Sheela Foam Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Volume growth concentrated in flagship brands: Sleepwell mattress volume grew 31% and Kurlon 17%, but deliberate de-emphasis of lower-end brands pulled total volume growth to ~3%.
• Kurlon margin doubled post-acquisition: Kurlon hit 7%+ EBITDA margin in Q4 FY24, double the margin at acquisition in Q3, putting the ₹100 crores EBITDA target within reach.
• Furlenco turned PBT-positive: The furniture rental subsidiary used investment proceeds to repay debt, reduced interest burden, and became fully PBT-positive from February 2024 onward.
• Revenue declined on raw material pass-through: Top line fell primarily due to lower raw material prices passed to consumers, plus discontinuance of online brand SleepX and reduced exports and railways volumes; EBITDA held in absolute terms.
• What to watch next quarter: Kurlon brand refresh launch on June 9, traction of the integrated marketing campaign, and whether the 15% CAGR growth trajectory materializes as guided.

Brand Portfolio Restructuring

• Flagship-first strategy: Sleepwell (31% volume growth) and Kurlon (17% volume growth) are the focus; lower-end brands Feather Foam, Starlite, and the discontinued online brand SleepX are being deliberately de-emphasized as "less remunerative" with no future in the portfolio.
• SleepX exit, online recovery: Discontinuance of SleepX and shift to Sleepwell brand online has recovered volumes profitably, with CXO-level professionals now driving the online channel.
• Sleepwell as umbrella brand: The company intends Sleepwell to eventually become the mattress brand straddling all price points and sales arenas, coexisting with Kurlon in multi-brand outlets.
• Tarang expansion: The Tarang sub-brand (under Sleepwell) has been extended to almost half the country; a similar model has been introduced under Kurlon to leverage its brand strength for cotton mattress users.

Rahul Gautam: "The entire effort of the company has been — it's not closing down the other brands, but we are growing the Sleepwell brand. And somewhere down the line, let's say, another year, years' time, we would have Sleepwell as the mattress brand existing straddling the entire arena of places where it can be sold."

Kurlon Integration & Turnaround

• Margin doubled in two quarters: Kurlon achieved 7%+ EBITDA margin in Q4 FY24, double the margin at acquisition in Q3, driven by price rationalization on economy-end models, reintroduction of faster-moving models, and channel positivity post-acquisition.
• ERP and process integration complete: Sheela Foam's own ERP was implemented in Kurlon from April 1, 2024; all SFL processes and policies now apply to Kurlon.
• Geographic and online expansion: 17% volume growth came from extending Kurlon to new parts of the country where it was not previously present; e-commerce saw disproportionate growth after portfolio expansion and resolution of online/offline conflate issues.
• Brand refresh imminent: A completely new brand identity has been created for Kurlon, backed by an integrated marketing campaign; the launch is planned for June 9, 2024, coinciding with the India-Pakistan T20 World Cup match.
• Synergy target on track: Management reaffirmed the acquisition synergy guidance of at least 3% EBITDA increase from Kurlon, stating it is on track.

Amit Kumar Gupta: "Kurlon achieved a 7% plus EBITDA margin for the fourth quarter '24, which is double the margin that we acquired in the third quarter."

Growth Strategy & Market Positioning

• 15% CAGR aspiration: Management anticipates ~15% CAGR value growth for the company as a whole, especially the India business, with volume growth rate expected to be higher than value CAGR because faster-growing segments are at the economy end.
• Category growth over brand rivalry: Going forward, the focus metric is category growth, not whether growth comes from Sleepwell or Kurlon; both brands will straddle all price points in the B2C branded mattress space.
• Market share as a resultant: Management estimates ~29% to 30% organized mattress market share currently but is not setting a forward target, viewing market share as a result of doing the right things with both brands; as market leader, the primary responsibility is also to grow the market.
• Margin trajectory: As the company grows 15% per annum, margins are anticipated to improve in line; the 40% contribution business means higher growth leads to better bottom-line profitability.

Rahul Gautam: "I think market share will be a main result of whatever we do. So we are more focused on currently doing the right things with both the brand and market share will be a resultant. So I don't think we would want to predict what will happen because as a market leader, our primary responsibility is also to grow the market."

Channel & Subsidiary Updates

• E-commerce ambition: Management aspires to soon become a leading player online; over the next 2 to 3 years, e-commerce contribution is expected to reach 10% to 15% maximum of total business.
• Furlenco turnaround complete: Acquired in August, losses reduced gradually through January as debt was paid down; from February onward, the company is fully PBT-positive with a 50%+ subscriber base increase.
• Furlenco stake increase under debate: The company already holds an option to increase its stake by 9% at the same acquisition price; a decision is being debated internally.
• Spain business: Clocked higher volumes in FY24 but lower revenue due to lower raw material prices passed to consumers; EBITDA percentages are holding up; capacity has been debottlenecked and increased.
• Australia business: Holds large market share but the market size needs to increase; working on antidumping duties and looking at newer segments like furniture and bed-in-a-box mattresses.
• Jabalpur plant: Commissioning completed; now producing desired qualities, giving a competitive edge.

Nilesh Mazumdar: "E-commerce is going to stay. But our own thinking is that over the next 2 to 3 years, the contribution of e-commerce would probably be in the region of anywhere between, let's say, 10% to 12% or let's say, 10% to 15% maximum."

Raw Material & Margin Dynamics

• Revenue decline is price-driven, not demand-driven: Top line reduction was primarily due to reduction in raw material price passed to consumers, plus the impact of SleepX discontinuance and reduced exports and railways volumes; EBITDA was maintained in absolute terms despite these headwinds.
• Gross margin expansion reinvested: Gross margins expanded, but part was utilized for investing back into the brand; advertising and marketing cost went up by ~1%.
• Raw material outlook stable but uncertain: Fluctuations expected to continue with no spikes or sudden free falls anticipated; oscillations from COVID still persist, compounded by Red Sea and Suez Canal issues.
• Other income composition: ₹117 crores is investment income; no material operational income from waste as most wastes are recycled; forex gain of about ₹1 crore, not material.

Guidance & Commitments

Key Metrics