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Sheela Foam IPO Review – Sleepwell Mattress IPO Details, Opening Date

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Sheela Foam’s (Sleepwell Mattress) has announced its IPO which will open on 29th Nov.  

Issue Details of Sheela Foam / Sleepwell Mattress IPO:  

  • IPO Open :  29th Nov to 1st Dec
  • Issue Price band: Rs 680 – 730 per share
  • Issue Size: Rs 510 crores
  • Market lot :  20 shares
  • Minimum Investment:  Rs 14600 (Upper band)
  • Book Running Lead Managers :  Edelweiss Sec & ICICI Sec
  • Registrar –
  • Listing: BSE/NSE

IPO Issue Allocation

  • Qualified institutional buyers (QIBs) –  50% of the total issue size.
  • Non-institutional investors (NIIs) –  15% of the issue size.
  • The retail quota limit in the issue = 35% of the issue size.

Background:

sleepwell-mattress

Sheela Foam is the leading manufacturer of mattresses (incorporated in 1971) marketed under “SleepWell” brand. It also manufactures foam-based home comfort products like mattresses, furniture-cushioning, pillows, cushions and sofa-cum-beds.

Some of the brands under which it sells PU foam cores include Splash, Mystiq, Rainbow, Flexituf, Champion and Indigo, which vary in terms of thickness, density and grade.
The “Sleepwell” brand is owned privately but Sheela Foam has an agreement to use the brand at a nominal rate of Rs 5 lakh per annum for the next ten years.

The company, which has 12 manufacturing facilities, developed a pan-India distribution network consisting of over 100 exclusive distributors, more than 2,000 exclusive retail dealers and over 2,500 multi-brand outlets. The firm exports its products to 25 countries.

Sheela owns 20%-23% of the organized mattress market and has seen a compounded revenue growth of 10% from FY12-FY16

While 82% of Sheela’s revenues are from domestic markets, 18% come from exports of technical foam. It also has presence in Australia through its wholly owned subsidiary – Joyce Foam.

 

Promoters holdings:

  • 72% is owned by Sheela, Rahul & Namita, Tushaar Gautam
  • 28% is owned by Polyflex Marketing

Objective of the issue:

Sheela Foam IPO is actually an Offer for Sale (OFS) by promoter Polyflex Marketing Pvt. Ltd. Thus whole sale proceeds will go to them and the company will not receive any proceeds from the offer.

Anchor Investors:  Will be available one day before the IPO opens.

FinancialsIn the first half of FY17, consolidated net profit was Rs 66 crore on sales of Rs 796 crore. Its EBIDTA (earnings before interest depreciation and tax) margin was at 13.2%.

sheela-foam-financials

 Risks:  Company’s EBIDTA and PAT margins were very low till FY 2015.

Company has experienced negative cash flows in relation to investing activities and financing activities for Fiscal Years 2014, 2015 and 2016.

As the company generates around 60 percent of the sales. In cash, its business might get affected due to demonetisation

 Valuation as compared to its peers: Since there are no listed companies in India that are engaged in the company’s line of business, comparison cannot be done.

The company’s 2016 EPS is 21.48 and on that basis the PE ratio is 34 times.   But the last year profit is high as compare to previous years.

The average EPS for last 3 years is 12 and on that basis the PE ratio comes to 61 times.

Both 34 times or 61 times are very high valuation, specially when revenue growth is just 10% year on year.

 

Should you invest: 

I believe that valuation is quite high, the profit margin is inconsistent and the revenue growth is low.

Based on these factors, you should avoid this issue.

Disclaimer:  The articles or analysis on this website should not be constituted as Investment advice. Please consult your financial advisor before making any investments.

If you have any queries related to this article or any other personal finance query ( Investment, Taxation etc), please comment below

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About wealth18

The author is a Chartered Accountant and loves to write about Personal Finance, Wealth Management, Taxation etc. Disclaimer - The articles on this website is for informational and knowledge purposes and should not be treated as financial advice, Please consult your financial advisor before taking any investment decision.

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