Sheela Foam Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Kurlon merger complete, synergies nearly done: The merger is now fully closed and the combined Indian operations hit a 10% core EBITDA margin for 9M, matching pre-acquisition SFL levels. The last ₹30-40 cr of synergies are delayed by machinery shipment but should land in Q1 FY27.
• Volume-led growth with a mix shift: Mattress volumes grew 11% YoY for 9M, but value lagged at 9% as growth tilted toward lower-ASP U2O and online channels. Price increases of 4-5% taken late in Q3 should narrow the gap in Q4.
• International business turned a corner: Australia and Spain delivered ~12% EBITDA margins in Q3, up from a weaker base, driven by cost discipline and sourcing leverage. Management expects this level to hold going forward.
• Balance sheet repair is underway: ₹400 cr of debt was repaid in October from surplus cash, and ₹100-125 cr from asset sales was fully applied to debt reduction, lowering interest costs and lifting reported PAT.
• What to watch next quarter: Whether the 4-5% price hike sticks across all channels (online has not yet followed), the pace of the margin climb toward the 15% target, and any decision on the Australia business as the main competitor appears to be shrinking.

Kurlon Integration & Synergies

• Merger closed: All requisite filings with the Registrar of Companies are complete, making the merger final in all respects.
• Margin recovery achieved: Kurlon was mid-single-digit EBITDA at acquisition; the combined Indian operations now deliver a 10% core EBITDA margin for 9M, fully in line with SFL's pre-acquisition standalone margin.
• Synergy delay is mechanical, not structural: The remaining ₹30-40 cr of the ~₹230 cr synergy target is held up because a machine ordered from overseas is still in transit. Installation is expected by mid-Q4, with partial benefit this quarter and the full run-rate in Q1 FY27.
• Capacity headroom: Post-acquisition, the combined entity has enough capacity to reach 2x to 2.5x current output, with only minor debottlenecking capex needed.

Rahul Gautam: "Prior to Kurlon acquisition, SFL on a consolidated basis was at an EBITDA margin between 10-11%. At the time of acquisition, Kurlon's EBITDA was in the mid-single digit. We have continuously improved Kurlon's operations and have achieved a consolidated core EBITDA of the combined Indian operations of 10% for the last 9 months, which is completely in line with SFL margins of pre-acquisition of Kurlon."

Demand & Channel Dynamics

• Volume leads, value trails: Mattress volume grew 11% YoY for 9M while value grew 9%, a 2-point gap explained by faster growth in the lower-ASP U2O segment (nearly 100% growth, 8,000+ dealers across 5,000+ towns) and e-commerce (53% YoY growth). Offline and e-commerce premiumization partially offsets the mix dilution.
• Price increases are modest and mostly followed: A 4-5% increase was implemented across Sleepwell and Kurlon products toward the end of Q3. Offline, most brands including regional players have followed; online, the company has held off, waiting for more raw-material visibility before acting.
• Foam segment sees raw-material drag on value: Foam volumes grew 20% YoY in Q3 and 12% over 9M, but value growth was suppressed by lower input costs versus last year. With raw materials firming up and price increases reset, value growth is expected to align with volume growth in Q4.
• Retail expansion continues, target trimmed: 600 net new showrooms were added over 9M; the full-year target was cut from 800 to 700. Kurlon showroom expansion in Northern India is gaining traction, and the EBO expansion drive is expected to continue for at least three more years.
• COCO stores are a live experiment: 24 company-owned, company-operated stores inherited from Kurlon are profitable at the EBITDA level and sell both Sleepwell and Kurlon products, but the format is still evolving with no firm blueprint yet. More clarity is expected in a quarter or two.

Rahul Gautam: "I mean, the price increases are not any phenomenal price increases. I generally take the inflation, which is a low number, and some raw material changes that come. But it is of the order of between 4-5% here."

