Sheela Foam is in talks to buy a controlling stake in rival Kurlon Enterprise, the company that sells Kurl-on branded mattresses, according to person familiar with the planned deal, which is likely to be worth about Rs 3,250 crore.
There are other contenders for the stake including the Welspun Group, Bain Capital, TA Associates and KKR, the person added.
Sheela Foam and Kurlon did not respond to email queries from Moneycontrol about a possible transaction.
Sheela Foam’s flagship brand is the Sleepwell range of products. Its revenue fell 8 percent YoY to Rs 722 crore in Q2 of FY23, while net profit declined 30 percent to Rs 53.6 crore. The company’s shares have doubled over the past three years but have declined 17 percent so far in 2022.
Kurlon has a nationwide network of more than 10,000 dealers, 72 branch and stock points, and nine manufacturing facilities across Karnataka, Odisha, Madhya Pradesh, Uttaranchal and Gujarat, as per the company’s website.
Even though Kurlon and Sheela Foam are the biggest mattress companies, a possible deal between them may not draw the scrutiny of the Competition Commission of India because Kurlon’s revenue is below the approval threshold of Rs 1,000 crore.
Kurlon’s revenue from operations fell to Rs 768 crore in FY21 from Rs 961 crore in FY20, while profit after tax slumped about 67 percent to Rs 25.2 crore, according to the company’s Annual Report 2020-2021.
If a deal with Kurlon goes through, then Sheela Foam’s market share in India’s organised mattress segment could increase to 35-40 percent from 20-25 percent, the person said.
Kurlon, the holding company of Kurlon Enterprise, recently bought Motilal Oswal Private Equity Advisors’ 10 percent stake in the company at a valuation of Rs 3,250 crore. Following this, the holding company now owns an over 94 percent stake in Kurlon Enterprise. Motilal Oswal Private Equity Advisors had invested Rs 90 crore in India’s top mattress maker Kurlon in September 2015.
This proposed stake sale comes as Sudhakar Pai, chairman and managing director of Kurlon Enterprise, has decided to hand over the reins of the company to someone who can carry on with the business efficiently, the person said.
Mattress companies in India have raised funds of late as the market expands. Duroflex, Wakefit, Springwell and The Sleeping Co have received investments from PE funds over the past three-four years. The market is huge and has growth potential, industry experts said.“The overall industry is going only at about 6 to 8 percent,” Chaitanya Ramalingegowda, cofounder of Wakefit, told CNBC-TV18 recently. “The organised part is growing as much as 12 to 15 percent and the online part is growing as much as 25-30 percent a year because the base is so small.”