Sheela Foam surges 15% on acquisition of controlling stake in Kurlon

Sheela Foam has acquired a controlling stake of 94.66 per cent in Kurlon Enterprises, maker of Kurl-on mattresses, at an equity valuation of Rs 2,150 crore.

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Shares of Sheela Foam surged 15 per cent to Rs 1,363.55 on the BSE in Tuesday’s intra-day trade after the company said it has acquired a controlling stake of 94.66 per cent in Kurlon Enterprises (KEL), maker of Kurl-on mattresses, at an equity valuation of Rs 2,150 crore.

The deal is likely to be concluded by November 30. It also bought a 35 per cent stake in online furniture brand HOK Furlenco for an equity valuation of Rs 857.14 crore. The investment should be completed by August 30.

In past two trading days, the stock has rallied 22 per cent. At 09:28 AM; it quoted 8 per cent higher at Rs 1,278 on the BSE, as compared to 0.5 per cent rise in the S&P BSE Sensex. The stock had hit a 52-week high of Rs 1,710 on September 5, 2022.

The acquisition will enable Sheela Foam to become an undisputed market leader and accelerate Sheela Foam’s growth & enhance profitability. Primary fund infusion into Furlenco marks entry into rapidly growing online furniture e-commerce business with digital first play to help Sheela Foam to tap new age customers. The acquisition and investment will collectively diversify product portfolio, integrate manufacturing capabilities, create distribution synergies and amplify pan-India footprint, both in urban and rural India, the company said.

“The Kurlon deal gives Sheela Foam an undisputed leadership across major product categories with its flagship brand Sleepwell’s strength in foam (consistent quality and innovation); and acquired brand Kurl-on’s strength in rubberised coir; wherein both these companies are leaders  in their respective product segments. Sheela Foam will now command a combined market share of around 21 per cent in the modern mattress market in India”, the company said in a press release.

The acquisition will help Sheela Foam to diversify customer base and extend to a pan India footprint. Sheela Foam is the leader in northern and western India, whereas Kurl-on is having a higher market share in southern and eastern region of India, ICICI Securities said in a note.

Sheela Foam is the market leader and the largest manufacturer of Polyurethane Foam (PU) in India. The company manufactures various foam-based home comfort products like mattresses, furniture cushions, as well as technical grades of polyurethane foams for end-use in a range of industries like automobile, acoustics, etc. The flagship household brands include: ‘Sleepwell’ for mattresses and home comfort; ‘Feather Foam’ a pure PU Foam; and ‘Lamiflex’ a polyester foam for lamination.

KEL in engaged in the manufacturing and marketing of various foam based and Coir based home comfort products across the “Sit and Sleep” solution categories such as mattress, furniture cushions, pillows and coverings.

House of Kieraya Private Limited (HOK) (Flagship Brand - Furlenco) is one of the largest and fastest growing furniture rental companies in India. The company also offers sale of new and refurbished furniture under its Furlenco & Prava brands.

Technical View

Bias: Negative

Target: Rs 1,095; Rs 970

Resistance: Rs 1,44; Rs 1,379

As per the weekly charts, the stock has been trading with a negative since mid-August 2022, as the shorter-term weekly moving average (20-WMA) slipped below the 50-WMA. 

Over the last six weeks, the stock has managed to close above the 20-WMA for the first time since November 2022. However, the 50-WMA at Rs 1,244 still remains fairly above the 20-WMA at Rs 1,094. This implies, that the stock needs to consistently trade above Rs 1,244, for the bias to turn favourable.

As of now, following today's sharp surge the stock seems to be testing resistance at the 100-WMA placed at Rs 1,379.

Going ahead, in case, the stock fairly to sustain above the 50-WMA, it could re-test support at 20-WMA, below which a decline to Rs 970-odd levels seems likely.

(With inputs from Rex Cano)