| Sheela Foam Limited | ||||||
| Long-term rating removed from ‘Watch Positive’; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has removed its rating on the long-term bank facilities of Sheela Foam Limited (SFL) from ‘Rating Watch with Positive Implications’ and has assigned a ‘Positive’ outlook while reaffirming the rating at ‘CRISIL AA-‘. The short-term rating has been reaffirmed at ‘CRISIL A1+’.
The rating was placed on watch, following the announcement made by SFL to acquire 94.66% stake in Kurlon Enterprise Ltd (KEL) and 35% stake in House of Kieraya – Furlenco (Furlenco).
The Rating Watch has now been resolved as the aforesaid transaction has been consummated as on October 20, 2023, as per the company announcement. The Positive outlook reflects likely improvement in the business risk profile subsequent to the acquisition. SFL is expected to realise synergies in the form of lower operating cost due to discounts, incentives on bulk procurement of materials, optimisation of freight and distribution cost, reduction of wastages etc, in addition to gain in market position.
The ratings are driven by the established market position of SFL, healthy revenue diversity and the strong financial risk profile of the SFL group. The financial risk profile should remain comfortable despite the acquisition, which has been funded via internal accrual and equity of around Rs 1,575 crore and debt of nearly Rs 725 crore. The strengths are partially offset by susceptibility to volatility in input prices and competitive intensity from the unorganised segment. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of SFL and its subsidiaries as all the entities, collectively referred to as the SFL group, are in the same business, and SFL has managerial control over all the entities.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.. |
Key Rating Drivers & Detailed Description Strengths: Established market position in the modern mattress business SFL is the largest producer of flexible slab stock polyutherane (PU) foam and mattresses in India. The company has a share of 12-13% in the modern mattress market along with a well-established brand, ‘Sleepwell’. Its wide range of products includes mattresses, pillows, cushioning material, and foams. A pan-India distribution network facilitates access to retail and industrial customers. Gradual shift from the unorganised to organised sector, backed by growing consumer awareness about the health benefits of quality mattresses, has helped the company gain market share.
The acquisition will strengthen the group’s overall market position, due to higher market share and by enabling access to a vast pool of dealers and distributors, strong pan-India marketing network and increase in portfolio of reputed brands. This in turn should help the group gain bargaining power and record a higher operating margin.
Healthy revenue diversity The revenue profile is diversified in terms of product segments and geographical reach. Though mattresses continue to be a dominant revenue contributor, the SFL group also has significant presence in retail and industrial foam products. Apart from furniture cushioning, the group sells flexible slab stock PU foam to manufacturers of automotive seats, footwear and clothing.
Furthermore, presence in Australia through Joyace Foam Pty Ltd (JFPL), which is the largest local player in the foam business in Australia, and across the European Union through Interplasp, diversifies the geographical footprint.
The Australian and Spanish businesses accounted for 30% of revenue and around 15% of net profit in fiscal 2023. Healthy geographical diversity in revenue shall benefit operations over the medium term and protect the company from any regional disruptions.
Acquisition of KEL will further help SFL widen its geographic reach, SFL has a strong presence in northern and western India whereas KEL has major presence in eastern and southern India.
Strong financial risk profile The financial risk profile is underpinned by strong debt protection metrics and a healthy capital structure. The financial risk profile is expected to moderate with addition of debt. However, healthy cash accrual will limit any adverse impact on the capital structure. Financial metrics should remain strong over the medium term, supported by steady cash accrual and limited debt.
Weakness: Susceptibility to volatility in input prices Raw material cost forms a significant portion of the total manufacturing cost (60-65%). Polyol and toluene diisocyanate (TDI), the key inputs, are manufactured from by-products of crude oil, and their prices are linked to crude oil prices and to prevailing demand-supply conditions. Prices of both polyol and TDI have fluctuated sharply in the past few years. However, a drop in raw material prices in the ongoing fiscal, could augur well for profitability over the medium term.
Ability to pass on any increase in raw material prices to consumers and maintain healthy profitability is a key monitorable.
While KEL has faced pressure on profitability in fiscal 2022, the margin has gradually improved in fiscal 2023 and the first quarter of fiscal 2024. Consolidated profitability should improve going forward, backed by several synergies of the acquisition. |
Liquidity: Strong Apart from adequate cash accrual, liquidity will be also aided by cash balance and liquid investment of over Rs 500 crore as on March 31, 2024. Bank limit of Rs 150-200 crore largely remained unutilised over the six months ended September 30, 2023. |
Outlook: Positive CRISIL Ratings believes that SFL will benefit from synergies due to consolidation of operations of the two entities resulting in improvement in the credit risk of SFL. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company SFL, promoted by the late Ms Sheela Gautam, commenced commercial production of PU foam at its factory in Sahibabad, Uttar Pradesh in 1971. It has 11 manufacturing units, which includes 5 units of PU-foam facilities, with combined capacity of 129,000 tonne per annum (TPA) across India. The company sells foam, coir and spring mattresses under the Sleepwell brand and non-mattress foam products under the Feather Foam brand.
JFPL, acquired by SFL in 2005, is the largest player in the PU foam business in Australia. It manufactures polyester, reticulated, viscoelastic and memory foam, while using VPF technology. It caters to furniture and automobile seat manufacturers and the bedding industry. Currently, it has foaming capacity of 10,000 TPA.
In December 2016, SFL completed its initial public offering, wherein the promoters diluted 14.32% of their stake. The shares on sale were offloaded by Polyflex Marketing Private Ltd, a company held by the promoters. The promoters now hold 73%.
In October 2019, SFL acquired Interplasp. Established in 1987, Interplasp specialises in manufacturing flexible PU foams using VPF technology and mainly supplies to mattress and furniture manufacturers in Spain. It also markets to mattress manufacturers in Portugal and foam convertors in Morocco. It has a single facility with capacity of 16,000 TPA.
In October 2023, SFL acquired KEL, which was established in 1962. KEL is an innovator of rubberised coir mattresses in India, and also one of the oldest companies, offering a wide range of home comfort solutions, ranging from mattresses (RC mattress, spring mattress & foam mattress), polyurethane foam, home furniture and furnishing products. Product are marketed under the ‘Kurl-on’ brand for retail as well as institutional customers such as hotels, hospitals and hostels. The group also houses other brands such as Home Komforts (Furniture), Komfort Universe and premium brands such as Spring Air and Englander. |
Key Financial Indicators (Consolidated; CRISIL Ratings-adjusted figures)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Fully fungible with non-fund-based facilities |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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Criteria Details
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