Sector : Fast Moving Consumer Goods, Industry : Household and Personal Products
Business Overview:
Sheela Foam started its journey in 1971 as pioneer in mattress and foam industry, and currently they are market leader and largest manufacturer of Polyurethane Foam (PU) in India.It was founded by Late Sheela Gautam. Company specializes in the production of foam based household comfort items like mattress and furniture cushions and Technical Grade Foam for various industries such as automotive, acoustics and more. Flagship brands like Sleepwell for Mattress, Feather Foam for pure PU Foam and Lamiflex for polyester foam for lamination have global recognition
Business Segments and Brands:
- Mattress Segment (41% of revenue at 819 Cr.)
- Sleepwell founded in 1994
- Offering Mid-market and Premium mattresses, which ranges from Rs. 8000 to over Rs. 1 lakh.
- Different Categories Includes Foam Mattress, Spring Range, Technology Range, Comfort Cell Range, Back Support Range, Flexi PUF Range, Showroom Range, Economy Range, SleepX Online Brand.
- Volume 2 Mn as of 2023
- Comfort Foam and Home Care Products (21% of revenue at 425 Cr.)
- Industrial Grade Comfort Foam
- Home Care Products include pillows, mattress protector, bolsters and back cushions
- Volume 20736 MT as of 2023
- Technical Foam (26% of revenue at 520 Cr.)
- Different Categories includes,
- Automotive Foam (Polyester and Polyether Foam) – Seat cover, Sound absorption systems, Sun visors, Headliners, Door trims, Lamination systems
- Reticulated foam (Ester and Ether based) – Filtration systems, Ceramic foam filters, Outdoor furniture, Microphones and headphones, Safety fuel tanks, Ink cartridges.
- Ultra violet stable foam – Sportswear, Innerwear and lingerie, Clothing, Swimwear, Comfort accessories for shoes
- Slientech foam (Ester based PU Foam) – Automotive, Diesel generator canopies, Theatres, auditoriums, indoor stadiums, Broadcasting rooms and recording studios and Industrial silencers.
- Volume 15389 MT as of 2023
- Different Categories includes,
- Furniture Foam (12% of revenue at 249 Cr.)
- Serving as integral components of an array of furnishings such as sofa sets, chairs, custom sofas, sofa-cum-beds, and more.
- Categories Includes,
- Primo – Incorporates unique composition and extra thickness for enhanced comfort and support
- Resitec – Advanced High Resilience (HR) cushioning technology which provides personalised comfort for the ultimate cushioning experience
- Cool Gel-S – The cool Gel-S particles are a scientific breakthrough in furniture and cushioning that dissipate heat easily and offers cooling.
- Volume 5744 MT as of 2023
Image from Company Presentation
Key Raw Materials for Business:
Raw materials which primarily include TDI, polyols and other material (such as coir sheets, cloth and chemical additives and catalysts which are utilized in the foam manufacture process) and packing material. Polyols and TDI (Toluene Diisocyanate) are essential components used in the production of polyurethanes.
Market Leaders:
Business Presence and Capacity:
- Global Manufacturing Plants in India, Australia and Spain
- 21 Manufacturing Plants in India with 1,46,000 MTPA
- 5 Manufacturing Plants in Australia with 11,000 MTPA
- One Manufacturing Plant in Spain with 22,000 MTPA
- 20,000 Mattress per day capacity
- Revenue from different location,
- India – 73%
- Australia – 15%
- Europe – 12%
- Distribution Networks:
- Direct Outlets : Sleepwell World – 427, Sleepwell Galleries – 1067 and Sleepwell Shoppes – 1114
- Exclusive Distributors – 100+, Exclusive Brand Outlets – 6100+, Multi-brand Outlets – 12000+
- Company planning to enter the unorganized market through manufacturing plant at Jabalpur (A Mattress for Every Indian) from 4QFY24
- Using latest Variable Pressure Foaming (“VPF”) technology that reduces cost significantly
- Capital Expenditure – INR 120 Crore
- Targeting cotton / EPE foam mattress users (traditional market)
Business Acquisitions from Past:
- 40% Market share in Australia through our wholly-owned subsidiary, Joyce Foam Pty Ltd produces raw materials for mattress and also products for different industries ( Rs. 438 Cr. Revenue, Acquired by Sheela Foam in 2005)
- Also in Spain through our subsidiary, Interplasp S.L and started exporting to US with Bed in a Box Mattress Strategy (Rs. 395 Cr. Revenue, Acquired by Sheela Foam in 2019). Caters to 1% of European Market
- In 2021, Company set up a new subsidiary called as International Comfort Technologies to focus on key growing businesses such as Exports, E-commerce and Low value Economy mattresses to cater to 65% of the rural population.
