Sheela Foam raises ₹1,200 cr via QIP; stock jumps 4%

Snapping two sessions losing streak, shares of Sheela Foam climbed nearly 4% in early trade on Tuesday, a day after the company said that its board approved qualified institutions placement (QIP) issue worth ₹1,200 crore.

Sheela Foam shares opened 2.8% higher at ₹1,160.60 against the previous closing price of ₹1,128.90 on the BSE. In the first hour of trade so far, the stock gained as much as 3.6% to hit a high of ₹1,170.50, while the market capitalisation increased to ₹11,162 crore.

The midcap stock touched a 52-week high of ₹1,532.50 on September 29, 2023, while it hit a 52-week low of ₹905.50 on March 29, 2023. The stock has fallen 21% in the last one year, while it declined nearly 11% in the calendar year 2023. In the past six months, the counter rose 14%, while it added 3% in a month.

In an exchange filing on Monday, Sheela Foam said that its QIP committee approved allocation of 11,131,725 equity shares at an issue price of ₹1,078 per equity share, amounting to ₹1,200 crore. The issue price was at a discount of 4.94% (i.e. 55.99 per equity share) to the floor price of ₹1,133.99 per equity share, it said.

“The allocation of 11,131,725 equity shares at an issue price of ₹1,078 per equity share (including a premium of ₹1,073 per equity share), which takes into account a discount of 4.94% (i.e. 55.99 per equity share) to the floor price of ₹1,133.99 per equity share,” Sheela Foam said in a BSE filing on Monday.

The board also approved finalisation of allocation note to be sent to the eligible qualified institutional buyers, intimating them of allocation of equity shares pursuant to the issue, it added.

The issue was opened on September 20 and closed on September 25, 2023.

The capital raised through QIP is likely to be used to fund twin stake buys in rival mattress companies Kurlon Enterprises and Furlenco Furniture, an online furniture brand owned and operated by House of Kieraya.

On July 17 this year, Sheela Foams, India's largest polyurethane (PU) foam manufacturer and the owner of Sleepwell mattress, announced two major acquisitions. It signed pacts to acquire a controlling stake in Kurlon Enterprises and shares in Furlenco Furniture. The company had said that the acquisition of Kurl-On would be through a cash consideration funded by a mix of internal accruals, debt and equity, while that of Furlenco via subscription of shares in House of Kieraya.

The Noida-headquartered company will acquire 94.66% shareholding in Kurl-On for ₹2,150 crore at an equity valuation of the company at ₹2,150 crore. Besides, it will pick up 35% shareholding in Furlenco for ₹300 crore at an enterprise valuation of ₹857.14 crore. The timeline for the completion of the acquisition of Kurl-On is November 30, 2023.

As per the company, the Kurl-On deal will give Sheela Foam an “undisputed” leadership position across major product categories, with its flagship brand Sleepwell’s strength in foam and Kurl-On’s strength in rubberised coir. Combining the market share of Sheela Foam (13%) and Kurl-On (8%) will help the company to emerge as a stronger player with a consolidated market share of over 20% of the modern mattress segment. The company said that mattresses as a category is a highly fragmented market segment with a strong need for consolidation. Overall market size is ₹25,000 crore in India.

Meanwhile, the Furlenco deal will help Sheela Foam to enter the fast-growing branded furniture and furniture rental market, and an opportunity to further diversify its presence in the furniture sales market and become a full portfolio company in the segment.

The India furniture industry is estimated to be at a value of around $80 billion by 2025 with an expected CAGR of 13%, while the furniture rental industry is at a nascent stage and is estimated to grow to $13 billion by 2025 with an expected CAGR of 26%.

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