 "Dhruv Mathur, CFO, Sheela Foam Limited and Rahul Gautam, MD, Sheela Foam Limited at the IPO Press Conference Photo: Kamlesh Pednekar")
Sleepwell brand mattresses manufacturer Sheela Foam Ltd (SFL) received weak response from investors with its initial public offering (IPO) subscribed merely 5.89% on the second day on Wednesday. On the first day its IPO was subscribed by less than 1% on Tuesday.
The IPO received bids for 3,23,440 shares till early Wednesday evening as against its offer of 52,50,001 shares, data compiled by stock exchanges showed. The company plans to raise Rs 510 crore through the IPO on its upper price band of Rs 680-730 per share. The issue closes on Thursday, December 1.
Retail quota was subscribed by 6.40% with total bid quantity received for 175,740 shares against total offer under this category of 26,25,000 shares. The quota for qualified institutional buyers was subscribed by a mere 0.91% as they applied for 137,000 shares of 15,00,001 shares on offer. Non institutional investors’ segment received a total subscription of mere 1.36% until Wednesday evening.
ICICI Securities and Edelweiss Financial Services are the book running lead managers to the issue.
A Motilal Oswal report held SFL as fairly priced with its share at the upper price band of Rs 730 being available at 34x of its PE earnings. SFL reported sales of Rs 795.5 crore and profit after tax of Rs 65.9 crore for the first half period ended September 2016. SFL's consolidated revenue and net profit have grown by 10.3% and 50.3% CAGR over FY13-16.
According to an Angel Broking report, the issue of SFL at its upper price band works out 27 times of its PE ratio based on FY17’s net profit of Rs 121 crore which is at par with consumer durable peers which have strong brand and higher B2C sales.
Angel Broking, however, recommended subscribing the issue for medium to long term perspective but does not think the IPO will give any listing gains considering current market conditions.
As per CRISIL Research, the organised Indian mattress industry is estimated to grow by 11-13% CAGR over FY16-21, likely to be driven by rising urbanization, increase in disposable income and health related issues.
Further, the Indian flexible polyurethane (PU) foam market is likely to grow by 11-12% CAGR over FY16-21, as demand from end user industry increases.
According to the management, the company has sufficient capacity to handle higher demand for the next few years.
Good prospects, healthy and improving return ratios and low leverage (debt-equity has declined consistently from 1.8x in FY12 to 0.2x in H1FY17) should provide valuation comfort in the long term. However, the company's earnings might be impacted in the coming quarters on account of decline in demand in the near term from demonetization and sharp rise (upto 100%) in the price of key raw materials, the Motilal Oswal report said.
Incorporated in 1971, is one of the leading manufacturers of mattresses in India marketed under its flagship brand "Sleepwell". In addition, it manufactures other foambased home comfort products targeted primarily at Indian retail consumers, as well as technical grades of polyurethane foam (PU Foam) for end use in a wide range of industries.
As part of its international footprint, it manufactures PU Foam in Australia through its wholly owned subsidiary, Joyce Foam Pty Ltd. Based on revenues, Sleepwell branded mattresses constituted a share of around 20-23% of the organized Indian mattress market as of FY16.
