Sheela Foam Limited (SFL) Q4 2026 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Srila Home Q4FY26 earnings conference call hosted by Investec Capital Services India Private Limited. As a reminder, all participant clients 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 and zero on your touch-tone phone. I now hand the conference over to Mr. Ritesh Shah, Co-Head of Research, Analyst, BIDCAPS, Materials, and ESG from Investec Capital Services in the Private Limited. Thank you and over to you, sir.

Thank you, Shailendra. Thank you all for joining on to Sheila from Q4, F526, and F526 next conference call. We have with us Rahulji, Chairman and Managing Director. We have with us Rakeshi, Deputy MP, and Amidji, Group CFO. I would request Rahulji to start the call with initial remarks, post which we'll have a Q&A session. Over to you, sir. Thank you so much.

Good afternoon, ladies and gentlemen. At the outset, let me thank you all for attending this conference call to discuss our operational and financial results for quarter four And the financial year ended March 2026. I do hope you've gone through the results and the earnings, which have been uploaded on the website. FY26 has been a year of implementation of the benefits of the Curlon acquisition and its integration with Shilafoam. Both Slippel and Curlon brands delivered strong growth, and our foam segments also recorded commendable momentum. The broad-based performance has translated into a healthy growth across both revenue and profitability. I am pleased to share that the company achieved several milestones in FY26, including highest ever annual foam production, highest ever top line, and the highest ever EBITDA. This reflects the strength of our integrated platform focused on execution and a continued commitment to a profitable growth. We are also cautious and remain watchful of the evolving situation in the Middle East and its potential implications for raw material availability and the supply chains. The company, till now, was able to navigate this environment without any material disruption, and I hope that we continue to do that. Our long-standing supplier relationships, both in domestic and international markets, ensured continued availability of key raw materials, such as polyol and TDI. This ensured that the customer servicing without disruption and also increased the top line in quarter four. This reflects the resilience of our sourcing network and the strength of our supply chain relationship. For Q4 of last year, our Indian operations, which are now our standalone business, demonstrated a revenue growth of 24 percent for a full year. FY26, the growth was 11 percent. The volume growth for full year was around 15%. This should also further show positive movement as selling prices are bound to be higher in FY27 as compared to FY26. And we are all aware that the higher raw material prices will be contributing to that. The core EBITDA margins for Q4 climbed to 11.5%. For a full year of last fiscal, the core EBITDA margins stood at 10.7%. This indicates that we are already in an 11% to 12% bracket and should move further onwards with growth. The Kirlon acquisition has moved beyond integration and is now visibly contributing to the group's operating performance. Our business segments have also shown healthy growth during the year. Mattress volumes grew by 13% year-on-year in quarter 4 FY26 and by 12% for the full year. Value growth in the mattress segment was 13% in Q4 and 10% for FY26. Growth during the year was well distributed across both Sleepwell and Curlon, supported by deeper distribution, sustained brand investments, sharper channel execution, and the benefits of a more integrated operating platform. On the retail side, we added approximately 600 net new showrooms during FY26. This further strengthens our market reach. Surloin showroom expansion, particularly in northern India, continued to be an encouraging traction. Alongside this, we also continue to develop adjacent home comfort categories, including pillows, as part of our broader effort to deepen consumer engagement across the comfort portfolio. Our e-commerce business also continued to scale strongly during FY26. Sales on our own websites, which we call brand.com, grew by 136% year-on-year, and sales on platforms grew by 39% year-on-year. This performance has been driven by a focused digital strategy, targeted consumer marketing, a sharper online portfolio, and better alignment between product pricing and fulfillment capabilities. The MyMattress proposition and our online-led consumer initiatives have helped strengthen our direct engagement with consumers. Our unorganized to organized business, which we earlier used to refer as HTI or Small Town India, a Small Town India Initiative, business now operates through 8,400 dealers and reaches over 5,000 towns across 24 states. In FY26, this U2O business delivered volume growth of 65% and value growth of 111% on a year-on-year basis. This growth has been supported by continued product innovation and by strengthening deeper distribution reach in the markets. In phone business, for Q4 FY26, volumes grew by 34%, while value growth was 36%, aided by better price realizations. For the full year of last fiscal, volume growth was at 18%, while value growth stood at 14%. This growth was supported by a broader customer pipeline, disciplined market development, and a continued focus on higher value applications. Overall, our India business delivered a strong FY26 performance, driven by the strength of our brands, expanded distribution reach, sharper channel execution, and sustained operating discipline. The year also demonstrates that growth and profitability can move together when the business is integrated well and execution remains consistent. I am also pleased to share that the board has recommended a dividend of 20% for FY26, subject to approval of shareholders. This is a significant milestone for the company as the profitability of the business has enhanced after successful integration of Curlanon and with significant reduction of debt levels, the group has strengthened its cash generation profile, enabling it to share profits with shareholders. This marks the first dividend recommended by the company since listing. For that matter, forever, this is the first time the dividend is being recommended. Both Australia and Spain have delivered stellar operating performance during the year. In Australia, Joyce, revenue stood at 422 crores in FY26, and EBITDA margins improved to 10 percent for the full year, which is a significant improvement of almost 400 dips over FY25. The improvement in profitability profile was due to implementation of strategic yield improvement programs, renegotiating prices with key customers, and supply chain restructuring institutionalized in last year. In Spain, revenue stood at 391 crores in FY26, an EBITDA margin of 10.4% for the full year as compared to 8.4% in FY26. So, as we clearly see, in both Australia and Spain, the EBITDA margins have increased. On Furlenko, I am happy to share that business is expanding and is well-poised on its growth journey for FY26. Furlenko reported a revenue of 370 crores, a growth of over 60% year-on-year. The company clocked a stat of close to 60 crores compared to 3 crores in FY25, thereby marking significant improvement in its performance. Ferlenco has been able to achieve this growth while maintaining stringent cost discipline and fiscal prudence. As I had spoken in our last call about integrating Furlanco and Sheila Foam's omni-channel network and established Furlanco's presence across Slipple and Curlon stores, I am happy to share that we have seen encouraging response from customers visiting our 40-plus integrated stores, wherein they are able to get offerings from both Furlanco and Sheila Foam. We are constantly increasing such integrated stores and hope to cross 100 stores during current year. Next, our IT business, Staco, has also continued to evolve as a differentiated digital capability within the group. With its solutions now supporting enterprise workflows, analytics and technology-led decision-making across sectors, During FY26, Stackhofer delivered a revenue of 70 crores. We see Stackhofer not merely as a technology subsidiary but as a strategic digital asset. It represents the group's broader capabilities in automation, data intelligence, enterprise efficiency, and artificial intelligence. Coming to ESG, our focus remains on embedding sustainability into the way we operate, rather than treating it as a separate initiative. During FY26, we made steady progress across our identified priorities with continued emphasis on energy efficiency, responsible resource management, waste reduction, workplace inclusion, and, of course, fire safety. We have already operationalized a 500-kilowatt solar power plant at our Jawalpur facility and are progressing with over 1,000 kilowatts of additional solar capacity across other manufacturing locations. We are also able to augment gender diversity in our workforce to around 8 percent during the year. These actions reflect our commitment to building a more responsible, inclusive, and efficient operating platform. Our responsibility extends beyond business performance to the communities we serve and the lives we are able to touch. Our CSR agenda continues to be anchored around two key areas where we believe we can create a meaningful and lasting impact. Emotional wellness and skill development. Through our emotional wellness initiatives, we are able to touch hundreds and thousands of lives across the country, thereby helping build wider awareness and a sustained national conversation around preventive emotional well-being. In scale development, our programs across armed forces, preparation, fashion designing, paramedical training, and software development are focused on equipping young men and women with livelihood-linked capabilities. These initiatives reflect our belief that true value creation is measured by the positive and enduring impact that can be created on the society around us. With this, I will now request our group CFO, Mr. Amit Kumar Gupta, to take you through our financial highlights. Over to you, Amit.

