Sheela Foam Ltd., the maker of one of the most popular brand in mattress Sleepwell, is going to launch its IPO on 29th November, 2016 at a price band of Rs.680 to Rs.730 per share. Sheela Foam IPO is actually an Offer for Sale (OFS) by promoter Polyflex Marketing Pvt. Ltd, shelling out shares worth Rs.510 crore at upper band.
About Sheela Foam Limited
Sheela Foam Ltd. is a leading manufacturer of mattresses in India marketed under flagship brand “Sleepwell”. In addition, company manufacture other 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. As part of international footprint, company manufactures PU Foam in Australia through our wholly owned subsidiary, Joyce Foam Pty Ltd.
Company’s home comfort portfolio also includes mattresses, furniture-cushioning, pillows, bolsters and cushions that are intended to provide varying physiological and comfort solutions, sofa-cum-beds and comfort accessories like bed sheets, baby care sheets and mattress protectors. Company clientele include various industries such as automotive, upholstery, home comfort, innerwear, shoes etc.
Sheela Foam Ltd. commenced manufacture of PU Foam in 1972, and currently own and operate 11 manufacturing facilities in India. All facilities are utilized for manufacturing home comfort products, while five of these facilities also manufacture PU Foam. Three facilities located in Greater Noida, Talwada and Hyderabad are ISO:9001 certified. Company’s installed capacity for foam production in India is currently at 123,000 TPA. In addition to domestic facilities, Joyce operates five manufacturing facilities in Australia that exclusively manufacture PU Foam primarily through variable pressure foaming technology and has a total installed production capacity of 10,500 TPA in Fiscal Year 2016.
Company has developed 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 March 31, 2016. Additionally, company sell technical foams in India directly to manufacturers in the industries that foam lines cater to and export technical foams to countries in the Middle East, South Asia and Europe and in Australia, the United States, Brazil and Argentina.
Features of Sheela Foam IPO
- Issue Opens On: Tuesday November 29th, 2016
- Issue Closes On: Thursday December 1st, 2016
- Issue Type: 100% Book Building
- Issue Price Band: Rs.680–Rs.730 per share
- Discount: No Discount to Retail Category Only
- Face Value Per Share: Rs.5
- Minimum Bid Lot: 20 Equity Shares and in multiples of 20 equity shares thereafter
- Minimum Order Value: Rs.13,600 to Rs.14,600
- Issue Size: Rs.510 crore
- Proposed Listing: Bombay Stock Exchange and National Stock Exchange
- Lead Managers: Edelweiss Financial Services Limited and ICICI Securities Limited
- Registrar: Link Intime India Private Limited
- Company Promoters: Ms. SheelaGgautam, Mr. Rahul Gautam and Polyflex Marketing Private Limited
- Download Sheela Foam IPO Prospectus HERE
Objectives of Sheela Foam IPO
Sheela Foam IPO is an Offer for Sale (OFS) by promoters Polyflex Marketing Pvt. Ltd, shelling out shares worth Rs.510 crore. Thus whole sale proceeds will go to them and the company will not receive any proceeds from the offer.
Category wise Proportion of Sheela Foam IPO
|Allocation (% of Issue Size)||No. of Equity Shares||Percentage|
|Qualified Institutional Buyers (QIB)||At least 34,93,150 Equity Shares||50%|
|Non-Institutional Buyers (NIB)||Not more than 10,47,945 Equity Shares||15%|
|Retail Investors||Not more than 24,45,205 Equity Shares||35%|
Financial Performance of Sheela Foam Limited
- Company has posted net revenue from operations of Rs. 155 crore for the year ended 31st March, 2016 which is up by 9.15% from YoY i.e. Rs.142 crore for FY 2015. Company has posted revenue growth at CAGR of 11% from FY 2012 to FY 2016.
