Sheela Foam Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Acquisition-heavy quarter, integration underway: Consolidated revenue grew 15.5% YoY as Kurlon and Furlenco came on board, but net profit fell 49% YoY to ₹31 crores as one-off acquisition expenses and marketing investments hit the P&L.
• Kurlon margin reset is the central story: Reported EBITDA margin of 3.6% masks a normalized 7%-8% after stripping out transition costs; management says the run rate is already near the 10% target.
• Marketing spend spiked, but funded growth: Stand-alone marketing expenses jumped from 5.4% to 8.6% QoQ behind the World Cup campaign and two new mattress launches, driving 26% YoY Sleepwell growth. The spend is expected to normalize to 6%-6.5% next year.
• Furlenco nearing self-sufficiency: The furniture rental business turned EBITDA positive in December and expects PBT profitability from February, one month later than earlier guidance.
• What to watch next quarter: Whether Kurlon's normalized 7%-8% margin actually shows up in reported numbers, the pace of synergy execution, and Furlenco's PBT delivery in February.

Kurlon Integration & Margin Recovery

• Acquisition closed, synergies started day one: The Kurlon acquisition was completed on 21st October and synergy execution began immediately, giving the company a head start on cost and procurement alignment.
• Reported margin distorted by transition costs: The 3.6% EBITDA margin includes incremental marketing and selling expenses tied to the acquisition transition; normalizing for these one-offs puts the margin at 7%-8%.
• Price corrections made post-acquisition: Management adjusted pricing in certain segments where Kurlon had historically lost competitive ground, a deliberate reset to regain volume positioning.
• 10% EBITDA target within reach: On a run-rate basis, Kurlon may already be close to the normative level of ~₹1,000 crores revenue at 10% EBITDA, and management does not see much time passing before that level is achieved.
• Synergies flowing through this quarter: Synergy benefits are being implemented one by one during the Jan-March quarter; while not for the full quarter, the net impact will be visible in the bottom line.

Rahul Gautam: "I would say that the first job was to really get it to the normative levels and normal levels of about a INR1,000 crores and at about a 10% EBITDA. And I think on a run rate basis, we may have come very close to it already."

Stand-alone Performance & Marketing Investment

• Sleepwell drove stand-alone growth: The mattress segment grew 26% YoY, aided by two new model launches: Nexa, a superior memory foam product at the ₹24,000+ price point with three variants, and FitRest, a profiled foam PU mattress targeting the covered mattress segment.
• World Cup campaign inflated marketing costs: Marketing expenses rose from 5.4% to 8.6% QoQ behind the "Did You Sleep Well" campaign, but improved contribution margin (+4.7% YoY, +1.1% QoQ) and higher sales offset the spend, keeping stand-alone EBITDA margin at 10.5%.
• Marketing spend to normalize: Management expects marketing expenses to stabilize between 6% and 6.5% in the next financial year, roughly 2% lower than the current quarter, which would lift stand-alone EBITDA margin to a normalized ~12.5%.
• Brand consolidation underway: The company is consolidating smaller brands from the industrial and furniture sides and focusing on Sleepwell, whose share of the business is increasing and will keep increasing.

Rahul Gautam: "we are consolidating all the other small little brand here and there, which may have been additional or a part of the industrial side or the furniture side and focusing on Sleepwell and the percentage of Sleepwell in the business is on the increase, and that will keep on increasing."

Furlenco: Path to Profitability

• EBITDA positive achieved: Furlenco turned EBITDA positive in December, a milestone that keeps the business on track toward self-sufficiency.
• PBT profitability delayed by one month: Earlier guidance pointed to January; management now expects PBT profitability from February, a one-month slip.
• Second phase to be self-funded: The next phase, selling furniture through stores or online, will start soft, with capital for those assets generated from the business itself, requiring no further capital infusion.
• Numbers still undisclosed: Management declined to share current Furlenco revenue or EBITDA figures, saying they would probably disclose them this quarter or the next one.

Tarang: Cotton-to-Foam Conversion Play

• Pilot completed, scaling in 3-4 states: The Tarang pilot is done and the brand is now scaling up gradually using a separate distribution structure through existing FMCG distributors.
• Targeting the cotton mattress user: Tarang is positioned for customers currently using cotton mattresses priced at ₹800-₹1,200, offering a foam alternative at around ₹2,000 with a 3-year warranty.

Nilesh Mazumdar: "Tarang is positioned the customer who is currently using a cotton mattress. A cotton mattress in this country today cost anywhere between INR800 to INR1,200 for a mattress. So that's the customer segment to whom we are taking. Tarang is light set at around INR2,000 with a 3-year warranty on it."

International Business: Mixed Conditions

• Europe resilient on volumes despite recession: Europe has experienced a 25-30% recession, but the company retained all quantity; topline fell only 10-12% because raw material prices declined, and absolute margins were preserved. By the end of this quarter, volumes are expected to increase.
• Australia steady, capacity now online: Australia is in a steady state with no major growth or decline expected. New capacity was commissioned and started operating in the first week of January; the company has begun addressing the Furniture segment, which it previously did not serve. Volume increases from the new capacity are expected this quarter.
• US exports effectively shut: The US imposed anti-dumping duties between 27% and 30%, making exports unviable; the facility has been repurposed.

Guidance & Commitments

Key Metrics