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Sheela Foam Ltd.

BSE: 540203 Sector: Industrials
NSE: SFL ISIN Code: INE916U01025
BSE LIVE 15:40 | 25 Sep 1423.75 24.80
(1.77%)
OPEN

1377.80

HIGH

1458.90

LOW

1332.65

NSE 15:42 | 25 Sep 1431.10 30.25
(2.16%)
OPEN

1375.35

HIGH

1445.00

LOW

1332.00

OPEN 1377.80
PREVIOUS CLOSE 1398.95
VOLUME 3752
52-Week high 1584.00
52-Week low 860.00
P/E 63.99
Mkt Cap.(Rs cr) 6,945
Buy Price 1423.75
Buy Qty 50.00
Sell Price 0.00
Sell Qty 0.00
OPEN 1377.80
CLOSE 1398.95
VOLUME 3752
52-Week high 1584.00
52-Week low 860.00
P/E 63.99
Mkt Cap.(Rs cr) 6,945
Buy Price 1423.75
Buy Qty 50.00
Sell Price 0.00
Sell Qty 0.00

Sheela Foam Ltd. (SFL) - Chairman Speech

Company chairman speech

Dear Shareholders

It gives me immense pleasure and profound satisfaction to present the FY 2016-17 AnnualReport of the Company our first post the successful maiden public issue and listing thisyear. This is an important milestone in our corporate strategy and I place on record mygratitude to all the shareholders for their overwhelming response to our IPO andreiterating their faith in our long-term growth story. Regardless of the fact that we area well-established player in the market with 45 years of rich experience pan-Indiadistribution and manufacturing network presence in Australian market diverse productportfolio and robust R&D capabilities; we believe that this move will provide us aplatform to further enhance our brand name and contribute to long-term benefit of theCompany and all stakeholders.

Macro-economic scenario

The year 2016 has overall been a good year for India with the GDP growth rate holdingup near 7%. Two significant events dominated India's economic and business landscape. Thebold step of demonetisation which in many ways is likely to be a point of inflection forthe country and a welcome move to tackle corruption black money usher transparencyefficiency and convert our cash-based economy into a digital one. The second being thebiggest tax reforms in Independent India the Goods and Services Tax Act (GST) aconsumption-based tax/levy.

Performance review

Any change comes with short-term challenges and while demonetisation is expected to begood for the long run it negatively impacted our business and sales volume. Despite thiswe managed to grow topline by 13% from Rs. 1550 crores in FY 2015-16 to Rs. 1750 croresin FY 2016-17 82.6% of which came from Indian operations and 17.4% from the Australiansubsidiary. Taking a long-term view we moved swiftly and aggressively to tackle thechallenges by working relentlessly to reenergise our distribution network pushingproducts strongly through innovative marketing activities and swiftly embracing thedigital framework for newer payment modes. Further in spite of a significant rise in theprices of our primary raw material TDI our EBITDA and PAT increased 11% and 19%respectively to Rs. 195 crores and Rs. 125 crores respectively. This could be achievedthrough product price rationalisation to counter margin loss without impacting our marketshare.

In Australia the performance of Joyce our 100% owned subsidiary engaged in themanufacture of technical foam supplied to B2B customers (mattress and furnituremanufacturers) was in line with our expectation. In spite of challenging scenario theproactive decision-making and long-term relations with B2B customers enabled us come outunscathed. The topline during the year grew 6.7% to Rs. 304 crores while the bottom linewas maintained at Rs. 14 crores.

Key developments in FY 2016-17

Our overall growth plans remained intact and we have opened more than 260 newexclusive stores during the year taking the total count to 2538 stores. These new storeswill add to the convenience improve consumers' engagement and loyalty and overallstrengthen our long-term market visibility. A key pull feature of these stores is theproactive education revolving around selecting the right product to enhance the comfortwhile sleeping. We are confident that our personal involvement in enabling consumersselect the right product at the right price points will go a long way in improvingconsumer loyalty.

On the operations side we undertook several shop floor enhancement initiatives whichenabled us to improve foam yield by 0.3% over previous year. Other initiatives includeoptimising production mix and cutting process undertaking family foaming for betterconsistency and reducing losses and improving the plant layout and enhancing productivityby adoption of Maynard Operating Sequence Technique (MOST).

To further enhance long-term efficiencies we also commenced consolidation activitiesin one of our primary foam manufacturing plant in Talwada (Gujarat). The plant being inclose proximity to ports facilitates cost-effective imports of raw materials. Postconsolidation this plant would also be able to manufacture mattress enabling us to shiftthe production of mattresses from the Saily plant (Dadra & Nagar Haveli) located at adistance of 26 km to Talwada leading to significant savings in freight cost. Once thisshift happens we plan to dispose of the plant in Saily.

Finally and most importantly we successfully commenced the production of special gradefoam using the award-winning and one-of-its-kind vertical variable pressure foamingtechnology which was developed in-house by our R&D experts. This technology shallfacilitate manufacture of foam with 30% lower material density but with higher durability.This shall provide significant competitive edge as on one hand costs shall decline drivenby reduction in methylene chloride consumption while on the other the better quality ofproduct shall enhance our market share.

industry optimism

One of the underlying factors that make the mattress industry very interesting is thefact that nearly 70% of the country's population do not use modern mattress. While of theremaining 30% that use modern mattress only 35% are catered by the organised segment.Besides most of the organised sales come from urban markets owing to poor infrastructureand road connectivity in the rural areas which makes transportation of voluminousproducts difficult. Keeping this viewpoint in mind there is immense opportunity for theorganised modern mattress players. Moreover the implementation of GST shall narrow downthe pricing gap and enable us to directly compete with the unorganised players and capturetheir market share.

The government's strong focus on infrastructure development especially constructingroads and highways in the rural areas is another important development that shallfacilitate rural market penetration.

Strategic direction ahead

As a leading player in the industry we further intend to strengthen our penetration inthe market and grow faster than ever. Some of the key initiatives towards this objectiveinclude:

• Brand building: We intend to leverage the audio video and print media toundertake brand building on physiological aesthetic and ergonomic attributes. Furtherthere shall be focus on developing customercentric initiatives like My Mattress (offeringcustomer choice of multiple mattress with varying thickness and foam-combination at sameprice range) Perfect Match (enabling customers to choose right product based onscientific analysis) and Sleepedia (educating customers on benefits of good sleep).

• Expand portfolio: We shall focus on developing newer products catering tothe customers' specific requirements. We intend to develop market for made- to-order'Ultra-Premium Luxury' mattresses (generating better margins) and low-cost mattresses (fortopline and market share growth). We also aim to increase involvement of upholsters forFurniture Cushioning Business through various incentive schemes.

Message to the shareholders

In line with our market strategies and industry growth prospects our capacityutilisation is bound to increase in the coming years enabling us to better sweat assetsand spread fixed cost. We are well placed in the industry with our diverse productportfolio being catered to diverse end-user segment at diverse price range. We intend towork around our core philosophies of transparency and ethics to focus on sustainablegrowth for stakeholders.

Once again I on behalf of the Board would like to thank all the shareholders for thetrust reposed in us. We shall diligently focus on expanding our shareholders' worththrough our experience and knowledge of the management team. I also take this opportunityto express my gratitude to our bankers our supplier partners customers and especiallyour employees for their continued support throughout the 45-year long journey.

With best regards

Rahul Gautam

Chairman & Managing Director