9th June, 2024

Vspartans Consultants Pvt Ltd

Research Report : Sheela Foam Ltd.

NSE Code: SFL
Recommendation: BUY
Current Price: INR 913.05
Target: INR : 1287.55
Potential Upside: 41%
Expected Holding Period: 12 Months
Financial Ratios:

Market Cap Rs 9,884 Cr Promoters 65.48%

Holding

Current Price Rs 913.05 Pledging % 0.00%

52 Wk High/Low Rs 1370/854 Debt to Equity 0.51

PE Ratio 59.8 EPS (TTM) 16.78

Book Value 269 Dividend Yield 0.00%

ROCE 9.07% ROE 7.31%

Sheela Foam Limited Overview

Company Profile

Sheela Foam Limited (SFL) is a leading player in India’s mattress and foam
products industry, and a leader in Polyurethane (PU) Foam manufacturing.
Established in 1971, SFL has a long-standing track record and a nationwide
presence in PU Foam manufacturing.

Product Range

Mattresses Segmentation (41%): My Mattress, Spring Range, Technology

Range, Custom Cell Range, Back Support Range, Flexi PUF Range, Showroom
Range, Economy Range, Online Brand.
Comfort Foam and Home Care Products (21%): Foam Sheets, Foam Blocks,
Comfort range accessories, Foam Cores, Furniture Cushions, Pillows,
Bedsheets, Comforters/Blankets, Mattress Protectors, Sofa-cum-Beds.
Technical PU Foams (26%): Automotive Foams, Reticulated Foams, Ultra-
Violet Stable Foams, Silentech Foams.
Furniture Foam (12%): Sleepwell Resitec, Sleepwell Cool Gel, Primo
Flagship Brands:
 Sleepwell: Mattresses and home comfort
Feather Foam: Pure PU Foam
Lamiflex: Polyester foam for lamination

Strategic Acquisitions and Market Expansion

Kurlon Enterprises Limited (KEL): In 2023, Sheela Foam acquired a 95%

stake in Kurlon Enterprises for ₹2,035 crore. The acquisition was funded
through internal accruals and equity of around ₹1,575 crore and debt of ₹725
crore. It is giving SFL de-facto leadership in the branded mattress segment
with over 30% market share.
Furlenco: Sheela Foam also acquired a 35% stake in the online furniture firm
Furlenco for ₹300 crore. Furlenco is a leading online furniture company with
operations in cities like Bangalore, Mumbai, and Delhi NCR.

The combined entity of Sheela Foam and Kurlon has established a strong market
position with a share of 70% in the North, 75% in the West, 50% in the South,
and 60% in the East. The company is focusing on expanding in the MBO channel
and leveraging Kurlon’s dominance in this segment to improve access to Sheela
Foam’s products. They maintain long-term associations with distributors and
engage continuously with an expanded in-house sales force to drive penetration
and volume growth. The IT-enabled distribution network helps to reduce
turnaround time (TAT) and enhance logistical efficiency.

Manufacturing and Distribution

Manufacturing Footprint:
21 plants in India
5 plants in Australia
1 plant in Spain
Sales and Distribution:
100+ exclusive distributors
6,100+ Exclusive Retail Dealers (EBO’s)
12,000+ Multi-Brand Outlets (MBO’s)
International Presence

Spain

Revenue Contribution: 14% of FY 23 revenues

Location: Yecla
Interplasp Capacity: 22,000 MTPA

Australia

Subsidiary: Joyce
Market Share: 40%
Capacity: 11,000 MTPA

Sheela Foam has a strong international presence with significant contributions

from its operations in Spain and Australia. In Spain, the Yecla facility under
Interplasp S.L. contributes 14% of FY 23 revenues with a capacity of 22,000
MTPA. In Australia, its subsidiary Joyce foam Pty Ltd. holds a 40% market share
with a capacity of 11,000 MTPA.

Manufacturing Capacity and Strategic Benefits

Sheela Foam operates 11 manufacturing units with a capacity of 129,000 metric

tons (MT) per annum, while Kurlon operates 10 units with a capacity of 17,000
MT per annum. The combined entity has a total of 21 manufacturing facilities
across India, with a total foaming capacity of 146,000 MT per annum. These
facilities are strategically located to ensure proximity to raw material sources
and end consumer markets.

