Foam Industry

Sheela Foam: Stock to Watch

Sheela Foam Limited is a leading player in India’s mattress and foam products industry. Founded in 1971, the Company enjoys strong brand awareness and a nationwide presence in manufacturing of mattresses, home comfort products and technical grades of PU foam. It has a nationwide presence in manufacturing PU Foam.

sheela foam owns the brand Sleepwell

Sheela Group is committed to a one-point programme that of bringing comfort, convenience and luxury to enhance the lifestyle of a modern man. The Company also enjoys a significant presence overseas, with its products being exported to over 20 countries worldwide.

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(A) Stock Valuation

Sheela Foam Stock price as on 14 April 2021: Rs 1,985.25 per share

  • Market Capitalization of shares: Rs 9,684.61 crore
  • Total of Cash & cash equivalents and Investments amount to Rs. 410.11 crore
  • Trailing P/E ratio: 45.26
  • Enterprise Value (EV) of the company is Rs 9,819.77 crore
  • EV/EBITDA = 24.55
  • Earning Yield (EBITDA/EV) = 4.07%

(B) History

sheela foam stock analysis

(C) Family Chart

sheela foam owner family structure

(D) Sheela Foam Group Structure

sheela foam stock's group structure

Key Acquisitions to Note:

  • Sheela Foam has a strong presence in Australia through its wholly owned subsidiary, Joyce Foam Pty Ltd. The company acquired the business of manufacture of PU Foam and polystyrene products of three Australian companies, namely, Joyce Corporation Limited, Joyce Indpac Limited and Marfoam Pty Limited through Joyce Foam in 2005.
    • The company owns and operates five manufacturing facilities in Australia.
    • Facility in Sydney is engaged in manufacture and processing of PU Foam, while the others are engaged in processing of PU Foam (sourced from Sydney unit).
  • In July 2019, Sheela Foam Ltd entered into European market by announcing the acquisition of Interplasp with (total consideration of Euro 40mn financed by debt and internal accruals), which makes polyurethane foam for bedding, furniture and other applications.
    • The acquisition of Interplasp, a company based in Spain that has been in operation for 30 years but is very modernised and is located in the most cost-effective manufacturing zone of Europe. With this acquisition, the company can scale up European business significantly.
    • Interplasp has a manufacturing facility at Yecla in Spain, with a capacity to produce 22,000 tonnes of polyurethane foam. It exports foam to other European and North African countries as well as to Morocco.
    • The foam manufactured by Interplasp can be distributed within a 600-km radius, which covers a large part of Europe. It also opens more doors for in North America because of the geographical proximity.

(E) Executive Directors

(i) Late Sheela Gautam - Founder (Nov 15, 1931 - June 08, 2019)

Late Smt. Sheela Gautam, is the founder of the Sheela Group. She was also a member of the Lok Sabha four times from 1991 onwards. She completed her graduation with an additional degree in education. Subsequently she found Sheela Foam in 1971 and actively involved in growing the organization for two decades before moving into active politics. She entered politics with the Congress in 1980. In 1991 she joined the Bharatiya Janata Party (BJP) and became an MP for the first time.

She expired in June 2019.

(ii) Rahul Gautam - Managing Director (Age 68 years)

Mr. Rahul Gautam is also the Chairman of Joyce Foam Pty Ltd. in Australia & Interplasp, in Spain. He joined Sheela Foam in 1971.

Graduated from IIT he holds a Bachelor's Degree in Technology (Chemical Engineering)  and a Master's Degree in science from the Polytechnic Institute of New York, USA. He has over 40 years of experience in the home comfort products and PU foam industry. He is also the Chairman Emeritus of the Indian Polyurethane Association.

(iii) Namita Gautam - Director (Age 67 years)

She is professionally qualified & experienced Human Resource Specialist with extensive knowledge and skills in Training and Development, Project Management, Media and Communication. Mrs. Namita Gautam is active in family business since 1984.

She is also the Managing Trustee of 'Sleepwell Foundation' - a charitable organization working under Sheela Foam.

(iv) Tushaar Gautam - Director (Age 43 years)

Mr Tushaar Gautam is a Science Graduate in Industrial Engg. & Management from Purdue University, USA and heads the Research & Development Division of Sheela Foam.

Also he has been associated with the company since 7 January, 2002, and been a Whole-Time Director since 1 April, 2007. He oversees the operations of the Company and subsidiary Joyce Foam Pty Ltd and serves on its Board of Directors. He has more than 17 years of experience in heading production, research and development.

(v) Rakesh Chahar - Director - Sales and Marketing

He is associated with the company since 1 November, 1990, and been a Whole-Time Director since 14 November, 2003. He holds more than 28 years of experience in the business of selling and marketing of bedding products and polyurethane foam.

