Sheela Foam Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Volume-led quarter, B2C shift accelerating: Mattress volumes grew 13% (Sleepwell 14%, Kurlon ~13%), pushing B2C to 55% of total revenue, up ~5% from the prior half.
• Core EBITDA margin expanded 210 bps YoY as incremental sales and post-acquisition cost initiatives flowed through, though only ~2-3% of the ₹190 crores synergy reached the bottom line so far.
• Network build-out is aggressive and deliberate: 420 net new showrooms added in H1, with another ~400 expected in H2, heavily weighted toward Kurlon in west and north India where its brand equity was underleveraged.
• Furlenco turned the corner: The furniture rental subsidiary added >34,000 net customers, achieved PAT of ₹9 crores on a >₹350 crores run rate, and is raising ₹125 crores equity to fund a budgeted ₹500 crores turnover next year.
• What to watch next quarter: Whether the incremental ~₹60 crores synergy from new technology (malleable fiber) begins to show in Q4 as machines are installed by end-Q3, and whether the 15% growth intent materializes after a 5-7% start.

Volume Growth & the B2C Pivot

• Mattress business driving the mix shift: Mattress volumes grew 13% in Q2 and 11% in H1, outpacing foam at 9% and 8% respectively. B2C now constitutes 55% of total revenue, up ~5% from the previous half, and management expects the mattress share to keep rising.
• Kurlon integration unlocking growth: Kurlon grew ~13% and is now growing faster than ever, helping overall mattress growth. The merger has opened many opportunities, with reorganization and restructuring still underway.
• Lower-end and e-commerce surging: Tarang and Aaram (lower-end mattresses) grew 58% in H1, reaching a ~₹108 crores annualised run rate in Q2, with a full-year target of ₹120-125 crores. E-commerce grew 73% in H1, now more than double the size of the shuttered SleepX model.
• Foam pricing tied to raw materials: Technical and comfort foam pricing declined 6% and 5% YoY respectively, versus only 1% for mattresses, because foam prices directly track raw material costs (TDI down from ₹196 to ~₹172, polyol from ~₹117 to ~₹107).
• Showroom ASP a margin lever: Showroom average selling price is higher than the rest of the network, so additional showrooms will help maintain and marginally increase ASP going forward. Brand.com sales will also improve margins and ASPs.

Rahul Gautam: "Q2 FY '26 has been a robust performance and completely in line with company's strategic direction of increasing the Indian part of the business, then increasing the mattress part of it in the Indian part, and that direction we can see that happening."

Synergy Realization & Margin Mechanics

• ₹190 crores synergy largely reinvested: Of the total synergy achieved by Q1, only ~2-3% flowed to the bottom line. The rest was consumed to improve business robustness, reversing a flat top-line trajectory of 3-4 years and starting 5-7% growth.
• Margins sustained despite headwinds: Margins have held at the same level for 2-3 quarters despite competitive pressures and new product introductions (both low-range and high-range) that could have cost 1-2% of gross margin.
• Incremental ₹60 crores synergy incoming: New technology (early technology, malleable fiber) is expected to deliver ~₹60 crores in incremental synergies. Machines are on their way, should be installed by end of Q3, with results visible in Q4.
• Gross margin expansion not from raw materials: Reduction in raw material prices is passed on to foam players, and the mattress benefit is not material. Gross margin benefit comes from cost-saving initiatives (2-2.5% over 1.5 years); the rest was used for improving business fundamentals.
• Operating leverage path: Cost structure rises ~5-6% due to inflation, so 10%+ growth should flow the remainder to the bottom line. New products and initiatives (stores, small-town penetration, new segments) also contribute to margin expansion.

Amit Kumar Gupta: "So, I will just repeat what I said last year that out of this Rs. 190 crores, around 2% to 2.5% to 3% have flown to the bottom line and the rest of it has been consumed for improving the robustness of the business."

Network Expansion & Distribution Strategy

• 800 showrooms targeted this year: 420 net new showrooms added in H1, with another similar number expected in H2. The focus is on opening Kurlon showrooms in west and north India to leverage brand equity where presence was previously lacking.
• 10,000 EBOs in 3-4 years: The long-term target is 10,000 exclusive brand outlets across formats: large-format EBOs, midsized stores, and category-exclusive outlets. This year's 800 is an aberration due to the Kurlon opportunity; next year should be lower.
• COCO stores revived under "Home Comfort" format: 24-25 company-owned stores are now running, housing both Sleepwell and Kurlon brands plus top-of-bed products (mattress stoppers, protectors, bedsheets, comforters, duvets) and a Furlenco corner. Results so far are very encouraging.
• UAE retail expanding fast: Seven showrooms now operating across the UAE, one in each emirate, on a very fast growth track. Management is finding partners ready to take dealerships and expand.
• GCC partnerships under discussion: Discussions underway with certain players in GCC markets for partnerships to expand across the entire region.

