is new capacity expected to come in, and how much new capacity is expected to come in? Just to get an idea of how long this polyol TDI inflation on these levels will remain in place. Some of it is capacity issue, but a lot more is also a logistic issue. If we take total, let's say, TDI, I would say almost about 15%-20% has been wiped out. Wiped out, one, because of the war, and second, because of closing down industries in Europe. On the polyol front, it's little lesser, but as I said, the problem is logistics. Not so much on capacity getting wiped out. Though some are closing and some new ones are also coming in. Today, would you say the demand for TDI and polyol, bar the logistic delays, the absolute demand is exceeding the supply, or it's? What's the scenario today, demand versus supply, absolute levels? So, look, if you were to view this from the space, I accumulate all the demand and all the capacity, you would find that the capacity is a little more than what the demand today is. There's also been a falling demand globally. But it's all at the wrong places. It eventually has to move, and it has to be made available to where the need and requirement is. So, when everything becomes normal again, and hopefully that happens quickly, there would be enough supply for the demand. Unless, I mean, I don't know. Also thinking at the same time- So once the foremost thing gets solved, we should see a relief in pricing. Is that the right inference? Yes. Yes. Got it. That's it from my end. Thank you. Thank you. Thank you. Ladies and gentlemen, that was the last question for today. We have reached the end of question and answer session. I now hand the conference over to management for closing comments. Thank you very much to everyone who has attended this conference. As always, it has been. The questions are a learning exercise for us. We do gain a lot, and thank you very much for that. I would just say that we will finish off with the festival greetings for everyone, and you and your family have a great Diwali. Thank you very much. Thank you. Thank you. Thank you. On behalf of Emkay Global Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.