Business Acquistions in 2023:
- Company acquired Kurlon Enterprises Limited (Market leader in Rubberised Coir Mattresses) in 2023 and now Sheela Foam have more than 30% market share in Mattress Segment and have strong presence in South and East whereas Sleepwell have good presence in North and West. (Total Equity Valuation for Kurlon: INR 2350 Crore)
- Acquired 35% stake in Furlenco, (a platform to rent /buy branded furniture) to foray into branded furniture market
Industry Overview and Expectations:
- India’s Mattress Market Size is currently valued around USD 2.13 Billion (INR 17,800 Cr.) and expected to reach USD 3.21 Billion (INR 26,800 Cr.) by 2029 at CAGR of 8.54% from 2024 to 2029. Source: Mordor
- The market is dominated by the unorganized sector (60% Market Share) but the organized sector (40% Market Share) is growing.
- Sales of residential units are the key driver for the mattress market which is expected to grow around 10-15%. Source: Mordor
- Residential consumers accounted for 80% of India’s mattress market, while 20% was constituted by institutional customers. Source: Mordor
- In 2022, India’s Polyurethane (PU) foam market reached USD 2.8 billion and is projected to reach USD 5.18 billion by 2031, growing at a CAGR of 8.0% during the forecast period.
Consumption Story for Mattress:
- The Mattress market have yearly demand of 7million new units and average replacement cycles stands at 12 years resulting in a replacement demand of approximately 11.6 million units
- Replacement cycles is diminishing with people seeking more comfortable options.
- Government initiatives like Home for All leading to increase in residential units which driving the growth of Mattress Market.
Does Business Simple to understand?
Financial Statements Overview:
Past 10 years Financial Analysis: From 2014 to 2023 (Amount INR Crores)
Image from Screener Excel
Financials Trend:
Latest 4 Quarters Financials:
Sales never dropped in past 10 years, last year sales at 2873 crores from 1221 crores in 2014 at CAGR of 10%. Operating Profit at 297 Cr vs 85 Cr 10 years back improved at CAGR of 15%. Operating Profit Margin stands at 10% improved well from 7% 10 years back which was mainly due to the material cost, in recent years it was varying in the range of 10% to 12%. Only on 2020 and 2021, company got material in attractive rates. Company depreciating its assets at the rate of 10%. Interest rate for the company is very less at 4% which is mainly due to term loan took by International Comfort Technologies at lower interest in other countries. Debt increased from 188 Cr. to 571 Cr. but interest rate stays the same. Company continuously repaid its debt from 2014 to 2019, then there was increase of 280 Cr. for financing Interplasp S.L Spain Purchasing in 2019. Profit After Tax at 201 Cr vs 28 Cr in 2014 improved at CAGR of 25%, but in recent 3 years data doesn’t looks good. Though there was growth of 9% in sales, there was contraction in Net Profit Margin from 2021 drop from 10% to 7% in 2023. Company didn’t paid any dividends in past 10 years. Company spent 350+ crore for capacity expansion in this 70% for India, 15% for Australia and 15% for Spain. Advertisement spends stands at 75 Cr. which 2.59% of 2023 revenue. In recent quarters, company spent close 8.6% revenue for marketing expenses
Key Ratios:
- Return on Equity (ROE) stands at 13% declined compared to recent 5 years mainly due to the contraction in Net Profit Margin
- Return on Capital Employed (ROCE) stands at 14% declined in mainly due to Operating Profit Margin contraction and Increase in Debt
- Return on Invested Capital (ROIC) stands at 9% declined due to debt and margin.