During his tenure, Company's flagship brand 'Sleepwell' emerged as the most popular Indian brand in home comfort products category.

(F) Shareholding Pattern - Dec 2020

sheela foam shareholding pattern

Sheela Foam Ltd Shareholders holding more than 1% of total shares - Dec 2020

sheela foam stock analysis with detail of major shareholders
sheela foam stock analysis with detail of major shareholders

(G) Product Segmentation of Sheela Foam

(i) Home Comfort Products

stock analysis of sheela foam with details of product segments


Feather Foam

Furniture Cushioning


Sofa Cum Beds

Other Home Comfort Products

(ii) Technical Foam Products

technical foam products of sheela foam

Automotive Foams

Reticulated Foam

Silenctech Foam

Ultra Violet Stable Foam

(H) Segment Wise revenue contribution

shareholding pattern of Sheela foam ltd

Geographical Revenue Break-up

sheela foam stock analysis with detail of geographical revenue segments

Sheela Foam holds around 40% market share in Australian Foam Industry

Company’s presence in Australia through Joyce Foam Pty Ltd (JFPL), which is the largest player in the foam business in Australia, and then across the European Union through acquisition of Spanish Company, Interplasp, S.L., diversifies geographical presence.

(I) Key Competitors

Indian mattresses industry is highly competitive because of minimal entry barriers & negligible product differentiation. If we consider the large scale brands, following players secure significant share of the mattresses market:

1) Kurlon Enterprise Limited:

The Group has a strong distribution network with 7,000-plus dealers across the country and 1500 exclusive retail stores. Kurlon also enjoys strong brand recall among its consumer base. The company's remain concentrated in the southern market, accounting for about 40% of the total sales in FY2020. Nonetheless, the company enjoys healthy market share across eastern, western and northern regions as well, each accounting for about 20% of the total sales in FY2020. The Bengaluru-based company claims to enjoy ~40% market share in the organised mattress industry.

2) Duroflex Private Limited:

Duroflex Private Limited is one of the leading manufacturers of mattresses in South India which accounts for 81-85% of the total sales.

3) Peps Industries Pvt Ltd:

The company claims to hold 55% market share in spring mattresses segment of the industry. Peps’ turnover is around Rs 345 crore. It is based in Bengaluru and manufactures in Coimbatore, with a few auxiliary units in the north, south, east, and west India.

In addition to the above players, there are many startups in mattresses business like 'Flo', 'Sleepycat', 'Wakefit' and many others. These players are gaining buyers through online channels. Thus, apps like Amazon, Flipkart form competitive grounds in the recent times.

(J) Key Financial Parameters

(i) Major Costs of Company

sheela foam stock analysis with detail of major costs analysis
  • Raw material cost forms a significant portion of the total manufacturing cost (about 70% of the raw material consumed). Polyol and toluene diisocyanate (TDI), the major raw materials, are manufactured from by-products of crude oil. Their prices link to the price of crude oil, as well as to demand-supply conditions.
  • The Average per kg price of TDI:
    • Rs.163/- in Jan 2021
    • Rs.140/- in Q2FY21,
    • Rs.124/- in Q1FY21 and
    • Rs.133 /- in Q2FY20.
  • Price of Polyol is also increasing sharply. Present Price is Rs. 230 per kg which was at Rs. 119 per Kg during mid of the year 2020. This is primarily due to supply chain disruptions and faster than expected demand recovery of the foam industry. But the management also believes that raw materials have reached their peak and should stabilize by Q4FY21.
  • Main reason behind increase in raw material price is that around 15% of raw material supply is not functioning due to various lockdowns.
  • Due to Increase in price of raw material management has to increase the price of products.
  • There is around 5%-7% increase in price of Home comfort products and there is also sufficient increase in prices of technical products.

(ii) Net Sales

sheela foam stock analysis with 10 years sales growth

(iii) Operating Profit

In FY20, the company recorded an overall mattress sales volume growth of 20%. Although the pandemic impacted business, a major relief in a year of challenges was the low price of raw materials, including Toluene Di-Isocyanate (TDI), which held steady and enabled us to control the bottomline even as we strategized to improve the topline.

As per management, the company does not reduce product prices in the premium category "Sleepwell", but offer innovation at very competitive prices through new launches in the economy category "Starlite" and "Feather Foam".

