Sheela Foams is the parent company of Sleepwell mattresses which are one of the leading brand of mattresses in India with 4,000+ retail outlets across the country. Being a near monopoly in the organised market for mattresses in India, the brand has a significant edge in the technology behind a top class mattress, as well as the means to produce economies of scale throughout regions in the country. NeemFresche is one of the newest additions to their mattresses, which is a patented technology in order to protect the products from bugs, termites and odors. In terms of the transition to online markets, the firm has created a new subsidiary named 'SleepX' for the purpose of online sales. Furthermore, company has already started an online shopping option on its website as well. Overall, multi-brand retail outlets account for 88% of Sleepwell revenues, while 10% comes from branded retailers and 2% arising from online sales. Although, online sales are currently weak, the company has started investing in this revenue stream and seems to be ready to capitalize from the shift in shopping avenues over-time.
Along with Sleepwell mattresses, Sheela Foam is also involved in the production of automobile and industrial foams. 65% of the Indian population living in rural settlements, most of which uses cotton mattresses and other unorganized forms of sleeping arrangements. Furthermore, as India's infrastructure connecting rural markets to industrial zones improves along with more families moving into nuclear settlements, the company has clear opportunity to reach a large untapped market.
One of the first things to notice from the balance sheet, is the sudden jump in long term liabilities from Rs. 69 cr to Rs. 156 cr. Since, the annual report for this year has not been released, we cannot say for sure as to where these loans were used, however looking at the assets columns the non-current assets have almost doubled. These loans could have been used to fund a new plant or buy more property, however this is unclear until the annual report is published. Hence although debts have risen, the company's equity share capital has also increased thanks to a sharp rise in non-current assets.
Through the income statement, one of the great things to see is the steady increase in revenues in the last 5 years. Although the last 3 months of FY 19-20, proved to be detrimental due to Covid-19, the company was still able to post a growth in revenue. One of the trends that is seen through the net-profit is that the, profit is very heavily reliant on the cost of materials as well as other expenses (advertising, transportation and packaging). Since the company the company has increased their advertising spending, along with fluctuating costs of raw materials, the net profits have jumped drastically between 2019 and 2020.
After the recent rules imposed by the SEBI, that promoter holding in any corporation must be lower than 75%, the promoters of the firm have completed the required dilution of the business. At the moment 75% of the company is owned by the promoters, while 25% is with the public. Out of the 25%, 20% is in the hands mutual funds with major holdings in SBI, UTI and Kotak Mahindra funds. Furthermore, around 3% is owned by FIIs and DIIs. Hence, out of the 25% of stock available to the public, only 2% is in the hands of individual investors. This shows that this company is trusted by the country's top funds and institutions as a strong investment. This strong holding also prevents Sheela Foams from increased price volatility in the market.
I believe that Sheela Foam is a hidden moat stock, with a very strong holding in the organised market for mattresses all across India. With such growing financial statements, alongside a strong potential for growth through online sales, rural penetration and the overall infrastructural development of India, I believe that this stock will be a very strong name in the years to come, and would be a strong buy in dips and in an SIP format.