Thank you, sir. Thank you for your input on our business and strategy going forward. Just to update on the financials, there are some numbers here. Our volumes and profitability for Q4 and financial year 26 continued strong registry supported by healthy growth and sustainable margins. On a consolidated basis, revenue grew by 24% year-on-year in Q4 to 1050 growth. For financial year 26, the consolidated revenue grew by 11% YOY to 3821 crores. On a standalone basis, revenue again grew by 24% YOY in Q4 to 819 crores, whereas in the financial year, it grew by 11% YOY to 2962 crores. Our consolidated core EBITDA stood at 121 crores for the fourth quarter, growing by 90% on a year-on-year basis. Core EBITDA margins improved by around 400 basis points to 11.5% from 7.5% last year. Financially, at 26, consolidated core EBITDA stood at 414 crores. For the first time, we as a company have crossed 400 crores. I am pleased to share that the consolidated set for Q4 stood at 9-2 growth, representing a 7-times increase on a year-on-year basis. For financial year 26, the consolidated patch stood at 161 crores, growing by around 78% value-wise. If you look at the yearly figure of 171 crores, out of this, 144 crores came in the last two quarters only. In the first two quarters, we had certain impacts of mark-to-market on the investments that we have put in government security. So, during the last two quarters, we have done 144 crores, which means a run rate of more than 70 crores per quarter. And with the expected growth, we expect to continue the momentum going forward. During financial year 26, the company also reduced net debt by 156 crores, reflecting the underlying cash generation of the business and continued focus on balance sheet discipline. At the time of Cardone's acquisition, the consideration was paid was higher than the tangible value of the asset. This is generally the case when you acquire a strong brand which provides returns over a longer period of time. However, to look at the returns from a shorter period of time, when we exclude the indangible portion of the investment and calculate return on capital employed, We see that it currently stands at around 18%, which even before CURLON acquisition was around 17%. This demonstrates that our return matrices have also improved in comparison to what it was before CURLON acquisition, and we are only in the midst of our journey. With this, I request the moderator to open the floor for questions and answers. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the test on telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsheds while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from Rahul Agrawal from Itigai Yasser. Please go ahead.