This strategic spread allows the combined entity to benefit from economies of
scale, potentially reducing raw material costs. Additionally, the optimised
manufacturing footprint is expected to improve capacity utilisation and reduce
logistics costs, enhancing overall operational efficiency.
Manufacturing Presence in Domestic Market

Market Dynamics

Volatility in Margins

The company's raw material costs account for approximately 70% of total
expenses. Since the key raw materials are by-products of crude oil, fluctuations
in crude oil prices directly affect the company's profitability.
Shift to Organized Market

To increase market share, Sheela Foam sells low-price mattresses, facilitating a

shift from the unorganized market to the organized market.

Growth Projections for the Organized Mattress Market in India

The organized mattress market in India is expected to experience significant

growth in the coming years, driven by several factors:

Rising Disposable Income: As disposable income increases, consumers are

likely to spend more on improving their sleep environment, leading to a
preference for higher quality mattresses offered by organized players.
Increasing Urbanization: Urbanization and the growing number of nuclear
families are expected to fuel demand for modern furniture, including
mattresses, in urban areas where organized retailers have a stronger
presence.
Health and Wellness Awareness: Growing health consciousness among
Indian consumers is leading to a rise in demand for mattresses that promote
better sleep posture and back support. Organized brands often cater to this
segment with features like orthopedic mattresses and memory foam
options.
E-commerce Growth: The increasing popularity of online shopping
platforms is expected to benefit organized mattress retailers by providing
wider access and convenience to consumers.
Innovation: The introduction of new materials like memory foam and
advancements in mattress technology have fueled consumer interest

Market Research Reports and Analyst Estimates:

Here's a range of growth projections from various sources:

Mordor Intelligence: Estimates the organized mattress market in India to

grow at a CAGR of 8.54% from 2024 to 2029, reaching USD 3.21 billion.
 Makreo Research: Projects the overall Indian mattress industry to grow at a
CAGR of 10-12%, with the premium segment (where organized players are
strong) anticipated to grow at a more robust rate of 25-40%.

These are just estimates, and actual growth may vary depending on economic
factors and consumer behavior. The growth of the organized sector is likely to
come at the expense of the unorganized market, which still holds a significant
share.

Deep Dive into Market Segmentation of the Indian Mattress Industry

Organized vs. Unorganized Sector

Organized Sector:
Key Players: Sheela Foam (Sleepwell), Duroflex, Pepperfry, Springwell
(international brand).
Characteristics:
Standardized, well-designed mattresses with warranties.
Focus on quality materials and innovative features (e.g., memory foam,
orthopedic support).
Strong marketing and branding efforts.
Wide reach through online and offline retail channels.
Unorganized Sector:
Key Players: Local manufacturers and small shops.
Characteristics:
Custom-made mattresses using materials like coir and cotton.
Local sourcing and traditional craftsmanship.
Lower prices due to simpler designs and materials.
Primarily cater to local markets with limited brand awareness.

Growth Trends

Organized Sector's Rise:

Rapid growth driven by:
Increasing consumer preference for branded and quality mattresses.
Convenience of online retail.
Growing urbanization and changing lifestyles.
Unorganized Sector's Future:
Significant but expected to decline as:
Consumers become more brand conscious.
 Organized players expand their reach to rural areas.

Types of Mattresses

Spring Mattresses: Classic choice with good bounce and support, including
pocket spring and bonnell spring options.
Foam Mattresses: Provide pressure relief and comfort, with memory foam
promoting spinal alignment. Latex foam offers a natural and eco-friendly
option.
Coir Mattresses: Made from coconut fiber, these are breathable, firm, and
affordable but may lack the comfort level of foam mattresses.
Waterbeds: Less common, using water chambers to adjust firmness and
provide a unique sleep experience.

Popularity of Spring and Foam Mattresses

Spring Mattresses: Dominant due to familiarity, affordability, and good

ventilation.
Foam Mattresses: Increasing in popularity due to superior comfort, pressure
relief, and body contouring. Memory foam is particularly attractive to
health-conscious consumers.

