Sheela Foam Limited (NSE-SFL | BSE-540203 | INE916U01025), a market leader in foam-based home comfort products and the world’s largest producer of polyurethane (PU) foam, recently announced two deals at once: a controlling interest in Kurlon Enterprises Limited, which owns the flagship Kurl-on Mattress of India brand, and a stake in Furlenco Furniture, the country’s fastest-growing online furniture retailer run by “. Subject to customary working capital, debt and debt-like items, and other adjustments, if any, SFL is acquiring 94.66% of the voting stock of KEL at an equity valuation of Rs. 2150 crores (the cost of acquiring 94.66% was approximately Rs. 2035 crores). The transaction is expected to be completed on or before November 30, 2023, according to the estimated timeline.
In addition, SFL will invest in a 35% stake in HOK-Furlenco, subject to customary working capital, debt, and debt-like items and adjustments, if any, for an equity valuation of Rs. 857.14 crores (the cost of investing in a 35% stake is Rs. 300 crores). The estimated time frame for the investment’s completion is 30 August 2023 or earlier. Sheela Foam gains undisputed leadership in key product categories as a result of the Kurlon acquisition thanks to the strengths of its flagship brand Sleepwell in foam (consistent quality and innovation) and Kurl-on in rubberized coir. Both of these companies are market leaders in their respective product categories. In India’s market for contemporary mattresses, Sheela Foam will now hold a total market share of about 21%.
Sheela Foam is the market leader in northern and western India, whilst Kurlon Enterprises Ltd. (KEL) has a larger market share in the southern and eastern regions of India. The Kurlon Enterprises Ltd. (KEL) acquisition will assist Sheela Foam to diversify its clientele and expand to a pan-India presence. Both businesses have complementary distribution networks; Sheela Foam operates primarily through exclusive distribution networks (like EBOs), whereas KEL is strong in multiple distribution networks (MBOs). SFL would benefit from a strong distribution network, increased production effectiveness, and cost savings as a result of this combination. Sheela Foam and KEL have a number of complementary manufacturing sites that will enable the merged company to serve clients more conveniently, reduce logistic costs, and increase the effectiveness of raw material procurement, all of which will result in a number of operational synergies.
With the support of the Furlenco acquisition, Sheela Foam will be able to access the rapidly expanding markets for branded furniture and furniture rentals, as well as have the chance to further broaden its presence in the furniture sales market and turn into a full portfolio firm in the industry. According to industry estimates, the furniture market has a TAM of Rs. 1 lakh crore (trillion), making it far larger than Sheela Foam’s current competitive landscape. Additionally, it will support utilizing Furlenco’s digital capabilities for Sheela Foam products as well as Sheela Foam’s robust distribution system for Furlenco goods and services. By utilizing inputs from Sheela Foam, like foam, etc., to make Furlenco goods, the investment would also produce synergies. Furlenco and Sheela Foam may work together on research and development projects. Furlenco furniture offerings may be made available in Sleepwell & Kurl-on exclusive boutiques. Sheela Foam-Furlenco is now able to provide Refurbishment as a Service (RaaS) for furniture thanks to having the largest furniture and appliance refurbishment facilities in the world. Sheela Foam will also profit from Furlenco’s Digital-First, Direct-to-Customer, and e-commerce capabilities, as well as from Furlenco’s design talents.
With the joining of Kurl On, Sheela Foam will further solidify its leadership position in the modern mattress market, according to Mr. Rahul Gautam, Chairman & Managing Director of Sheela Foam Ltd. Furlenco’s investment would offer it a far stronger entrée into the branded furniture industry than it already has, and a lot larger market overall. With these two as part of its team, Sheela Foam has reached a crossroads where prospects brought about by inorganic activities would significantly enhance the company model and spur greater levels of organic growth. To reach new-age consumers, the company will use its wide range of products, integrated manufacturing, distribution synergies, pan-Indian footprint, and Digital-First strategy. Additionally, as Kurl-On & Furlenco’s staff members and business partners continue in their responsibilities and add to the existing team’s total experience, the Sheela Foam family will grow and improve.
SFL has a proven track record of acquiring companies and turning them around. In 2003, Sheela Foam bought the five manufacturing facilities of Joyce Foam in Australia. In 2019, it acquired Comfort Technologies in Spain. It is in a very good position to benefit from the new acquisitions as a result of this.