Hi, sir. Good evening and thank you for the opportunity. Congratulations for a decent performance. Raji, just firstly to start with going forward, you know, fiscal 26 was a year of hard work to get his growth and profitability back. I think it was keeping the momentum, you know, going from here on. What are the top two, three things, you know, you're spending time on, your team is spending time on in terms of, you know, both staying ahead of competition and at the same time improving, you know, the return on capital for the business. You could share your top-down thoughts for the entire business. Overall, how are you looking at next two, three years? That will be really helpful. That's the first question.

So, Amit, do you want to answer that?

Yeah. So, Rahulji, as we have outlined in our earlier conversations also during these calls, we had taken a target that we would be first trying to reach a growth rate of around 15% plus. Now, since raw materials have increased last year, this should be better than 15%. And so, first and foremost thing is how we can strengthen our different product lines and our different business lines to deliver the growth that we have committed to the market and consequently improve the profit line. Also, going forward, we will be looking into very complementary business lines which are related to us. And some of them we have already initiated. For example, the pillow segment, that's a market of around 100 crores, but we till now were giving out only pillows as cream along with the matrices. Now we will be treating it as a separate category and building it upon. Thirdly, the two segments, which are the e-commerce segments and U2 segments, will continue to be our strong focus areas, because these are the areas which we need to penetrate deeply, not only to maintain our leadership status, but also to grow further in this country, which has around 85% of its market currently occupied by unorganized So, I think not on a one or two year, but on a three to five year horizon rate, our objective would be to get into related product category so that we are a full product player and increase our penetration across the country. Maybe Rakesh, you have something to say. That's fine?

No, that's fine.

Fine, fine. That would be sufficient. Rahul, in case you have anything additional to ask, please let us know.

Sure. Thank you so much. It gives some clarity. Second was, I just wanted to touch upon the input cost infusion bit of it. If we could just talk about, you know, where are TDI and polyol pricing right now, and how do you plan to pass it through, both for mattresses and foam segments? We just talk about, you know, what kind of price increase we're looking forward to across segments, and is that sufficient enough to, you know, let the margin actually sustain or maybe expand going forward. That's my last question.

So that's like an extremely difficult question and probably multiple questions put all together. Yeah. Rahul, the pricing of TDI and polyol is like a crystal ball grazing at the moment, a grazing at the moment. And it's not moving only in one direction, but it's also moving in both directions and moving in large quantities. So what used to be some 2, 3, 4, 5 rupees, 10 rupees a kilo in a year that you would see something moving up or down, Up and down, now you suddenly have 40 and 50 rupees at a time, happening multiple times in a month. Therefore, to handle that, we are learning how to do it, but thankfully, some of our segments help us, like the B2C segment. There are some others which are stable, but also move slowly, don't move along with the raw material market, which is a B2B segment. And then there is also the industrial segment, which moves even quicker than the raw material. So it's a mixed bag. It's something that we can't say that we have full handle on, but should be able to sail through and believe that as soon as the war kind of finishes off, this oscillations or volatility will reduce. Now, you are asking what the future of these prices of the raw materials would be. They are definitely at a high level at the moment. I can only give you a last five years average where polyol should be and where TDI should be. So, polyol should be around 120 plus, and TDI should be around 240 or something like that. But at the moment, they are both above that, but very difficult to predict. I cannot add anything more. Yeah.

