Sheela Foam Ltd Q1 FY2026 Concall Summary

Key Takeaways

• Volume up 10%, value up only 5%: India mattress volumes grew double digits but revenue lagged as faster growth in online and small-town segments (Tarang/Aaram) pulled down average realizations, not price cuts.
• Kurlon integration is delivering margin expansion: Consolidated EBITDA margin reached 10.4% (India 11.7%) as ₹190 cr of the targeted ₹250 cr in synergies are now realized, with the balance ₹60 cr expected by FY26-end.
• Furlenco turned profitable and is scaling: The furniture rental subsidiary posted ₹4 cr PAT in Q1, exceeding all of FY25, and is targeting ₹370 cr revenue in FY26 and ₹500-550 cr in FY27, with an equity raise of ₹100-125 cr underway.
• Growth is market-share led, not demand-led: Management is explicit that volume acceleration (month-on-month improvement through July) comes from taking share from other brands and unbranded-to-branded shift, not from GDP or consumption tailwinds.
• What to watch next quarter: Whether the 15% volume and value growth exit run rate materializes by end-Q2 or Q3, the pace of showroom openings (392 signed, 234 operationalized in Q1 toward a 1,000 full-year target), and any update on Dubai/GCC retail pilots.

Volume-Value Divergence & Mix Shift

• Mattress volumes grew 10% YoY but India business revenue grew only 5%, driven entirely by channel and product mix: faster growth in e-commerce and the Tarang/Aaram small-town range pulled down blended ASPs even though no price reductions were taken.
• Price hikes taken in early Q4 FY25 across both Sleepwell and Kurlon brands did not lift realizations because the incremental volume came disproportionately from lower-ASP segments, a structural drag that will persist as penetration deepens.
• Foam segment top line was additionally suppressed by falling TDI and polyol prices passed through to customers; on equal input prices, foam category top line would have grown ~8-9%.
• B2B segment saw high single-digit volume growth but subdued value growth for the same raw material pass-through reason.
• ASV guidance sets Q1's ₹3,900 as the baseline, with management cautioning that volume growth may outpace ASV growth in some quarters as premiumization efforts balance against Tarang, Aaram and e-com expansion where ASVs are structurally lower.

Rahul Gautam: "This should have been more. It is an accounting issue based on the integration process that we have been going through."

Kurlon Integration & Margin Walk

• ₹190 cr of synergy savings realized out of a ₹250 cr target; the balance ₹60 cr is expected by end of FY26. Savings flow through gross margin improvement (combined gross margin reached 43.5%, ~400 bps above pre-acquisition levels), fixed cost reduction from facility consolidation (21 plants to 12), and logistics optimization.
• Logistics cost reduction exceeded 1% of sales through network redesign, truck upsizing, better fill rates and geographical realignment, more than offsetting inflationary pressure from tolls, insurance, fuel and CNG.
• Core India EBITDA margin improved from 8.4% to 11.7% YoY; consolidated EBITDA margin moved from 7.4% to 10.4%. The combined entity's EBITDA margin of 11.1% compares with 6.7% for standalone Kurlon in FY23 and 9.2% for standalone Sheela.
• 50% of the 8-9% cost savings are being redeployed into business initiatives: channel network expansion, sales incentives, new product launches in online and small-town segments, and strengthening management teams. The remaining 50% flows to the bottom line.
• Fixed costs are flat this year despite 5-6% inflation, absorbed by savings initiatives. From next year, 5-6% inflation is anticipated but 15% top-line growth would still deliver operating leverage to the bottom line.
• Three smaller facilities sold for ₹40-odd crores; two bigger facilities are in process. Net debt is expected at ₹300-400 cr after monetization and PAT generation.

Amit Kumar Gupta: "I can tell you that this will not impact profitability. Tarang and Aaram currently enjoys the same or better level of EBITDA margins than our other products on an average combined."