Other Notable Parameters :
- Net Fixed Assets Turnover declined from 5 to 3.3 in 2023, after the purchase of Spain Plant
- Inventory Turnover from 11.2 to 8.9 in 2023
- Interest Coverage Ratio improved from 3 to 14
- Working capital cycle days looks flat at 76 days
- Debt to Equity Ratio at 0.36
One Dollar Value: As of 2023
Company created Rs. 3.39 for each Rs. 1 retained from the net profit.
Does Earning Prospects of Business Looks Good?
Management Overview:
Board of Directors: As of Feb 2024
- Rahul Gautam – Executive Chairman (Associated with Company since 1971)
- Namita Gautam – Whole Time Director (Wife of Rahul Gautam)
- Rakesh Chahar – Whole Time Director
- Tushaar Gautam – Managing Director from Nov 2023 (Associated with Company since 2002, son of Rahul Gautam)
- Anil Tandon – Independent Director
- Som Mittal – Independent Director
- Ravindra Dhariwal – Independent Director
- Lt Gen (Dr.) Vijay Kumar Ahluwalia – Independent Director
- Meena Jagtiani – Independent Director
Key Managerial Personnel:
- Nilesh Mazumdar – CEO, India Business (Joined in Feb 2023)
- Amit Kumar Gupta – Group Chief Financial Officer (Joined in May 2023)
- Md. Iquebal Ahmad – Company Secretary and Compliance Officer (Associated with Company since 2008)
Shareholding Pattern: As of Mar 2024
- Promoters – 65.48% reduced from 72.95% in 2023
- FII – 6.32% increased from 3.26% in last year
- DII – 24.52% increased from 22.28% in last year
- Public – 3.68% increased from 1.50% in last year
Management Information from Interviews and Concall Analysis:
- Sleepwell brand introduced two new model Nexa and Fitrest which received very good response.
- Nexa which is superior to Memory Foam, pricing point from INR 24000 onwards
- Fitrest which is Foam PU Mattress which is introduced with slightly low pricing point
- Company spent close to 8.6% revenue for the marketing expense, which will stabilize in next financial year around 6% to 6.5%
- Management is confident to reach 18 to 20% ROE level
- Company trying to hit the untapped market which is rural and semi urban areas through Tarang Mattress whereas the Sleepwell and Kurlon focuses on urban and semi-urban part
- Tarang Mattress focusing towards people who are using the cotton mattress
- Currently traditional cotton mattress ranging from INR 800 to 1200, Tarang is a light set around INR 2000 with 3 years warranty
- The capital expenditure put in Jabalpur Plant will give INR 300 Crore in top-line within two years
- Though there is recession in Europe, the volume is not reduced in Spain plant which 1% market share of Europe
- Anti-dumping duty proposed on Indian Mattress to US, the import duty is somewhere around 27% to 30%
- Only 30% population in India using Mattress out of which 10% contribution by organized player and 20% by unorganized player.
Does Management Is Strong and Confident about Business?
Business Valuation:
- Considering the business will grow its Free Cash Flow at CAGR of 10% to 12%, Price to Earnings of 301 as conservative value and terminal growth value around 3% and discount value at 8%2.
- Based on Future Cash Flow Terminal and Exit Model, the business valuation will be in the range of 6750 Cr to 8650 Cr.
- Valuation will vary based on different assumption and expectations.
Does Business be Purchased Significant Discount to Its Value?
Overall Ratings for Sheela Foam Ltd:
Footnotes:
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