Sheela Foam announces two strategic investments

1. 94.66% acquisition of established competitor mattress company ‘Kurlon

  • Cash consideration of Rs 2,035 cr implying a valuation of Rs 2,150 cr
  • Transaction to be completed by November 30, 2023
  • Kurlon’s revenues:
    • FY 2019-20: Rs 995.56 cr
    • FY 2020-21: Rs 767.25 cr
    • FY 2021-22: Rs 808.80 cr
    • FY 2022-23: awaited
  • EBITDA margins have declined from 13% in FY20 to 2.4% in FY22. As per Sheela Foam’s management the decline has been due to management changes and Covid. It expects margins to have improved in FY 23 and should further improve post the acquisition.

2. 35% shareholding of online furniture business ‘Furlenco

  • Cash consideration of Rs 300 cr implying a valuation of Rs 857.14 cr
  • Transaction to be completed by August 31, 2023
  • Furlenco’s revenues
    • FY21: Rs 84 cr
    • FY 22: Rs 129 cr
    • FY 23: Rs. 152 cr

Rationale for acquisition/ investement

Kurlon – to further consolidate Sheela’s position in the highly fragmented Indian mattress market. Post acquisition, it’s market share in the modern mattress market is estimated at 21% (from standalone 13% earlier). The products of both brands are complementary and as per the management there are various possible synergies in terms of distribution and costs that makes the acquisition attractive.

Furlenco – to venture into the new online branded furniture and furniture segment. Sheela will also utilise it’s offline network  (including Kurlon) and online strength of Furlenco to cross sell each other’s products.

Overall, the investments does seem interesting though prima facie expensive.

How will Sheela fund this?

Rs 800-850 cr is expected to be funded through internal accruals and balance Rs 1,500 cr will be raised externally through equity/ debt. This will have an immediate stretch on the Balance Sheet if raised through debt.

As at March 31, 2023, the Company had Rs 1,601 cr of equity and Rs 468 cr of debt.

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