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Sheela Foam Ltd.

BSE: 540203 Sector: Industrials
NSE: SFL ISIN Code: INE916U01025
BSE 00:00 | 19 Jul 1470.05 0
(0.00%)
OPEN

1471.00

HIGH

1488.00

LOW

1460.05

NSE 00:00 | 20 Jul 1464.05 -15.60
(-1.05%)
OPEN

1459.35

HIGH

1480.45

LOW

1450.25

OPEN 1471.00
PREVIOUS CLOSE 1470.05
VOLUME 144
52-Week high 1850.00
52-Week low 1222.00
P/E 57.09
Mkt Cap.(Rs cr) 7,171
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 1471.00
CLOSE 1470.05
VOLUME 144
52-Week high 1850.00
52-Week low 1222.00
P/E 57.09
Mkt Cap.(Rs cr) 7,171
Buy Price 0.00
Buy Qty 0.00
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 satisfaction to present the FY 2017-18 Annual Report.A better part of the past financial year was spent by Indian industries in coping withissues related to the Goods and Services Tax (GST). We too felt its impact but haverecovered to a large extent.

Leading in the mattress and home comfort products industry along with strong R&Dcapabilities we are able to cater to the premium customers and that too with a highdegree of customisation.

The organised mattress market accounts for 35% of the total market. As it is growing ata faster pace than the unorganised market it is expected to account for more than 41% ofthe market by FY 2021. Of the three kind of Mattresses PU Foam Mattresses account foralmost 50% Spring Mattresses around 20% and Coir Mattresses around 30%.

Today's customer lives in a fast changing and a high pressure environment. For themperfect rest is the most required but also most elusive. Your company makes this magichappen and brings this "Maa Jaisa Aaram" to the consumers. It is simply the bestresearched and the best customised sleep.

Economic Overview and the Effects of GST:

The India GDP growth for 2017-18 is estimated at 6.6% as against 7.1% for the year2016-17. The biggest Tax reform Goods and Service Tax was implemented during the yearthough with some initial teething problems.

The Indian mattress industry that comprises polyurethane foam rubberised coir andspring mattresses is estimated at Rs.100 Billions. The industry has grown at a CAGR of8-10% over the past five years on account of:

Increasing population: the Indian population is expected to grow at 11%between the fiscal year 2011 to 2021 to 1.3 Billion.

Rising urbanisation: The Indian urban population has been constantly risingand is expected to increase to 36% in 2020.

Increase in disposable income

Increasing awareness of Health issues such as Spinal & Orthopaedicailments.

Growth through expansion of Housing Hospitality and Healthcare.

The organised mattress market accounts for 35% of the total market. As it is growing ata faster pace than the unorganised market it is expected to account for more than 41% ofthe market by FY 2021. Of the three kind of Mattresses PU Foam Mattresses account foralmost 50% Spring Mattresses around 20% and Coir Mattresses around 30%.

Being the leader in the organised mattress segment the Company also benefits from thegrowth of the organised segment. Having our own foam manufacturing units pan

India is an added advantage as we do not depend on external suppliers for foam. For theyear 2017-18 the turnover from Indian operations grew by more than 13 %.

After demonetisation in November 2016 things were beginning to come back to normalbut GST shook things up again. GST came into effect from 1st July but thewhole of June and some days in May were taken up by the pre-GST run-up. In the short termthere is turbulence however in the long term we see opportunities. We look at GST as ahuge business reform in accounting sourcing selling and all the other verticals. GSTbrought in digitisation which was good because the unorganised sector was forced toformalise. Our dealers and retailers did panic in the transition phase but we assuredthem that the Company would stand by them if any losses were incurred.

In Mid November the GST rates on Foam and Spring mattresses were reduced from 28% to18%. The Company immediately passed on the entire benefit to the Consumers by reducing theMRP. Further the Company was enjoying 100% excise Exemption for its Mattress Plantlocated in Kala Amb Himachal Pradesh. However after introduction of GST the Centre hasagreed to refund 58% of CGST on value addition. The loss of 42% meant a drop in EBITDA by0.35%.

The other matter of concern was price of TDI our main raw material. The prices of TDIreached a new high during the year. The Company expects that TDI cost will remain high ina short run and we are finding ways of combating these volatile prices. Once the globalcapacities are fully operational the price of TDI is expected to drop to normal level.

