Sheela Foam Ltd, which sells its products under the brand Sleepwell, is seeking a valuation of as much as Rs 3561.14 crore (roughly $520 million) through an initial public offering (IPO) that opens on 29 November.
The second IPO after the government kicked off demonetisation of higher denomination currency early this month, will close on 1 December.
GreenSignal Bio Pharma, which was aiming to raise Rs 116 crore (which was later trimmed to Rs 110 crore) in its IPO, on Tuesday withdrew the public issue after failing to garner sufficient bids from institutional investors, as it bore the brunt of stock-market volatility after the government announced demonetisation.
However, Sheela Foam and the merchant banks leading the issue believe the impact of demonetisation will be muted in its case though the valuation could have been slightly higher.
The issue could have been priced higher if not for the government notification to de-legalise Rs 500 and Rs 1,000 notes, said Rahul Gautam, managing director of Sheela Foam. The issue has been priced keeping in mind the market reality, he said.
On the other hand, there is demand from certain long-only funds which are willing to put in a 10% premium even now, said a senior official at one of the banks handling the issue on the condition of anonymity.
However, the issue is on a tight timeline to list on the bourses if the firm wants to avoid the US Federal Reserve’s widely anticipated move to raise interest rates in mid-December, said a dealer who did not wish to be named.
Sheela Foam would have to list within six days of the issue closing, in this case possibly by December 9, as mandated by the regulator.
Ghaziabad-headquartered Sheela Foam has priced the IPO in a band of Rs 680-730 a share.
As with other consumer facing companies, Sheela Foam has seen ongoing cash crunch impacting sales. But it is a short-term effect, Rahul Gautam noted while speaking on the
sidelines of a press meet to launch the IPO on Tuesday.
The issue entirely comprises an offer for sale by one of the promoter companies Polyflex Marketing Pvt Ltd and the firm shall not get any money from the IPO. The issue will raise Rs 510 crore ($77 million). Post the issue, the Gautam family is likely to retain around 86% stake in the entity.
Sheela Foam filed its IPO proposal with the Securities and Exchange Board of India (SEBI) on 29 July. The company received regulatory clearance for the proposed IPO on 2 November.
It is one of the few private firms that are looking to go public and are not already backed by a private equity investor.
Edelweiss Financial Services Ltd and ICICI Securities Ltd are the merchant bankers for the IPO.
Last year, Motilal Oswal Private Equity Advisors Pvt. Ltd (MOPE), the PE arm of Motilal Oswal Financial Services Ltd, invested Rs 90 crore (about $13.5 million) in the country’s top mattress maker Kurlon Ltd that sells products under the brand Kurl-on. That deal also included Rs 20 crore worth of shares sold by Kurlon promoters.
Looking at acquisitions
Now that it is getting listed, the company will actively look for acquisitions, either in allied categories or to shore up its reach across India, said Tushar Gautam, director, Sheela Foam.
The firm would be interested in acquiring companies operating in allied segments such as those that manufacture bed sheets, pillow covers and comforters, Tushar Gautam said.
The company could also look at acquisitions in eastern and southern Indian markets to enhance its presence, he said.
The company sells foam, coir and spring mattresses under the Sleepwell brand and industrial application mattresses under the Feather Foam brand.
It operates in a highly fragmented market where two-thirds of the market is under the unorganised sector. In the organised sector, it competes with Kurl-on, Duroflex and Coirfoam besides international brands like Raha, Hastens, Simmons and SpringAir, among others.
Launched in 1971, the company has 11 manufacturing facilities in India. Though all these facilities are used for manufacturing home comfort products, five of them also produces PU foam. It claims to have a foam production capacity of 1,23,000 tonnes per annum(TPA).
The mattress maker also has an international presence through its wholly owned subsidiary, Joyce Foam Pty. Ltd in Australia. Joyce operates five manufacturing facilities that exclusively manufacture PU foam and had a total installed production capacity of 10,500 TPA in FY2015-16. It also exports technical foams to countries in the Middle East, South Asia, Europe, the US, Brazil and Argentina.
As of March 31, 2016, exclusive Sleepwell outlets comprised 218 Sleepwell Worlds, 402 Sleepwell Galleries and 819 Sleepwell Shoppes. The home-comfort products are also being sold by over 2,500 multi-branded outlets.
Sheela Foam boasts of a pan-India distribution network. As of March 31, 2016, the company had over 100 distributors and over 2,000 retail dealers.
The company churned out a 9.4% growth in net sales to Rs 1,550 crore and saw net profit zoom to Rs 104.7 crore in FY2015-16 compared to Rs 42.6 crore the previous year.
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