Buy Sheela Foam; target of Rs 1400: ICICI Securities

ICICI Securities is bullish on Sheela Foam recommended buy rating on the stock with a target price of Rs 1400 in its research report dated July 18, 2023.

Broker Research

July 18, 2023 / 20:25 IST

Buy

26 Aug, 2025 12:21

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ICICI Securities research report on Sheela Foam

Acquisition of Kurlon is positive for the stakeholders of Sheela Foam: (1) SHEELA’s market share in South and East India has room for improvement (vs North and West India where it enjoys ~40% market share). Given, KURLON is no. 2 player in South India with ~40% revenue share, this deal is likely to augment SHEELA’s overall market share in mattress segment from current 20-25% to 35- 40%. (2) Business economics of Kurlon are attractive (at 7.2% pre-covid net margin vs 7.5% for SHEELA – refer Chart 3) and shall be largely EPS accretive to SHEELA (assuming normalized margins). (3) Renewed focus shall help KURLON to claw-back market share loss (to Duroflex) in South India led by efficient execution, distribution expansion and higher support towards brand promotion. (4) Robust distribution network (SHEELA has higher presence in EBOs while KURLON has higher presence in MBOs) and production efficiencies (better servicing of customers) & cost savings (reduced cost to serve and manufacturing cost) are the synergies expected by the management. (5) Acquisition of Furlenco (digital first brand in fast growing branded furniture category) is likely to drive footfalls to EBOs through introducing complementary product portfolio (branded furniture) in their EBOs, in our view. We await further clarity on rationale and synergies of these acquisitions.

Outlook

We increase our earnings estimates by 5%/4% for FY24E/FY25E due to better gross margin expectations driven by correction in input cost; modelling revenue / EBITDA / PAT CAGR of 12% / 30% / 36% over FY23-25E. Maintain BUY with a DCF-based revised target price of Rs1,400 (Rs1,300 earlier). Key downside risks are (1) adverse movement in prices of key inputs and (2) increase in competition from global players/Indian e-commerce.

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