Industry Fundamentals

Growth Projection: The Indian modern mattress market is expected to grow

at a CAGR of over 10%, reaching INR more than 25,000 Cr by 2030.
Market Fragmentation: The market is fragmented with numerous branded
and non-branded players, with branded players comprising 40% of the
market.
Government Initiatives: The 2022-23 budget allocates INR 48,000 Cr for
housing under PM Awas Yojana, targeting 80 lakh homes.
Infrastructure and Railways: India Railways is improving coach
infrastructure and substituting imports with domestic foam supplies, with
400 new Vande Bharat trains planned by 2025, representing a business
opportunity of INR 40,000 Cr.
Real Estate Growth: The real estate sector is projected to reach US$ 1 Tn by
2030, contributing 13% to GDP by 2025.
Future Opportunities: The Indian foam industry's prospects are promising,
with applications in construction, bedding and furniture, transportation,
electronics, footwear, and more.
Expected Growth of the Mattress Industry: Global and India

Global Market

Market Size and Growth Rate:

The global mattress market was valued at USD 52.45 billion in 2023.
It is projected to reach USD 91.23 billion by 2032.
This reflects a Compound Annual Growth Rate (CAGR) of 6.59%.

The global mattress market is experiencing steady growth, with a CAGR of 6.59%
over the forecast period. The market's significant expansion from USD 52.45
billion in 2023 to an expected USD 91.23 billion by 2032 highlights the increasing
demand for mattresses worldwide.

Indian Market

Market Size and Growth Rate:

The Indian mattress industry is estimated at USD 2.13 billion in 2024.
It is projected to reach USD 3.5 billion by 2030.
This indicates a CAGR of over 10%, which is faster than the global average.

In comparison, the Indian mattress industry is growing at an even faster rate,

with a CAGR of 8.54%. The market size is projected to rise from USD 2.13 billion
in 2024 to USD 3.21 billion by 2029. This rapid growth can be attributed to
increasing urbanization, rising incomes, and greater awareness of sleep health
among Indian consumers. The faster growth rate in India compared to the global
average indicates a robust and expanding market, presenting significant
opportunities for industry players.

Key Financial Data:

All figures except EPS are in INR Crore Source: screener.in

Quarterly P&L Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Mar-24

Sales 551 786 881 737 701 722 761 729 645 613 879 845

Operating Profit 38 110 95 72 66 78 76 78 78 66 76 81

Other Income 18 18 28 16 18 23 28 18 13 24 32 70

Profit Before Tax 33 105 97 62 58 75 77 63 60 60 53 83

Net Profit 25 77 67 49 43 54 61 44 43 44 31 65

EPS 2.54 7.83 6.85 5.04 4.31 5.44 6.20 4.43 4.41 4.05 2.83 5.94

The quarterly financial data of Sheela Foam Ltd. reveals significant fluctuations
in performance. Sales varied widely, starting at INR 551 Cr in Jun-21 and peaking
at INR 879 Cr in Dec-23, with a notable decline to INR 613 Cr in Sep-23 before
rebounding to INR 845 Cr in Mar-24. Operating profit also fluctuated, beginning
at INR 38 Cr in Jun-21 and peaking at INR 110 Cr in Sep-21. It then stabilized
around INR 78 Cr but dropped to INR 66 Cr in Sep-23, before slightly recovering
to INR 81 Cr in Mar-24.

Other income remained relatively stable, typically ranging from INR 13 Cr to INR
32 Cr, with a significant spike to INR 70 Cr in Mar-24. Profit before tax (PBT)
showed significant variation, starting at INR 33 Cr in Jun-21 and reaching a high
of INR 105 Cr in Sep-21. It fluctuated and dropped to INR 53 Cr in Dec-23 before
increasing to INR 83 Cr in Mar-24. Net profit followed a similar trend, starting at
INR 25 Cr in Jun-21, peaking at INR 77 Cr in Sep-21, dipping to INR 31 Cr in Dec-
23, and rising to INR 65 Cr in Mar-24.

Earnings per share (EPS) also showed substantial fluctuations, peaking at 7.83 in
Sep-21 and hitting a low of 2.83 in Dec-23, with recovery to 5.94 in Mar-24.
Overall, Sheela Foam Ltd. experienced significant quarterly fluctuations, with
notable peaks in Sep-21 and recovery trends in Mar-24, maintaining stable
operating and net profits despite these variations.

