IGI Logo

Undisputed leader in Indian mattresses industry

About the stock: Sheela Foam (SFL) is the market leader in the domestic mattresses industry with a value market share of ~25% in the organised segment. The company’s “Sleepwell” is one of the leading brands in the domestic mattresses industry. It has a pan-India presence through ~6000 MBOs and ~5500 EBOs, respectively. Apart from India (contributes ~70% to the topline), the company also manufactures Polyutherene (PU)/technical foams in Australia and Spain with revenue contributions of 15% each. SFL has envisaged a capex of | 350 crore to increase its consolidated capacity by ~23% in the next two years.

* Revenue, earnings grew at CAGR of 11%, 13%, respectively, in FY18-22

* Cash surplus balance sheet with last three-year’s average RoE, RoCE of 19%, 22%, respectively

Key triggers for future price performance:

* The modern mattresses industry is pegged at ~| 17,500 crore and is likely to grow at 12% CAGR in FY22-26E. The organised industry is expected to gain market share through new product launches and strong balance sheet condition from unorganised players, which command 60% of the total pie

* The company envisages a capex of | 350 crore over the next two years to increase its manufacturing capacity by 23% in India & overseas. The capacity expansion will help the company to gain market share

* Under China +1 strategy of multinational companies, SFL is exploring various export opportunities to US markets through its domestic and Spanish subsidiary ‘Interplasp’

* SFL has received approval to supply foam to Indian Railways for Vande Bharat trains. This, coupled with a revival in the auto business, will help drive the company’s technical foam business, going forward

What should investors do: SFL’s share price has grown ~3x since its listing in December 2017

* We initiate coverage under Stock Tales format with a BUY rating and a target price of | 3650/share

Target Price & Valuation: We value SFL at 55x FY24EPS to arrive at a target price of | 3650/share

Alternate Stock Idea: We also like Asian Paints in our coverage universe. Asian Paints (APL) is India’s largest decorative paint company. APL derives ~98% revenue from the paints business. Robust b/s with RoCE, RoE of 30%, 25%, respectively.

* BUY with a target price of | 4045

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://secure.icicidirect.com/Content/StaticData/Disclaimer.html
SEBI Registration number INZ000183631

Above views are of the author and not of the website kindly read disclaimer