Takish, you want to add? I can just say that we have been also able to pass on the cost increase due to raw material across all the channels, the B2C side, the industrial foam side, and partly also on the B2B side. So, we see an opportunity also for a margin expansion, which we have experienced in March, and also going forward, that opportunity exists. So, as well as the raw materials, like Rousey rightly put it, so the raw materials definitely are looking southwards now, but it's a very volatile situation. I mean, it's a function of both availability and the pricing. So, while it is going down because of the demand, but the moment somebody picks up a good quantity, it starts looking northwards. So, it's a play of supply chain currently.

Good night, Dr. Shri. Could you quantify the price hike?

So, currently, TDI, the main supplier is GNSB. So, their price is about $2.75, and polyol is around $1.80.

Rakej, I was actually asking about the price I've taken for our matrices in form. What is the pass-through you've taken so far? That's what I was going to do.

So, it is very difficult to give in percentage terms. They are different for different categories, as Rakej, you just mentioned, that in matrices, we have been able to take decent ones, B2B a little lesser, That industrial segment, yes, we can pass on immediately. But yes, polyol and TDI on an average increased between 25% to 35%. And depending on how much home is consumed in different categories, we have been able to increase prices to offset those price increases and to some extent maintain our margins also.

Go ahead, Aminji. Thank you so much. I get back at BQ. All the best for the next year.

Thank you.

Thank you. Ladies and gentlemen, a reminder to all, please limit your questions to two for participants so that management can address more participants. Should you have a follow-up question, we will request you to rejoin the queue. The next question is from Ajun Khanna from Kotak Mechurpan. Please go ahead.

Thank you for taking the question, and congratulations. Better set of numbers this time around. So, the first query is just on the marketing expenses because we've been bringing that out historically. I didn't quite catch it in this presentation. So, how much would we have spent in the fourth quarter, and how much would we, as a percent of sales, would be for FY26?

So, Rahul, sorry, Arjun, for the entire year, it should be around 4.5%, almost similar to what we did last year. For the last quarter-on-quarter is a fraction that moves on. I think it would be a little lesser because CoQ3 is the highest percentage we spend upon, so maybe around 4-odd percent.

Fair. Helpful. Sir, the second question is on the depreciation side. I just wanted to understand, post these changes, what outlook do we anticipate for FY26? What should be the number we should work with? 27 or 26. 27, sorry.

So, Rahul, I think at a consolidated level, we would be looking for a depreciation based on current assets, and I am not commenting what incremental depreciation we might have for capital investment that we do next year, should be around 140 to 145 crores at a consolidated level.

Sure. So, this quarterly run rate of 35, essentially, one can annualize this number? Yes, yes, you can. Sure, and the final bit on KPEX for next year, what's our outlook?

Sir, including maintenance and some de-bottle netting capacities, because we have grown by around 15% in volume this year, and we anticipate even a higher growth in the next year. So, we will need certain de-bottlenecking CAPEX at certain of our facilities to meet this volume. We should be somewhere between 125 to 150%.

This is including maintenance CAPEX? Everything.

This is including marketing CAPEX, which is for opening of new stores. This is maintenance CAPEX for all our plants, both in India, Australia, and Spain. And this is also any new CAPEX we need for de-bottlenecking. Everything included.

Perfect. Thank you so much for answering these questions. Thank you.

Thank you. The next question is from Dipali Kumari from Aryan Capital Market. Please go ahead.

Thank you so much for giving this opportunity. So the first question is, the unorganized to organized segment showed massive growth. So how stable is this month across the region of the state?

You were not very clear. Can you please, we could understand that U2O has shown a high growth, but after that, what you said, please, can you repeat?

So, my question is, the unorganized to organize a massive growth. How scalable is this market that is across many states where you do not have the major points?

Sorry, ma'am, Dipadi, ma'am, you are not audible. Please join back the queue. The next question is from Amit Mahendale from RoboCapital. Please go ahead, sir. Thank you.

My first question is on the margins. Is it fair to say that, you know, in the backdrop of escalation in raw material prices, are margins, EBITDA margins, will be under pressure in Q1 or Q2?

Sorry, I could not get your question. Can you please repeat?

Yeah, in backdrop of raw material prices, you know, our EBITDA margin should be under pressure in Q1 or Q2, right? Because Q4 must be having stock at all prices. The inventory may be there, the raw material inventory. But Q1 and Q2, we may have to use the inventory which is bought at higher prices, and I'm assuming that there will be some pressure on the EBITDA margin in Q1 or Q2.