All figures except EPS are in INR Crore

Yearly P&L Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24

Sales 1,889 2,066 2,121 2,437 2,866 2,873 2,982

Operating Profit 217 211 300 364 315 297 301

Other Income Normal 21 28 28 50 79 86 140

Profit Before Tax 193 189 256 324 296 273 256

Net Profit 134 134 194 240 219 203 184

EPS (split adjusted) 13.70 13.70 19.82 24.36 22.27 20.62 16.78

Sheela Foam Ltd. experienced consistent sales growth from INR 1,889 Cr in Mar-
18 to INR 2,982 Cr in Mar-24, with the most significant increase between Mar-21
and Mar-22. Operating profit showed fluctuations, peaking at INR 364 Cr in Mar-
21 before declining to INR 297 Cr in Mar-23 and slightly recovering to INR 301 Cr
in Mar-24. Other income increased significantly from INR 21-28 Cr between Mar-
18 and Mar-20 to INR 140 Cr in Mar-24.
Profit before tax (PBT) and net profit both peaked in Mar-21 at INR 324 Cr and
INR 240 Cr, respectively, before declining to INR 256 Cr and INR 184 Cr in Mar-
24. Earnings per share (EPS) followed this pattern, peaking at 24.36 in Mar-21
and then decreasing to 16.78 in Mar-24. Overall, despite fluctuations in profits
and EPS, Sheela Foam Ltd. maintained steady sales growth and demonstrated
recovery trends in its financial performance.

All figures are in INR Crore Source: screener.in

Balance Sheet Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24

Share Capital 24 24 24 24 24 49 54

Reserve 573 706 895 1,160 1,368 1,552 2,866

Borrowing 48 31 310 334 466 571 1,493

Other Liabilities 398 401 414 551 496 531 926

Total Liabilities 1,043 1,162 1,644 2,069 2,355 2,702 5,340

Fixed Assets 348 412 851 894 883 865 3,133

CWIP 52 1 18 33 120 287 161

Investments 98 318 231 411 618 768 878

Other Assets 544 432 544 732 734 782 1,167

Total Assets 1,043 1,162 1,644 2,069 2,355 2,702 5,340

The balance sheet of Sheela Foam Ltd. demonstrates substantial growth in both
liabilities and assets from Mar-18 to Mar-24. Share capital remained steady at
INR 24 Cr until Mar-22, before increasing to INR 49 Cr in Mar-23 and INR 54 Cr in
Mar-24. Reserves showed consistent growth from INR 573 Cr in Mar-18 to INR
2,866 Cr in Mar-24, with the most significant increase occurring between Mar-23
and Mar-24.

Borrowings fluctuated, starting at INR 48 Cr in Mar-18 and peaking at INR 1,493

Cr in Mar-24, notably rising from Mar-21 onwards, particularly due to the
acquisition of the Kurlon brand. Other liabilities were relatively stable from Mar-
18 to Mar-20 but saw significant increases afterward, reaching INR 926 Cr in
Mar-24.

Total liabilities increased steadily from INR 1,043 Cr in Mar-18 to INR 5,340 Cr in
Mar-24, reflecting the company's growth and increased leverage. Fixed assets
grew substantially from INR 348 Cr in Mar-18 to INR 3,133 Cr in Mar-24,
indicating significant capital investments. Capital work in progress (CWIP)
showed variability, peaking at INR 287 Cr in Mar-23 before dropping to INR 161
Cr in Mar-24.

Investments increased significantly from INR 98 Cr in Mar-18 to INR 878 Cr in

Mar-24. Other assets fluctuated, starting at INR 544 Cr in Mar-18, peaking at INR
782 Cr in Mar-23, and further increasing to INR 1,167 Cr in Mar-24. Overall, total
assets grew consistently from INR 1,043 Cr in Mar-18 to INR 5,340 Cr in Mar-24,
indicating substantial growth in the company's asset base. The balance sheet
reflects Sheela Foam Ltd.'s significant expansion, increased investments, and
capital improvements over the years.

Shareholding Pattern:

Shareholding Pattern Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Mar-24

Promoters 72.95% 72.95% 72.95% 72.95% 72.95% 72.95% 65.48% 65.48% 65.48%

FIIs 2.53% 3.11% 3.16% 3.19% 3.26% 3.21% 6.04% 6.12% 6.32%

DIIs 23.37% 22.84% 22.73% 22.43% 22.28% 21.95% 25.08% 24.99% 24.52%

Public 1.15% 1.10% 1.14% 1.43% 1.50% 1.89% 3.40% 3.40% 3.68%

Source: screener.in All figures are in percentage

Sheela Foam Ltd.'s shareholding pattern indicates that the Promoter stake has
decreased from 72.95% in March 2022 to 65.48% in March 2024, indicating
dilution. However, this is offset by growing interest from Foreign Institutional
Investors (FIIs) whose holdings increased from 2.53% to 6.32% during the same
period. Domestic Institutional Investors (DIIs) maintained a relatively stable
position, fluctuating between 22% and 25%, with a holding of 24.52% in March
2024. Sheela Foam Ltd. shows strong share holding pattern in which 96.32%
shore held by promoters, Foreign Institutional Investors (FIIs), and Domestic
Institutional Investors (DIIs), Sheela Foam Ltd. exhibits a concentrated
ownership structure. This leaves a relatively small shareholding of 3.68% for
retail investors.