Financial performance:

The introduction of GST has its impact on our industry as on all other industries.Despite introduction of GST and rise in TDI prices we were able to increase EBITDA levelsof India Operations by improving back end efficiencies and reasonable price increases. Byconstantly working on R&D we improved our foam yield by 0.8%. With the introductionof the E-way bill from April 2018 we expect higher volume growth. We experienced growthof 11% from ' 1776 Crores in FY 2016-17 to Rs.1976 in FY 2017-18 of which 84.4%came from Indian operations and 15.6% from Australian operations. For the Indianoperations we tracked Rs.191 Crores EBITDA and for the Australian operations Rs.25Crores.

Performance Review:

GST anticipation implementation and implications took up the entire FY 2017-18. Evenduring this volatile period we launched our low and mid-level products Starlite andFeather Foam which were well accepted. The Company will roll out these Brands pan Indiato increase its Market Share.

In Australia Joyce Foam our 100% subsidiary has performed satisfactorily. Inspite ofa sharp increase in TDI prices we were able to pass on more than 50% without losing anybusiness volumes. The turnover grew by 2%.

STRATEGIC DIRECTION AHEAD:

Continued Brand development:

We will continue building brand leadership in core home comfort products such asmattresses and bedding materials as well as higher grade technical PU foam lines whichoffer significant opportunity for growth. We will also ramp up marketing initiatives forfurther enhancement of customer experience for various sub-brands under Sleepwell e.g. MyMattress and Perfect Match. There are firm plans to increase the footfalls and conversionsthereof.

Focus on personalised products:

With increasing disposable incomes and customers looking at mattresses

With the full implementation of GST and proper tracking by Government your Company isin a most advantageous position to capture share from large unorganised market. It wastedno time to launch low priced Mattresses immediately after implementation of GST.s healthinvestments the demand for customised premium segment mattresses is expected to grow.

The Company intends to manufacture higher volumes of customisable products as well asdevelop new lines of personalised home comfort products.

Expansion of product portfolio:

The Company intends to leverage the existing range of products the knowhow andmanufacturing capabilities to produce niche and higher-margin products including moresophisticated grades of technical PU foam. There are also plans to create baselineproducts at lower price points targeting the rural customer.

Expansion of distribution network and export sales:

The distribution network will further be developed in different territories. Alsoexport operations will be leveraged to sell higher volumes of technical foam tomanufacturers in SAARC nations. Domestic retail presence will be enhanced with theintroduction of ultra-premium brand showrooms.

Adoption of advanced production technology:

The Company has launched Comfort Cell technology to raise the comfort quotient of theconsumer.

The foam produced from Vertical Variable Pressure Foaming plant is used for quilting toprovide extra comfort to all kinds of Sleepwell Mattresses. This Award winning technologyhas proved to be a game changer for quilting Comfort.

Industry opportunity:

A fact about the mattress industry in India is that 70% of the population does not usemodern mattresses. The remaining 30% largely belong to the urban population. Poorinfrastructure in the rural areas makes transportation of large volumes impossible. Withthe fast changing infrastructure especially roads the company plans to penetrate therural market with low priced products.

To tap the large furniture foam market we have targeted the growth through carpenters& upholsters. We have started a programme for them called Anmol Bandhan to train themabout the benefits of Sleepwell Foams.

Message to the Shareholders

With the full implementation of GST and proper tracking by Government your Company isin most advantageous position to capture share from large unorganised market. It wasted notime to launch low priced Mattresses immediately after implementation of GST. In otherHome Comfort Products like Furniture Foam Pillows Bed Sheets Duvets etc. the Companywill further increase its Market share through Product and Marketing Innovations. With theexperience of more than 45 years in different kinds of Foam Manufacturing it will providebest quality technical Foam to its prestigious B2B customers. With the expectedrationalisation of TDI prices the growth in EBITDA levels is also a certainty. TheCompany will continue to work around its core philosophy of Integrity to focus onsustainable growth for its stakeholders.

On behalf of the Board I would like to thank our shareholders for the faith that theyhave bestowed on us. We will meticulously focus on expanding our shareholders' worth withour experience and expertise. I take this opportunity to thank our supplier partnerscustomers and especially our employees who are a constant support in our journey.

With best regards

RAHUL GAUTAM

Chairman & Managing Director Sheela Foam Limited