No, so if you see our gross margin, see what happens is whenever there is a raw material price increase, it is not that we instantly can increase the price of our products to the consumers also. It's a process which takes around 10 to 15 days, and same is the quantum of inventory that we have. So the higher price inventory almost maps up with the increase in the prices, and that's why you see there is not a very material increase in gross margin in the quarter as compared to the fourth quarter last year. It would be almost a 1,500 basis point improvement. So technically, there was no impact of lower raw material prices when these prices went up. Similarly, in the first and the second quarter, we don't expect any impact of higher raw material prices. I don't say there would not be 50-100 basis points. There can be because the prices are very volatile currently. But not more than that, what leads to EBITDA margin and which has been done in the fourth quarter is an increase in volume. We are a 30% plus contribution margin business, and whenever there is an increase in volume that directly flows to the bottom line, it's strengthening the EBITDA margin. And that's the reason why we will be focusing on growth which we have done last year, and we will be doing in the current year.

I was just trying to figure out, I mean, if the poly prices have gone up from, say, 120 to 180, I'm sure we won't be able to pass on such a large increase. I mean, even a 20-25% increase is difficult to pass on. So how are we confident?

I'll take that. I think what Rahulji mentioned is 120 was the ideal price for polyol. And the 120 was the price in January. So the price started rising from February, and then there was a sharp spike towards end of February when the war started. So the polyol price had gone up to 220. So, what Amit Ji is saying is, when it was rising, so we were able to face price increasing, and now the highest price that it has gone up to is $220, and currently it is at $180. It is oscillating between $200 and $180. So, the part price increase has already been taken. So, therefore, it will not impact the margins going forward.

Okay, great. And the last question?

No, go ahead, Amit.

Understood. Thanks. My last question is on Perlanko. What is our plan, you know, for, say, the next three, four years? How do we see that business going? And how, you know, any long-term plans there, three, four-year plans?

So Perlanko already is at about 370 crores.

Next year's plan is about 500 crores. And it's tracking well. So I think two things that we look forward to. One is that when would be a right time for doing an IPO? And we will take our decision somewhere in the next three to four months' time.

Right, sir. And the last question is on the debt levels. What could be our debt levels for next two years, 27 and 28?

So, to answer that question, I'll divide the debt between two parts. One, the debt which is outstanding on the Indian books, and the second, the debt which is outstanding in Spain and Australia. Spain and Australia is around 350-odd crores. So, that is 350 crores, which is self-liquidating, is being paid off from the cash flows of Australia and Spain itself. The other 300-hour growth is in India, which I think if you see or utilize the entire cash flows, what we are anticipating should be paid in the next one, one and a half years.

Okay, great. Thank you very much.

Okay, thank you.

Thank you, sir. Participants, we request you all to please limit your questions to per participant. We have next question from Mr. Pritesh Sheda from Raki. Please go ahead.

Sir, I couldn't get the answer on Ferlanco. So, first, Ferlanco is now a materially 60 crores profit in the company, and we have around about 50 plus percent holding. So, what is the course of, you know, business plan there, and what kind of ROE that business operates at?

So, first of all, we don't hold 60 percent. I'll just correct that number. We hold around, on a fully diluted basis, we hold around 43% in Sri Lanka. We are the largest shareholder, and we hold majority on the board in the shareholder meeting, these two. Yes, we have done 60 crore SPAT in the current year. ROE for the company will be different, but I can say that we have done a total investment of around 430 crore for our investment. So, even if you take 1,000 crore basis debt, which is divided into debt and equity, I think it's a metric that can vary. What is important here is return on capital employed. The assets that Perlanko has deployed and the type of EBIT that it is getting, the return on capital employed is around 30% to 35% for Perlanko. Our returns, of course, will come mainly to the valuation of the company since we are a shareholder, and that will depend upon what price the company gets listed.

So, this company is going for IPO?

Not currently, but there are plans to go for IPO once it reaches a threshold size, which as Rahulji just mentioned, maybe one year from now or maybe a little bit later than that.

Okay. And on the debt and the interest cost part, so you said that the debt of India will be repaid in one and a half years?

Yeah. So the cash flow generated will have capacity to repay the India debt in one and a half years, since it is around 300 outgrowth. Whether we will pay or we will utilize that cash for further growth in the business, that's something different. Because these are immaterial debts. If you see debt to EBITDA, it is less than 1.

And can you give out the interest cost for the next 2 years? You know, that would be helpful. The way you give out depreciation cost, maybe you could give out the interest cost.