Technical Chart Analysis:

Despite Sheela Foam Ltd.'s stock trading at the same level as in November 2017,
Company's Earnings per Share (EPS) has seen a significant increase from 13.70
in March 2017 to 16.78 in march 2024 during this period, whereas we can see
that the share capital has increased from 24 crore in March 2018 to 54 crore in
march 2024 which indicates equity dilution and fund infusion in the company
and still company indicating improved profitability. From a technical
perspective, this stock falls within the Range Bound Strategy, and it has once
again touched the lower range of this strategy. Moreover, various indicators
suggest potential support for the stock. Additionally, there has been almost
50% growth in net profit in March 2024 compared to the March 2018 year.
Sheela Foam Ltd.'s stock reached its lifetime high in April 2022, touching a price
level of 2027.55. However, we will consider setting the ultimate target price at
this previous high of the range bound strategy, suggesting a potential gain of
41% from the current price. This analysis presents an opportunity to buy the
stock at the current level for potential future gains.

Based on the comprehensive research report provided, here are ten strong
points supporting a buy recommendation for Sheela Foam Ltd:

1. Market Leadership: Sheela Foam is a leading player in India's mattress and

foam products industry, with a long-standing track record and nationwide
presence.
 2. Diverse Product Portfolio: The company offers a wide range of products
including mattresses, comfort foam, technical PU foams, and furniture foam,
catering to various customer segments and preferences.
3. Flagship Brands: Sheela Foam's flagship brands like Sleepwell, Feather
Foam, and Lamiflex enjoy strong brand recognition and customer trust in the
market.
4. Strategic Acquisitions: The acquisition of Kurlon Enterprises Limited has
strengthened Sheela Foam's market position, making it a de facto leader in
the branded mattress segment with over 30% market share.
5. International Presence: With operations in Spain and Australia, Sheela Foam
has established a strong international presence, contributing significantly to
its revenue stream and market share.
6. Manufacturing and Distribution Network: The company's extensive
manufacturing footprint with 21 plants in India and international facilities
ensures efficient production and distribution, enhancing its
competitiveness.
7. Market Growth Potential: The organized mattress market in India is expected
to grow at a CAGR of over 8% in the coming years, driven by factors like
rising disposable income, urbanization, and health awareness among
consumers.
8. Financial Stability: Despite quarterly fluctuations, Sheela Foam has
demonstrated consistent sales growth and stable operating profits over the
years, reflecting financial stability and resilience.
9. Strong Balance Sheet: The company's balance sheet reflects substantial
growth in assets and reserves, indicating sound financial management and
investment in future growth opportunities.
10. Technical Analysis: From a technical perspective, the stock is currently
trading at a favorable level within a range-bound strategy, presenting a
potential buying opportunity for 41% Gain in next 12 months.

In conclusion, Sheela Foam Ltd. emerges as a strong investment opportunity

due to its market leadership, diverse product portfolio, strategic acquisitions,
international presence, and growth prospects in the Indian mattress industry.
Coupled with financial stability and favorable technical indicators, the stock
presents compelling upside potential for investors.

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Definition of Ratings

Ratings Expected Absolute Returns over 12-

18 Months

Buy More Than 10%

Hold Between 10% and -10%

Sell Less than -10%

Not Rated We have forward looking estimates

for the stock but we refrain from
assigning valuation and
recommendation

Under Review We will revisit our recommendation,

valuation and estimates on the stock
following recent events

No Stance We do not have any forward-looking

estimates, valuation or
recommendation for the stock

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ANALYST CERTIFICATION: I, Nirmal Agrawal (B.COM, FCA) Research Analyst author and the
name subscribed to this report, hereby certify that all of the views expressed in this research
report accurately reflect my views about the subject security. I/ also certify that no part of
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Please send your feedback to nirmal@vspartans.in or vivek@vspartans.in

ANALYST

Nirmal Agrawal nirmal@vspartans.in +91 9881493166

(Sources: Charts and Financial Data from Screener.in and Tradingview.com)