Despite lower sales, EBITDA increased by 22% and PAT increased by 34%.

sheela foam stock analysis with 10 years operating profit growth

(iv) Profit After Tax

sheela foam stock analysis with 10 years PAT growth

(v) Key Operational Highlights

  • The company added more than 260 new exclusive stores during the year 2016 which added to the company's presence in market and eventually contributed in profits. Further on the operations side, the company undertook several shop floor enhancement initiatives which enabled it to improve foam yield by 0.3% over previous year in FY17. Further each year the company embarked importance of improving its foam yield.
  • The rate of GST on Foam and Spring Mattress reduced from 28% to 18% in mid-November during FY18. The Company immediately passed on all the benefits to the customers by reducing MRP.
  • Moreover, the Company introduced economy model mattress “Starlite” and Mid Level Mattress “Feather Foam” in July 2017 and Feb. 2018.
  • Company continues to develop Import Substitute Foam through its in-house Research & Development to control the raw material cost and to maintain the profits.
  • The management stated in its discussion for FY20 that the company does not reduce product prices in the premium category "Sleepwell", but offers competitive prices through new launches in economy category Starlite and Feather Foam.

(vi) Free Cash Flow

sheela foam stock analysis with 10 years cash flow

During FY20, the company acquired its Spain subsidiary. Thus, there is increased capital expenditure on account of acquisition of fixed assets and Goodwill recognition.

(K) Significant Ratios

(i) EBIT Margin

sheela foam stock analysis

(ii) Profit After Tax Margin

sheela foam stock analysis

(iii) Return on Capital Employed

sheela foam stock analysis

(iv) Return on Equity

sheela foam stock analysis

(v) Performance FY21 – 9 Months ended Dec 2020

sheela foam stock analysis with performance analysis of FY21

The company benefitted during 9 months ended 31 December 2020 on account of correction in TDI prices till September 2020.

(L) Management Discussion and Concall Highlights

(i) New Launches

  • The Company intends to leverage the existing range of products through its specialized know-how and manufacturing capabilities to produce niche and higher-margin products, including more sophisticated grades of technical PU foam. As a result the Company is trying to enhance its sale through penetration in the rural markets by introducing budget mattresses.
  • Starlite and Feather Foam are the products emphasis on value of money range. Thus different strategies are used to market these products. Moreover it launched new products targeting consumers in the high-volume, moderate-value category.

(ii) Acquisition of Spanish firm Interplasp

  • One of the major developments of FY 2019-20 is the acquisition of Spanish Company Interplasp which makes polyurethane foam for bedding, furniture and other applications.
  • With this acquisition, company can scale up their European business significantly, and there is much more room to grow there. It also opens more doors in North America because of its geographical proximity.
  • Besides providing presence in Europe, world’s largest polyurethane foam market, the acquisition of Interplasp will lead to operational efficiency as manufacturing cost in Spain is the lowest in Europe.
  • The market share of Sheela Foam in Spain is small but there exist huge opportunities available for the company in European market.

(iii) E-commerce

  • The company recently ventured into the e-commerce side because that’s again another area where people's shop from home continues. Company has a brand called SleepX, sold through Amazon and Flipkart and also through its own website

(iv) Neem Fresche Technology

It is the only comfort product manufacturer in India that has a technology of Neem Fresche to improve one’s health, to improve immunity to allergies and infections.

(v) Affect of Pandemic

  • Despite this slowdown the Company was able to sell volumes similar to last year till 21 March, 2020. To increase the sales in this segment, Company continues to develop Import Substitute Foam through its in-house Research & Development.
  • Impact of second wave of corona virus is very little in Australia, but the impact is high in

(vi) Extensive pan-India sales and distribution network

The Company sets out sale of its products through its wide distribution network of more than 110 exclusive distributors, more than 11,500 retail dealers, over 7,400 multi-brand and 4,100 exclusive brand outlets Exclusive distributors are typically engaged in strategic proximity to the manufacturing facilities, which helps reduce carriage expenses and minimize product damage.

(vii) Borrowings Status

As said by the management that Indian Company remains 100% debt free while the increase in debt is on account of foreign subsidiary for which the loan is raised outside India.

(viii) Other Key Highlights

  • Till December 2020, Online channel contributed less than 5% of overall mattress business. Although, it is growing at very healthy rate driven by SleepX brand.
  • Company has cornered about 20-23% market share of the organized mattress market.
  • The board has decided to not be declaring any dividends for FY20, in order to retain cash.
  • Moreover, the board has not declared any dividend since the year the company got listed.

(M) Opportunities and Strengths

(i) Established market position in the polyurethane (PU) foam market

Sheela Foam is the largest producer of flexible slab stock PU foam and mattresses in India, with estimated market share of 25-30% in the organised market. Its brand, Sleepwell, is well established. Its wide range of products include mattresses, pillows, cushioning material and foams. A pan-India distribution network helps cater to both retail and business customers. Also, presence in the economy segment through Feather Foam and Starlite brands consolidate the market position.