So, at a consolidated level, as I said, if you add up, you will have a debt of around 600 to 700 crores. The interest cost for the debt would be 35 crores and another 15 odd crores for bank charges and other things. So, at a consolidated level, finance costs should show a figure of around 50 odd growth, until and unless we do major changes in the capital structure.

Okay. Okay. Done, sir. Thank you.

Thank you. The next question is from Ritesh Shah from Investing Capital Services. Please go ahead. Thanks for the opportunity. First question is on U20.

If you look at the full year, volume growth is around 65% and value growth is triple one. So, sizable difference between value and volume over here. Sir, if you could provide some color on why this gap, what is it that we have changed over the last one year? That's the first question.

So, the volume growth is 61%. 65% and value growth is 111%. Great. So, Ritesh, what has happened is that we have introduced a higher model. Earlier when we had launched this product, we had launched with only one model. So, now we have introduced another model at a higher price point. That is one. And second is there also has been a price increase in both the models. So, it is a result of that.

And, sir, what would be the volume contribution by percentage for U20 on the total volumes that the company does?

So, Ritesh, I'll have to get back with these numbers. We generally don't disclose the distribution of the matrix between different categories, but I'll have to get back with those because I'll talk to you separately on that.

Sure. And, sir, just over here, would it be margins accretive or higher than what we reported standalone basis over here, specifically for U20?

It would be more or less, margins would be more or less a notch lower than the offline matrix and much higher than the e-coms. So, it would lie somewhere in between.

Fair enough. And, sir, would you like to comment something on e-coms? Basically, again, it has done quite well. Uh, 52% value growth. Uh, if you could highlight what is our thought process over here, because historically we did very well, then we scaled it back. Uh, again, we are back on the panel over here. So how should we look at this part of the business?

So Ritesh, we are, uh, on two sides. We are, uh, put additional focus on the brand.com And that is one, as a platform. And second is we have also put focus on Carlon. So both these put together has led to a substantial growth on the brand.com site. Also on the platform, Carlon was lagging behind. So we had to make some changes in terms of our play In the, on the platform. So that has also yielded good results. It's a combination of these two things which has led to this growth.

Sure. And just last question. What is the motivation of changing the depreciation policy right now?

So, Ritesh, I think depreciation policy was very skewed. Whenever we used our foaming machines last, if you see an example of our foaming machine in Greater Noida, It has been installed for the last 22 years now, and it's functioning well, producing around 25,000 tons of foam, or rather more than that, per annum. Generally, these machines last for very long, around 40 to 50 years. So, if we follow the written-down method, then potentially it depreciates the machine to the extent of 70-75% in the first 3-4 years, This does not reflect the actual amortization of the asset on the revenue that it generates, and it skews the thing. So, and secondly, the second biggest part of our assets is generally building and related assets. Plants don't get depreciated. Even buildings have a life of 40 to 50 years. So, just to align the cost of depreciation which is allocated to business on a year-on-year basis, in line with the useful life of that particular asset and what value it delivers over 40-50 years, we have realigned the policy to reflect realistic figures.

Sir, I will call you for this separately. And sir, just last question. I think we had 40 crores of some synergy savings which was still pending. I think we had given a number of 160 plus 40. 40 was pending. It was contingent on certain new machines. It could just provide some color on the timelines of the incremental synergy pending benefit and by when the machines will come. Thank you.

So, you are right, Ritesh. We had said that we will realize a total synergy of 250 crores, out of which around 190-200, we had done till two quarters back. 40 crores was to come from some new machines which were imported with a new material of malleable fiber to be used as a comfort layer. That is currently under installation. It is delayed by a quarter and a half, but I think by the mid or end of this quarter, that will be installed, and we might see that scaling up in the subsequent quarters.

Thank you, sir. I'll just like to thank you. Thank you so much.

Thank you.

Thank you. The next question is from Rishi Modi from REM Advisory LLP. Please go ahead.

Hi, sir. I'm audible. Yeah, my first question. So we've seen impressive volume growth in technical form and comfort form in this quarter. Just wanted to check for any one-off B2B orders in technical form or any inventory stocking up by the channel in lieu of price-hides due to crude volatility.

So, as President, if I look at the annual picture of both B2B and the comfort form, so we started putting more focus on these two segments, and there were some structural changes in the distribution and also the way we were approaching the market. So, one is a function of that. So, overall, we have grown in both these segments upwards of 15%. What if for there has been a spike, which is primarily two reasons. One is whatever steps we have taken to build this business further. That is one. And second, when the war broke, we were in a much better position to continue serviceability in the market. So, there were smaller players who were finding it difficult to maintain their supply chains. So, those orders also got shifted to us. But if you see on an annual basis, I mean, these businesses are now at a level of 15% growth on an annual basis. And our plan for the next year is also on the similar line.