International Business

• Australia and Spain delivered a marked improvement: Both geographies reached ~12% EBITDA margins in Q3 and ~10% for 9M, driven by disciplined execution, leveraging supplier relationships in India, diversified sourcing, and fixed-cost control. Australia focused on waste reduction; Spain improved pricing discipline and sales realizations.
• Australia is in strategic flux: The main competitor appears to be shrinking and may want to exit. Management is watching the situation: if it brings more volume and value, Sheela may stay; if an investor emerges for a larger combined business, that path is also open. No decision is close.
• GCC expansion is operationalizing: The company is present through exclusive retail stores in each Emirate, has entered collaborations with leading local large-format retail chains, and has commenced local outsourced manufacturing via a UAE-based partner for both Sheela Foam and Kurlon Sleep Solutions, reducing fulfillment timelines.
• International cost structure is stickier on the upside: Inflation is lower in Australia and Spain, so costs do not rise as fast; management intends to restrict cost increases to protect profitability, with normal growth expectations of ~5-6% from those countries.

Rahul Gautam: "But it is possible that somebody may kind of come along and wants to invest in that business, which may be a larger business than what we run. So, we'll wait and watch that."

Margin & Cost Structure

• The 15-15 target is halfway there: Management's stated ambition is 15% revenue growth with 15% EBITDA margin. The journey is described as halfway, with better visibility now. The glidepath points to reaching 14-15% EBITDA margin by FY28, with next year somewhere between current levels and 15%.
• Cost structure has built-in operating leverage: Fixed costs should grow at inflation plus/minus 2%; variable costs grow faster than inflation but not proportionally to revenue. If top-line growth is 15%, cost growth should be ~10%; if growth slows to 10%, cost growth can be held to 6-7%. Marketing spend is fully flexible and can be scaled back.
• Other income is stepping up: The ₹15.66 cr other income in Q3 includes wastage sales, investment income, and several smaller heads. Management expects ₹10-12 cr per quarter going forward, higher than the earlier ₹7-8 cr guidance, and confirmed an analyst's projection of ₹40-50 cr for the coming year as a minimum.
• Interest costs are declining meaningfully: Debt repayment of ₹400 cr in early October and ₹100-125 cr from asset sales applied to debt are reducing interest expense, directly supporting reported PAT improvement.

Amit Kumar Gupta: "If the growth is, say, for example, which we do not even want to say now, the growth instead of 15%, let us say 10%, I think we should be able to retain our cost at around 6-7% growth."

Subsidiaries & Adjacent Bets

• Furlenco is scaling and self-funding: The furniture rental subsidiary raised ₹125 cr in equity (Sheela Foam put in ₹30 cr) at a ₹1,050 cr valuation. It is at a ₹400 cr annualized run rate, delivered ₹18 cr PAT for 9M, and is reinvesting ₹68 cr of cash profits. The capital infusion is expected to propel it to a ₹500-550 cr top line, and a structured program is being developed to establish Furlenco presence across Sleepwell and Kurlon stores.
• Staqo is building a subscriber base: The technology subsidiary now has 3 lakh+ subscribers on its Presence360 platform and is focused on platform consolidation, process automation, and data-led decision support.
• Comfort Foam and Technical Foam are re-accelerating: These segments delivered 27% and 20% volume growth respectively, driven by a renewed focus on distribution and specific foam grades. Management expects the growth to continue after this reorganization.

Raw Material & Competitive Landscape

• TDI supply disruption is temporary: A shutdown at GNFC, a major domestic TDI supplier, caused a market price spike above ₹240/kg. Sheela Foam is sourcing imports or supply from GNSC at ~₹210/kg. The plant is expected to resume production by 20th February, after which prices should stabilize.
• Competitive intensity is unchanged: Management sees no shift in activity from listed or soon-to-be-listed peers and hopes that discipline on both top and bottom line will emerge over time, creating a more level playing field.
• Online pricing is on hold: Price increases have not been passed through online yet; the company is waiting for more visibility on raw materials before acting, creating a near-term margin gap in that channel.

Rakesh Chahar: "Online, the price increase has not happened so far. So, on the online, we are operating at a similar level, and we are just waiting for some more visibility on the raw material before any action is taken."

Guidance & Commitments

Key Metrics