(ii) Healthy revenue diversity

Although mattresses continue to contribute substantially to revenue, the SFL group has a significant presence in retail and industrial foam products as well. Furthermore, presence in Australia through Joyce Foam Pty Ltd (JFPL; largest foam player in Australia) and across the European Union through Interplasp, diversifies the group's geographical presence.

(iii) Keeping pace with growing demand

The Company is committed to developing personalized products to keep pace with the increasing demand. Leveraging existing portfolio of products, know-how and manufacturing capabilities qualifies it to produce niche and higher-margin products, including more sophisticated grades of technical PU foam.

(iv) Growing consumerism

Consumer spending in India is expected to grow from USD 1.5 trillion in 2019 to nearly USD 6 trillion by 2030. This consumption growth will be supported by a 1.3 billion strong population that is younger than any other major economy. Subsequently by 2030, 77% of India’s population will comprise millennials and Generation Z, who will be more “brand-aware” and better informed and will have a higher spending capacity. Demand and consumption of comfort sleeping products is set to grow on the back of rising consumerism.

(v) Increasing incidence of lifestyle diseases

Increasing prevalence of back pain, spine-related problems, orthopaedic ailments due to sedentary lifestyles, along with growing awareness on health and comfort are expected to translate into a rise in spending on wellbeing products and services. This will continue to drive demand for quality sleeping and home comfort products.

(N) Challenges and Weaknesses

(i) Intense competition across product categories

Sheela foam Ltd. group faces intense competition from domestic players such as Kurlon Enterprises Ltd, Duroflex Pvt Ltd and Peps Industries Pvt Ltd, as well as from unorganized players, which form 60-65% of the market in India. Ability to maintain market share across a range of products in an intensely competitive market will remain a concerning factor.

(ii) Susceptibility to volatile input prices

Raw material cost forms a significant portion of the total manufacturing cost (about 70%). While the price of polyol has largely been stable, there has been significant volatility in the price of TDI over the last few years. However, sharp upswing in TDI prices since September 2020, may lead to moderation in profitability for the company in the second half of fiscal 2021.

(iii) Transportation & Warehousing

Given the voluminous nature of PU foam and mattresses, warehousing and transportation of these products pose difficulties and significant cost challenges. Consequently, long-distance transportation of these items becomes infeasible.

(iv) Dependence upon Other Industries

The demand of technical foam products of the company is greatly affected by other industries like shoe industry and automobiles industries.

(O) Indian Mattress Industry

  • The Indian mattress market, comprising rubberised coir, polyurethane (PU) foam and spring mattresses, is poised to reach Rs 140 bn by the fiscal year 2022.
  • Dominated by small and unorganised players which specialize in coir, cotton and foam mattresses.
  • The unorganised players constitute around 65% of the total market. On the other hand the organised segment comprises of branded players who manufacture high quality mattresses by using, premium foam, spring and coir combinations.
  • Also, there is a gradual shift from un-organised to organised players. This is because, brands educate customers about the material used in mattresses.
  • The rural market is dominated by Cotton Mattress or other sleeping surfaces.
  • PU foam mattresses dominate the overall organised market capturing ~50% share followed by coir and spring mattresses constituting 30% and 20% share respectively.

The Indian Mattress industry grew at a CAGR of 8-10% over the past 5 years, on account of :

  • Increasing population
  • Rising urbanization – India’s urban population has been consistently rising over the years and stood at about 31% in 2011 and is expected to increase to - 36% by 2020.
  • Increase in health problems such as back pain, spine related problems, orthopedic ailments are envisaged to result in increase in growth in the market.
  • Growth in end-user industry viz. housing, hospitality and healthcare

(i) Sector wise Break-up of Mattress

indian mattress industry segmentation

The organized market constitutes ~35% of the total market and, growing at a faster pace compared to the unorganized market. The unorganized mattress market accounts for ~41% of the total market by the fiscal year 2021.

(ii) Market Classification of Mattress based upon usage

In India, branded mattresses are broadly consumed by two end-users – Residential and Institutional. While the residential segment accounts for around 80% to 85% of the total market, the institutional sector contributes the remaining 15% to 20%.

(iii) Classification of Organized Mattress Players as per Distribution Channel

Organized mattress players sell their products through two modes - Offline and Online. The offline market consists of retail sales through distributors/dealers or own/franchisee stores. Distributor/dealer network is the primary distribution channel, occupying 87-89% of the organized market sales. Followed by own/ franchisee stores and online mode, constituting 9-11% and less than 3% of the total sales, respectively.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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