Sheela Foam - Q3 FY21 Result and Concall Update - YES Securities

Strong demand tailwinds across geographies; RM headwinds also managed well

- View - Sheela Foam posted a very strong set of results with industry tailwinds driving demand across geographies and the company demonstrating strong cost controls to offset the impact of a sharp rise in input costs. While demand is expected to sustain going forward with new B2B opportunities also opening up, the correction in input prices is expected to provide a further fillip to margins going ahead. Limited capex requirements should also drive up return ratios going ahead. While increasing competition from online players remains a risk, we view Sheela Foam is a strong medium-term growth story and hence believe the premium valuations of 35x FY23E earnings should sustain and gradually improve going forward.

- Result highlights - Strong performance with revenue/EBITDA/PAT growth of 26%/53%/54% led by strong increase in demand for mattresses across India, Australia and Spain. Margins moved up despite input price led gross margin decline led by much lower selling and marketing expenses.

- Input costs - High volatility seen in last 6 months, prices went up significantly and now started cooling off, polyols (20% of sales) below 200 and TDI (30% of sales) about 170 after touching highs of 230 per kg, should stabilize in the 150-170 range by end of February; Australia prices stable, Spain also did not increase much.

- Mattress demand outlook - Volume growth has positively surprised; Australia and Spain demand increased due to increased time at home, restricted imports from China and govt support; India demand growth led by increase in penetration from 30-35% with more consumers adopting mattresses given increased time at home and shift from unorganized players; expect demand momentum to sustain for entire industry with leading brands set to benefit most.

Shares of Sheela Foam Ltd was last trading in BSE at Rs.2060 as compared to the previous close of Rs. 2036.25. The total number of shares traded during the day was 978 in over 380 trades.

The stock hit an intraday high of Rs. 2113.1 and intraday low of 1985. The net turnover during the day was Rs. 2000119.

Source : Equity Bulls

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