Furlenco: Profitability, Scale & Optionality

• PAT of ₹4 cr in Q1 FY26 exceeded full-year FY25 PAT, driven by operating leverage from higher volumes. FY26 revenue is projected at ₹370 cr and the company is "well on track" with no big challenges foreseen.
• FY27 revenue target is ₹500-550 cr, with a decision point at FY27-end on whether to pursue an IPO, an acquisition or another path. Management says it is "a little bit early" to commit to a specific exit route.
• Equity raise of ₹100-125 cr is planned to fuel expansion; Sheela Foam may participate "a little bit to ensure we do not get diluted" but will let outside equity flow in. Enterprise valuation is still in discovery.
• Synergies with Sheela Foam are nascent: Sheela supplies some foam at arm's length pricing, and a pilot is underway to sell Furlenco furniture through Sheela Foam showrooms, described as "a synergy waiting to happen." Kurlon's sofa manufacturing, now outsourced, is also being evaluated for integration with Furlenco.
• Key metrics undisclosed: Management declined to share monthly average order value for rentals (analyst estimate: ₹2,500-₹3,000) and active subscriber base on the call, promising offline follow-up.

Rahul Gautam: "At the end of maybe FY '27 take a call as to what we want to do, whether it will go through an IPO process or it will go through an acquisition process or whatever. But I think it is a little bit early."

Channel & Geographic Expansion

• 392 new showrooms signed in Q1, 234 operationalized, the majority under the Kurlon brand in north and west India where it is relatively weak. The full-year target is ~1,000 new showrooms, though the net number will be lower as some MBOs convert to showrooms.
• E-commerce is expected to grow 50% in value in FY26. Management is comfortable with this pace and cautions that growth beyond 50-60% would be unsustainable due to logistics, product sizes and marketplace system constraints.
• Tarang & Aaram, the small-town and rural penetration brands, are targeted to reach a ₹100 cr revenue run rate by FY26-end. Management describes the potential as "infinite" given that 65% of the Indian market still uses traditional mattresses, but declined to give a steady-state share or volume contribution.
• A separate rural distribution network is being developed with independent distributors to reach smaller furniture, furnishing and loom outlets, deliberately kept independent from the mainline Sleepwell and Kurlon network to avoid cannibalization.
• Dubai/GCC retail pilots are underway with initial response described as "very encouraging." Gross margins are much higher than India because it is a mature market with high price points. Both Sleepwell and Kurlon brands are registered in all seven GCC countries; scaling decisions expected "a couple of months down the line."
• Australia and Spain will not be scaled down: Australia is mature with limited growth but profitable; Spain continues to grow though rates are similar to or slightly lower than India. Their percentage contribution is reducing naturally as India focus intensifies.

Rahul Gautam: "A growth rate of anything upwards of 50% also requires many other things to be fulfilled... if we try and go beyond 50% or 60%, it will not be a sustainable growth."

Growth Strategy & Volume Trajectory

• Volume growth is accelerating month-on-month: July was better than June, June was better than April. Management attributes this entirely to market share gains from other brands and the unbranded-to-branded shift, explicitly stating the strategy does not depend on GDP growth or consumption demand recovery.
• Exit run rate target is 15% value and volume growth by end of Q2 or, at the latest, end of Q3.
• At least 15% growth is targeted for the next three years, with EBITDA margin reaching 14-15% over the same horizon from operating leverage and cost savings.
• No fresh CAPEX is needed before 2029-2030; capacity utilization is not a meaningful metric for this business because manufacturing presence is required across five zones regardless of utilization levels.
• New mattress models launched for both Sleepwell and Kurlon in the sub-₹10,000 category. In exclusive brand outlets, these are placed without promotion as an upsell play; the main purpose is to drive sales through multi-brand outlets.
• Seasonality note: Q2 is the most muted quarter; Q3 and Q4 are high, especially Q3 in north, east and west India (south is consistent year-round). An earlier festive season this year may bring some benefit to Q2.

Tushaar Gautam: "we are not depending on demand growth and GDP growth and consumption growth and all of that, the complete strategy around that is on market share growth irrespective of what the market does."

Financial Housekeeping

• Revenue base revised down 5% due to a recalibration of IndAS discount allocation: discounts were previously allocated equally across businesses and are now accurately assigned to mattress, foam, B2B and cushioning segments based on actual sales incentives. Volume numbers are unchanged.
• Other income declined because gilt fund values fell by late May/early June as market expectations of monetary authority benefits did not materialize. This is temporary and will normalize over the year as the coupon is definite.
• Kurlon mattress growth of only 6% was due to an accounting issue from the integration process, not underlying demand.
• Warranty policy details (duration, coverage, average cost) were not disclosed on the call; management offered to share the detailed policy offline. First year is full replacement; post that, coverage is pro-rated and varies by model and brand.

Rakesh Chahar: "Because it is a matured market so the price points are quite high, in fact, our gross margins are much higher than what we realize in India."

Guidance & Commitments

Key Metrics