- Company’s EBIDTA margin remained range bound from 6% to 8% for past four years succeeding to previous year i.e. from FY 2012 to FY 2015. In the last year FY 2016, the EBIDTA margin shot up to Rs.12.26% i.e. an uptick of around 75% from FY 2015, this is due to rock bottom prices of raw material.
- Profit after Tax on Sales has also doubled in the last fiscal year i.e. PAT was around 3% for FY 2013, 2014 and 2015 but in FY 2016, PAT has also doubled to 6.17%.
- Return on Equity has been doubled in past 2 years. For FY 2014, RoNW was 14.61% which has increased to 31% in FY 2016.
- EPS has seen massive hike from just Rs.5.71 in FY 2014 Rs.21.48 in FY 2016.
Turn-on Points of Sheela Foam IPO
- According to the Crisil Report, Sleepwell branded mattresses constituted a share of around 20-23% of the organised Indian mattress market as of 2015-2016 and as at 31st March, 2016 company’s pan-India distribution network consists over 100 exclusive distributors, over 2,000 exclusive retail dealers and over 2,500 multi-brand outlets.
- Company is among the leading manufacturers of flexible PU Foam in India which is used in almost every type of industry including automotive foam used to manufacture auto parts; reticulated foams utilised in filtration systems; ultra-violet stable foams used for the manufacture of garments, shoes and innerwear; and technical foams that are used in industrial sound absorption systems. And according to CRISIL, Foam market will grow at a CAGR of 11-12% between fiscal year 2016 and fiscal year 2021, primarily based on increasing demand from end-user industries.
- Over the years company has received numerous awards and accolades for quality business practices, including the CNBC-NASSCOM IT User Award 2008 for ‘Best IT adoption in manufacturing – SME Sector’, the EDGE award usage of IT for maximising business impact in 2010, 2012 and 2014 and the Dataquest Business Technology Award 2015 for excellence in implementation and use of technology for business benefits in 2015.
Turn-off Points of Sheela Foam IPO
- Company’s business and results of operations are significantly dependent on the continued recall of our “Sleepwell” brand, under which company manufacture an extensive range of home comfort products, and any impairment, dilution or damage to brand in any manner may adversely affect business reputation, growth, financial condition and cash flows.
- Company’s EBIDTA and PAT margins were very low till FY 2015. It’s been only one year of massive improvement; company may or may not be able to maintain the same profitability in the future.
- Auditors have provided certain observations in relation to financial statements for fiscal years 2012, 2013, 2014, 2015 and 2016 pertaining to certain disputed statutory dues, delays in payment of undisputed statutory dues and internal accounting controls of Company.
- There are outstanding litigation against the Company, Promoters, Directors and one of the Group Companies and any adverse outcome in any of these proceedings may adversely affect profitability and reputation and may have an adverse effect on results of operations and financial condition.
- Company has contingent liabilities of Rs.13.67 crore for the year ended 31st March, 2016 and in the event that any of these contingent liabilities materialize, results of operation and financial condition may be adversely affected.
- Company has experienced negative cash flows in relation to investing activities and financing activities for Fiscal Years 2014, 2015 and 2016. Any negative cash flows in the future would adversely affect results of operations and financial condition.
- Company’s Corporate Promoter, one of the Subsidiaries and certain of Group Companies, have incurred losses or have had negative net worth during recent Fiscal Years.
Should you Invest in Sheela Foam IPO?
- Company asking price of Rs.680 to Rs.730 converts into PE ratio of 31.65X to 34X at EPS of Rs.21.48 which seems to be at very high side. Since there are no listed companies in India that are engaged in the company’s line of business, comparison cannot be done.
- The brand of Sleepwell is pretty much popular but the PAT margin on which company operates is pretty low. However, PAT improved in the last year but whether company may be able to maintain the same profitability margins in the future is questionable.
- I would advise to Avoid Sheela Foam IPO for now and wait for current year financials to see the impact of demonetization because company falls in consumption sector which gonna take a hit in coming quarters. So it may be available at discounted price after Q3 results.