Rahul Gautam: "we would like to be at 10,000, which will be a combination of different formats of EBO. So, EBO is a large format, there is a midsized format and then there is a category exclusivity. So, we want to take this number to 10,000 in next three to four years."

Furlenco: Profitability & Path to Scale

• Turned profitable and growing: Furlenco added >34,000 net customers in H1, now operates in 29 cities, and achieved PAT of ₹9 crores on a >₹350 crores run rate. It turned PBT positive in February last year and has sustained profitability despite 40-50% growth.
• ₹125 crores equity raise underway: Furlenco is raising ₹125 crores, with Sheela Foam contributing only ~₹30 crores to limit dilution and establish valuation via third-party contributors. The round has closed successfully.
• ₹500 crores turnover budgeted next year: The company does not need any further money to reach ₹500 crores plus. For reaching ₹700 crores before a potential public issue in 2027, most money would be internally generated; if ₹50-100 crores is needed, it can be raised from a third party or Sheela Foam.
• Asset longevity supports the model: Assets bought 10-12 years ago when the company started are mostly still in use and continuously refurbished. Even without new asset investment, a continuous inflow of revenue would persist, though top-line growth would saturate.
• Sheela Foam supplies 90-95% of Furlenco's foam products: Furlenco already uses Sheela Foam mattresses for its rental business, and 90-95% of foam and foam-related products (sofas, chairs, etc.) are supplied by Sheela Foam.

Amit Kumar Gupta: "Potentially of course the demand should be there, but there would be a continuous inflow of revenue even if you do not invest in new assets. Your top line will get saturated, but then revenue would keep on coming."

Overseas Operations & New Segments

• Australia and Spain returning to historical profitability: Both are close to double-digit EBITDA levels despite low raw material prices, which lower the top line. Raw material prices are expected to start increasing in 2-3 months.
• Australia EBITDA margin improved sharply: From 2.1% in an aberration quarter (full-year last year was 4-5%) to 9.5% now, driven by enlarged scope of raw material purchases (buying from China instead of Europe at cheaper prices), internal restructuring, and a second plant in Adelaide that allowed cost cuts in Sydney.
• Australia seeking growth beyond foam: Sheela Foam is the largest player with 40% market share in foam for mattresses in Australia, leaving little scope to grow in that segment. It is now working on introducing cushioning for furniture and technical foam grades (automobiles, lingerie, sound proofing), where capabilities exist from India.
• Spain margin contraction explained by accounting and scale: Despite gross margin expansion, Spain's EBITDA margin contracted because different accounting principles cause provisions and releases, and volumes grew 15% last year (though not in top line), so overheads also increased. Australia's business volume remained the same, so no such effect occurred.
• India growth to outpace overseas: India business growth rate is anticipated to be much higher than overseas. India foam production is expected at ~80,000 metric tons in the current year versus 70,000 last year.

Balance Sheet & Capital Allocation

• Debt reduced sharply in October: In the first week of October, all financial investments of around ₹450 crores were encashed and used to pay off debt, bringing gross debt down to around ₹400 crores.
• Net cash targeted by FY28: India is expected to be debt-free in another 1.5 to 2-3 years. Asset monetization of ₹150 crores is yet to happen and should be completed in the current year, with annual cash flow of ₹100-150 crores going forward.
• Interest cost to fall to ₹50-60 crores per annum post-October, down from prior levels. Other income will drop to around ₹40-odd crores per annum (₹7-8 crores per quarter) because investments were used to pay off debt.
• CAPEX needs are modest: Sufficient capacities exist to grow to at least 2-2.5x current size, so no investment is needed to expand production. Most CAPEX will be for consolidation, efficiency, maintenance, and showroom expansion (payback at 18 months). A very broad estimate for FY27 and FY28 is ₹75-100 crores at the group level.
• Working capital to grow with top line: It should grow at a lesser rate than revenue, but for reasonability, management assumes the same proportion.

Guidance & Commitments

Key Metrics