Excited for 1st mattress co IPO? 12 things about Sheela Foam

Initial public offering (IPO) of Sheela Foam which will open on November 29 is planning to raise Rs 510 crore through its issuse. The issue with price band of Rs 680-730 per share will end on December 1. Polyflex Marketing, the company that controls Sheela Foam, will sell a part of its holding through IPO. The offer for sale will see the promoter entity sell shares worth Rs 510 crore.

The company does not have any listed peer in the domestic market. So, here are 10 things you should know about the consumer discretionary company’s IPO.

#1 Incorporated in 1971, Sheela Foam (SFL) manufactures foam-based home comfort products targeted primarily at Indian retail consumers, as well as technical grades of polyurethane foam (PU Foam) for end use in a wide range of industries. It manufactures PU Foam in Australia through its wholly owned subsidiary, Joyce Foam.  Apart from technical foam, through 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.

#2 Some of the brands under which it sells PU foam cores include Splash, Mystiq, Rainbow, Flexituf, Champion and Indigo, which vary in terms of thickness, density and grade.

Its home comfort line comprises of products such as mattresses, furniture-cushioning, pillows, cushions, sofa-cum-beds as well as PU foam cores utilised for manufacturing finished home comfort products.

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Special Correspondent|Moneycontrol.com

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Its products are mainly used in residential places, hotels, hospitals, and educational institutions. The company sells its products through distributors, retail dealers, and multi-branded outlets, as well as exports its products to around 32 countries.

#3 The company currently owns and operates 11 manufacturing facilities in India. All of its facilities are utilised for manufacturing home comfort products, while five of these facilities also manufacture PU Foam. Its installed capacity for foam production in India is currently 1.23 lacs TPA.#4 It has a pan India distribution network that consists of over 100 exclusive distributors, over 2,000 exclusive retail dealers and over 2,500 multi-brand outlets, as on September 30, 2016.

#5 Sleepwell branded mattresses constituted a share of around 20-23 percent of the organized Indian mattress market in FY16. Exclusive Sleepwell outlets including Galleries, Worlds and Shoppes increased by over 275 percent from 383 in FY14 to 1439 in FY16. #6 It does not source PU Foam from external suppliers. The company typically utilises logistics infrastructure hired for supply of raw materials to its manufacturing facilities for onward supply of finished products and foams to its distributors. Such business synergies effect reduction in the company’s operating expenses and enables to upscale its operations in an efficient and seamless manner

#7 It intends to introduce “polyol recycling” technology that will assist it to produce polyol, one of its key raw materials, by using foam scrap, fresh polyol and other chemicals.

#8 Increase in the cost of, or a shortfall in the availability of its raw materials, and in particular, polyols and diisocyanates may have an adverse effect on its business, results of operations and financial condition.

#9 In fiscal years 2015, 2016 and the six months ended September 30, 2016, its net revenues from the sale of home comfort products aggregated to Rs 916 crore, Rs 1016.49 crore and Rs 513.2 crore, constituting 64.61 percent, 65.58 percent and 64.5 percent respectively, of its total audited consolidated operating revenues for such periods.

#10 Its financing agreements contain certain restrictive covenants that limit its ability to undertake certain types of transactions, any of which could adversely affect its business and financial condition. In addition, certain of its borrowings require it to maintain certain financial ratios which are tested at times on a quarterly or annual basis, such as total debt to net worth, total debt to EBITDA and debt service coverage ratios.  The RHP says, “… the total amount up to which the monies may be borrowed shall not exceed Rs 500 crore at any point of time.”

#11 As the company generates around 60 percent of the sales. In cash, its business might get affected due to demonetisation

#12 Competition, consumer preferences and market trend and volatility in raw material expenses are its key risks.