Sheela Foam: IPO Analysis

sheela1Sheela Foam Limited, a leading manufacturer of mattresses in India marketed under our flagship brand “Sleepwell”. Is coming out with an Initial public offering (IPO) for  Equity Shares aggregating up to  Rs 510 crore. This is the first offer from a manufacturer of IPO.

  • Issue Opens       : Tuesday, November 29, 2016
  • Issue Close         :  Thursday, December 1, 2016
  • Price Band          : Rs. 680-730
  • Issue Size            :  Rs.510 Crores. This is a full offer for sale by the promoter.
  • Lead Managers : Edelweiss Financial Services,  ICICI Securities

About The Company:  Sheela Foam Limited was incorporated on June 18, 1971 at Delhi.  Sheela Foam is the Leading Manufacturer of Mattresses in India marketed under the flagship brand “Sleepwell”. According to CRISIL, based on revenues, Sleepwell branded mattresses constituted a share of around 20-23% of the organised Indian mattress market as of 2015-2016.  The company is into manufacturing of mattresses, other foam based home comfort products and technical grades of PU Foam products through its 11 manufacturing facilities in India and pioneered the the manufacturing of polyurethane foams (“PU Foam”) in India.  In an effort to diversify into international markets, Sheela Foam had acquired the business of manufacture of PU Foam and polystyrene products of 3 Australian companies, namely, Joyce Corporation Limited, Joyce Indpac Limited and Marfoam Pty Limited through Joyce Foam Pty Ltd (“Joyce”), their wholly owned Australian subsidiary in 2005.

The company has a large product portfolio with a wide range in mattresses, pillows and cushions. Under the Sleepwell range, the company sells pure foam mattresses as well as hybrids of spring and coir with foam. Apart from Sleepwell, Feather Foam and Lamiflex are its other major brands. The company also manufactures foam-based products such as pillows, mattress protectors, bolsters, back cushions, sofa-cum- beds, bedsheets,  baby care sheets, and  furniture cushioning products. Under its technical grade foam range, we manufacture and supply PU Foam grades to a diverse range of industries, including automotive foam used to manufacture auto parts; reticulated foams utilised in filtration systems; ultra- violet stable foams used for the manufacture of garments, shoes and innerwear; and technical foams that are used in industrial sound absorption systems. Apart from technical foam, through its Australian business, it manufactures PU Foam that is supplied to manufacturers of comfort products and home furniture and industrial PU Foams supplied to manufacturers of auto components, sound absorption systems, medical equipment and food packaging material.  Sleepwell competes with brands including Kurl-on and Duroflex in the mid and high-end segment.  In India, the company has a wide distribution network — 100 plus exclusive distributors, over 2,000 retail dealers and 2,500 plus multi-brand outlets across the country. There is also a chain of company owned outlets — 239 Sleepwell Worlds, 433 Sleepwell Galleries and 930 Sleepwell Shops.

Objects of Issue:

The objects of the Offer are to achieve the benefits of listing the Equity Shares on the Stock Exchanges and for the Offer for Sale of up to 69,86,301 Equity Shares by the Selling Shareholder. SFL expects that listing of the Equity Shares will enhance visibility and brand name and provide liquidity to the existing shareholders and to the holders of options that may be granted by the Company.

Financials:   (Rs. in Crore)

Particulars 2016(6 m) 2016 2015 2014
Revenue from Operations 867.02 1,696.19 1,553.31 1,396.44
Revenue Growth (%) 9.20% 11.23%
EDIDTA 114.05 192.96 101.66 85.3
EDIDTA Margin 13.15% 11.38% 6.54% 6.11%
Profit  Before Tax 94.17 152.02 57.51 36.14
Net Profit 65.95 104.79 42.67 27.84
NPM 7.61% 6.18% 2.75% 1.99%
EPS (Rs.) 13.52 32.22 13.12 8.56
Share Capital 24.39 16.26 16.26 16.26
Reserves 380.25 322.17 228.78 180.3
Net Worth 404.64 338.43 245.04 196.56
FV 5 5 5 5
RoNW (%) 16.30% 30.96% 17.41% 14.16%
NAV 82.95 69.38 50.23 40.29
Issue Price 730 730 Rs.
Post issue equity 24.39 24.39  crore
EPS (on Post iPO equity) 21.48
PE Ratio (on Post IPO equity) 33.99


  • Sheela owns 20%-23% of the organized mattress market and has seen a compounded revenue growth of 10% from FY12-FY16. The “Sleepwell” brand is owned privately but Sheela Foam has an agreement to use the brand at a nominal rate of Rs 5 lakh per annum for the next ten years.  Sleepwell is a well recognised and established brand built over consistent quality and innovation.
  • Sheela Foam enjoys Integrated operations and economies of
  • While 82% of Sheela’s revenues are from domestic markets, 18% come from exports of technical foam. It also has presence in Australia through its wholly owned subsidiary – Joyce Foam.
  • Increased urbanisation, income levels, disposable incomes, product awareness and health- related issues in the Indian population is envisaged to drive penetration of mattresses in the Indian CRISIL Research estimates organised mattress industry to drive an 8-10% growth in overall mattress industry in the next five years to reach a total market size of ` 130-140 billion by fiscal year 2021. The organised market, by itself, is expected to grow at a CAGR of 11-13% to reach a market size of ` 50-55 billion by the fiscal year 2021
  • The company’s debt has been reducing and was only Rs 29 crore(long term debt) in the end of September. Its return on equity in the first six months of FY17 was 16.3%.
  • Its debt to equity ratio is only 0.2
  • Sheela Foam has a Extensive and well developed pan-India sales and distribution
  • The company’s manufacturing facilities are in close proximity to the large distributors and the consumer market which reduces carriage expenses and minimises the possibility of damage to products.
  • GST could be Positive for the company.
  • Toluene Diisocyanate (TDI), a major chemical used for foam manufacturing has seen its price double post September – from Rs 150 per kg to close to Rs 280 per kg. In FY16, TDI cost was more than 11% of the company’s sales and thus company may see some pressure on margin even as it may have passed the raw material hike in the prices of its products.
  • The company has experienced negative cash flows in relation to our investing activities and financing activities for Fiscal Years 2014, 2015, 2016 and the six months ended September 30, 2016
  • The company could see some drop in sales due to demand destruction from demonetization and sharp rise in input costs and in the short run can be affected by Demonitization.
  • The valuation that the IPO demands is 34 times on its FY16 earnings, which is slightly expensive and does not take into account present turmoil in markets, uncertainty and offers little margin of safety at this price band.
  • Sheela Foam faces stiff competition both from the organised and unorganised players in the market — Kurl-on, Duroflex and Coirfoam, Paps Industries besides a few international brands
  • Even as the IPO is not stiffly priced, Current market conditions could be bit risky for listing gains.
  • However a strong brand, increasing market share, well integrated operations, experienced management are the key strengths of Sheela Foam Limited. The company enjoys healthy operating margins and return ratios and can be considered as  a play on rising urbanisation and consumers upgrading from the unorganised to organised sector and this can be a long term bet as well as give returns if market sentiment improves.

Leave a Reply