Okay. So, this customer gain that we have done, right? Let's say people who weren't able to supply to these guys. Now we've gotten them as our clients or incremental volumes from existing clients who were buying from somewhere else. Is that also continuing like maybe because we're giving better service or better pricing or if they have reverted back to their existing suppliers?

Sure. As I said, we had taken these two as also focused businesses where some changes had to be made, which took some time. So that was irrespective of the war and the scarcity of raw material. So those actions were already started getting implemented and showing results. Now, as far as this was concerned, that the March and the month of April is concerned, this is where some customers who have moved out also started buying. So then, obviously, we will retain them, and that's what the plan is going forward.

Okay, got it. My second question was on the international piece, right? So, Australia, our gross margins have expanded quarter-on-quarter, while also other expenses have increased. And then also on the Spain piece, the gross margins, are they formed up around the 32% gross margin mark? And the fixed expense of the percentage has come to about 20% of our revenue. How much of that is fixed versus variable? So, in case, say, things, the gross margin, like, I'm just trying to assess the sensitivity here.

Sure. So, let's start with Australia. Australia has shown a steep increase in gross margin in the current year, current quarter, I would say, not the year. Two reasons. One, yes, efficiency measures have been there on for last one year or so. The margins we achieved, EBITDA margins we achieved there last year was 6%. So, we were on an improvement spree throughout the year. The methods that were applied was, one, creating efficiency with the wastage that they created, and secondly, taking price hikes with the customers, which had not been taken for a very, very long period. Now, this little bit of disruption in the raw material prices created a little bit of plus and minus in Australia, but I think to some extent, maybe around 54-55 Watt percent, Australian margins have improved. There may be aberration of 3-4 percent. So, you should be able to see 4-5 percent higher than the normal margins it used to had in the past. Now, as far as the fixed costs are concerned, I would request you look at it as a percentage of total revenue because the exchange rates have gone differently. So when you convert Australian dollar into rupee, which was 55 a year before to 65 now, it's a different scenario, right? So fixed costs reflect only that portion. When we move to Spain, Spain has been a real surprise because Europe was going through challenges. So the pricing realization that could be done in Spain was much better. I would not say 32-33% would be a stable sort of margin, but I can comment that around between 30-32% would be a stable margin. I imagine it will not revert to 28, 29, which we had seen in the past, and yeah, that way the profitability will remain there.

And is there still scope for cost optimization there, or that 20% other expenses is going to largely remain around that 20% mark?

So some minor improvements may happen, but broadly it would remain the same. Yes, turnover improves because there is a very strict cost control there. If you see the fixed cost structure between Australia and Spain, Spain is very small. But scope is always there, but I would not say any material sort of scope there. And our intent with both Australia and Spain is also not to go to a profitability of 16-18% because we know those type of profitabilities don't survive in those countries. So, the intent is to retain it between 10% to 12%, which to some extent is feasible in these countries and possible.

Okay, got it. And we were planning to... Thank you, sir.

Rishi, sir, please join us.

Just a quick question. Let me... It's a continuation on the international piece only. You all were planning to sell or you all were exploring whether to sell off the international business. Is that still in the plans or we are now going to continue with this business as it?

I think one of the investor conferences I had mentioned is that we are open to that. And I think our position remains the same, that we are open to that. But that doesn't mean that we are switched off from it. We will pursue that and wait for the right person to come or the right party to come at the right time. But at the moment, we still do whatever is necessary to maintain that business.

Got it. Thank you. That's it from my...

Thank you, sir. Participants are requested to limit your questions to the participant. We have next question from Paldiv Deshpande from Samiksha Capital. Please go ahead.

You said that... Hello, can you hear me?

Yes, we can.

I just wanted to understand, just going back to the previous, you know, inventory question and, you know, channel stalking on that comfort form, technical form. I just wanted to, because the raw material prices have increased so much, are we saying there was no channel stalking in this quarter?

No, as Rakesh already mentioned, the higher volume was because of two reasons. One, the work that has been done throughout the year with the new customers, and second, because some of the players, caller players, have gone out of business and that business came to us. So, we don't anticipate any major channel stocking, and foam is a very bulky material. You can't go beyond a volume to stock foam. It's very difficult. So, we don't anticipate any choking or blocking of the channels and resulting in any challenges in the subsequent months. It was a genuine demand in the market, which the existing suppliers of those customers could not fulfill, which we went ahead and fulfilled. But that was some part of the growth. The rest part of the growth was our own efforts and what we had been doing in the past.

