Sheela Foam share price: Anand Rathi says 'Buy', pegs target price at 2430 per share

Sheela Foam is a leading player in India’s mattress and foam products industry. Founded in 1971, the Company enjoys strong brand awareness and a nationwide presence in manufacturing of mattresses, home comfort products and technical grades of PU foam. The Company also enjoys a significant presence overseas, with its products being exported to over 20 countries worldwide. Sheela Foam share price closed at Rs 1961, down Rs 27 or 1.4%.

Sheela Foam being top player in the mattress and foam products industry in India with estimated market share of 20-23% in the organized market (constitute 35% of total market). It is expected that with the implementation of GST the market share of the organized sector will increase up to 41% and with this Sheela Foam to be a big beneficiary of the shift in taste following urbanization and changing lifestyle. SleepX, the e-commerce brand has forayed into the furniture category with the launch of a premium offering ‘Sheesham Wood Bed’. This segment has a huge potential for branded products.

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Sheela Foam top-line grew at a CAGR of 11.8% which surpasses the overall Indian mattress market which has grown at a CAGR of 8- 10% over the past 5-years. It is expected that the market will reach 140 billion by the first half of FY22 and be the leader in the mattress segment SFL to get benefitted in the coming years. Sheela Foam, promoted by the late Ms Sheela Gautam, commenced commercial production of PU foam in 1971 at its factory in Sahibabad, Uttar Pradesh. It currently has 10 PU foam-manufacturing units, with combined capacity of 123,000 tonne per annum (tpa) across India.

Sheela Foam is amongst the top 3 players in the industry and is expected to be a big beneficiary of the shift in taste following urbanization and changing lifestyle. Given its history of proven performance, focused management, huge product profile and market share gain makes Sheela Foam worth Exploring for Long term. Hence, Anand Rathi recommended a Buy rating with a target price of 2430 per share.

Acquisition of Spanish firm Interplasp:

One of the major developments of FY 2019-20 is the acquisition of Spanish Company Interplasp, which makes polyurethane foam for bedding, furniture and other applications. It also markets to mattress manufacturers in Portugal and foam converters in Morocco. It has a single facility with a capacity of 22,000 tonne per annum. With this acquisition, companies can scale up their European business significantly, and there is much more room to grow there than in Australian business. It also opens more doors in North America because of its geographical proximity.

Besides providing a presence in Europe, the world's largest polyurethane foam market, the acquisition of Interplasp will lead to operational efficiency as manufacturing cost in Spain is the lowest in Europe. The acquisition will result in reduction in raw material pricing for the group companies in India, Australia and Spain.