Sheela Foam – An exciting branded play

Summary of the Sheela Foam Limited Q2 FY25 Earnings Conference Call (October 30th, 2024):

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Not attended any such call however providing summary of what has been provided over legitimate screeners.
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1. Acquisition of Kurlon

• The acquisition of Kurlon, finalized in October 2023, has been smoothly integrated into Sheela Foam’s operations. The integration included aligning operational models and optimizing distribution channels. Although both companies operate in the mattress industry, some differences in their business strategies needed to be addressed.

2. Financial Performance

• Standalone Results:
  • Revenue: ₹602 crore, up 42% YoY.
  • EBITDA: ₹70 crore (12% margin), up 54% YoY.
  • Net Profit: ₹43 crore, up 12% YoY.
• Consolidated Results:
  • Revenue: ₹813 crore, up 32% YoY.
  • EBITDA: ₹69 crore (9% margin), up 5% YoY.
  • Net Profit: ₹9 crore, down 79% YoY, mainly due to higher interest and depreciation costs from the Kurlon acquisition.

3. Growth Strategies

• Expanding in branded mattresses, particularly through Sleepwell and Kurlon, with branded mattresses contributing over 50% of total revenue.
• Increased stake in Furlenco to 45%, aiming for ₹500 crore revenue by FY28 in the growing furniture rental market.
• Launched new mattress brands, Tarang and Aram, targeting the economy segment, expected to generate ₹100 crore by FY26.

4. Operational Highlights

• Achieved ₹100 crore in annual run-rate savings post-acquisition, through scale efficiencies in raw materials, facility consolidation, and improved distribution.
• Reducing reliance on distributors in certain regions, like Karnataka, to improve margins and reduce turnaround times.
• Running a pilot to sell furniture in select Sleepwell centers, leveraging synergy with Furlenco, with potential for broader expansion.

5. Challenges

• Competition from unorganized players, especially in the economy segment. Sheela Foam is countering this with value-added products like the Fitress mattress, offering warranties and unique features.
• Balancing growth in branded products with profitability in the foam and furniture cushioning segments.
• Managing inventory effectively across its distribution network to optimize working capital.

Overall Outlook

• Sheela Foam Limited is well-positioned for growth in India’s mattress and furniture rental markets. The Kurlon acquisition, expanded branded offerings, and strategic investment in Furlenco have strengthened its market position and growth prospects.