Thank you. The next question is from Pritesh Cheda from Lucky. Please go ahead.

Sir, just one question and a slightly broader observation. So, what specifically since the last two years have been brought in for the volume growth in the India business improving? And, you know, if you could articulate that and the sustenance of the same. So, we have got a double-digit number this year as well. So, some key points there, sir?

Yeah, see, there were multiple things. One, very sharp focus on all these. So, once we took over Carlon, it was a new animal for us, a very different sort of a company, though we used to sell the same products, but the companies were very, very different. The way it sold, the way it produced, the way it managed the business. We struggled with it for a year or two, and I think you all are witness to that, how we struggled. But that also led us to more detailing and more focused on our existing business, and we identified certain priorities for ourselves, which we had reflected in our commitments to the market also. So, of course, we could partly meet them. Going ahead, we hope to meet the full commitment, which was growth on one side and profitability on the other side. So, a very profitable growth sort of a model. The entire focus and energy of the organization was shifted to these two. The discussions that now we have, the opportunities that now we explore, the push that we give to the market, each and every category what we study and try to see what best can be done. I think the level of working and the level of dedication in those have gone up, and the focus of the organization to long-term planning has qualified, which also gives us the confidence to tell you that this growth is going to continue in future. Nothing else. I don't think raw material has changed. I don't think market has changed, customer has changed, or anyone has changed. But yet, our way of looking at the business and putting targets in front of ourselves has changed.

Any channel-related changes? And since both the brands are operating in different geographies, but trying to also have aspirations in their core geographies, any changes there? Okay.

So, the brand-wise focus continues because they both have evolved in their own way. So, that is one which we have put more focus on. And second is also on the wide spaces for channel expansion. So, last year, we also saw a massive expansion covering many areas where we were not represented. There is also a system to look at our channel partners where we are also getting more and more accountability on that side. So, since they are, because we have now integrated both the brands under the channel partner, so that piece is also being looked at very closely, being monitored, and accountability is fixed there. So, I think a sum total of all these things is we are getting better as far as this channel is concerned.

And market shares?

Market share, there is no recent study that there is an association who used to do it, but our belief is that there is a, I mean, we can sense that at least for both the brands and with a U2O kind of initiative and e-com, the organized sector play is improving.

Thank you for the opportunity, sir.

I wanted to understand on the DDI part, if I I heard you write earlier in the call, you said that GNFC is a player who is the biggest supplier of TDI, but they had their own factories, you know, closed, you know, during the war, and also what we heard that one of the biggest, probably the biggest player in China and world, and they had also stopped supplying TDI from China. So, how have we managed to procure the required amount of TDI quantity?

So, you're right. I mean, GNFC was shut down first on a technical reason, and then later also because of the, in the month of March, because of the natural gas energy. So, but the shutdowns were temporary in nature, and during that part, the traders who import, who cater to the balance 40% of the market, they had increased the rates. So, the material was available, but it was available at a much higher price. So that is one part. And second, we had about a few months back, we had also taken an in-principle decision to also hedge our risk. So we had introduced a new supply partner and who was very supportive during this time. And we were able to meet the requirements. So, we did not have any stock-out situation, though we had to pay a little more for TDI at a few times during the month.

Okay. I mean, was this new supplier Chinese?

So, it's a mix of both the Korea, there were some materials from Japan, which was coming in, and also from China. So, China also has more than one manufacturer. There are a couple of manufacturers who are there. Some of them, they bring in the material on their own, and they supply it locally as per the pricing of the market. And some, you can import directly. So, it's a mix of both.

Right. Got it. That was my message, and all the rest. Thank you.

Thank you. Ladies and gentlemen, we will take this as our last question. I would now like to hand the conference over to Mr. Ritesh Shah. Please go ahead, sir.

Yeah, thanks, Elendra. Thank you all for joining on to the call. Rahulji, if you would like to please have some closing remarks. Thank you so much for your time.

Ritesh, thank you very much for conducting the call. As usual, it has been a lot of incisive questions, and let me just say that we continue to learn as you question us, and we keep answering that. So, with that, I would just wish you all the best. Have a great weekend, and we will soon meet again in another quarter. Thank you very much. Thank you. Thank you.

Thank you. On behalf of Invested Capital Services India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.