Sheela Foam Targets 15%+ Growth, Adds 600 Showrooms

Sheela Foam Limited — Q4 FY26 Earnings Conference Call (Quarter & Year ended Mar 31, 2026) | Call held May 15, 2026

1. Overall Tone of Management: Optimistic

• Management repeatedly highlights “strong growth”, “healthy growth across both revenue and profitability”, and “highest ever annual foam production / top line / EBITDA”.
• They express confidence in sustaining momentum: “should move further onwards with growth” and “we expect to continue the momentum going forward”.
• While they add caution on the Middle East supply chain, it is framed as currently manageable: “navigate this environment without any material disruption”.

2. Key Themes from Management Commentary

• Integration benefits from Kurlon are now visible in performance
• “Kurlon acquisition has moved beyond integration and is now visibly contributing”.
• Return metrics improved: “ROCE… around 18%… even before Kurlon… around 17%”.
• Profitability expansion alongside growth
• Core EBITDA margin expansion: Q4 11.5%; FY 10.7% (and CFO cites 10.8%).
• Emphasis on disciplined fixed cost control and operating leverage.
• Demand and channel execution across multiple growth engines
• Retail: “added approximately 600 net new showrooms” in FY26; Kurlon showroom expansion in North gaining traction.
• E-commerce: brand.com growth 136% YoY; platform growth 39% YoY.
• U2O (unorganized-to-organized): volume +65% and value +111% YoY; now through 8,400 dealers across 5,000+ towns.
• Raw material volatility managed through sourcing relationships and pass-through
• Long-standing suppliers ensured availability of “polyol and TDI”.
• Middle East situation monitored for supply chain risk.
• International turnaround narrative continues
• Australia and Spain both show margin improvement (Australia EBITDA margin improved ~400 bps; Spain improved from 8.4% to 10.4%).
• Capital allocation / balance sheet strengthening
• First-time dividend recommendation: “first dividend recommended… since listing”.
• Net debt reduced by INR156 crores in FY26.

3. Q&A Analysis

Theme A: Medium-term strategy & growth priorities

• Core questions
• What are the top priorities to sustain growth and improve return on capital over 2–3 years / 3–5 years?
• Management response
• Focus on strengthening product/business lines; “target… around 15% plus growth”.
• Build pillows as a standalone category; deepen focus on e-commerce and U2O due to large unorganized share.
• Notable signals
• Clear strategic direction but limited quantification beyond the “15%+” growth framing.

Theme B: Raw material pricing, pass-through, and margin outlook

• Core questions
• Where are TDI and polyol prices now? How much pass-through has been taken? Will margins be pressured in Q1/Q2?
• Management response
• Pricing described as highly volatile (“crystal ball gazing”; oscillations multiple times in a month).
• Pass-through: polyol/TDI increased “between 25% to 35%” on average; mattresses could take “decent” pass-through; B2B “a little lesser”.
• Margin near-term: management pushed back on margin pressure—inventory mapping and pricing lag expected to limit impact:
  • “we don’t expect any impact… not more than… 50, 100 basis point”
  • “focus on growth… directly flows to the bottom line”.
• Evasive/partial elements
• They avoided giving a clean % pass-through “for mattresses and foam” initially (“very difficult to give in percentage terms”).
• They provided current supplier prices later (TDI ~INR275 at GNFC; polyol ~INR180), but not a full bridge to realized pricing by segment.

Theme C: Operating cost structure, depreciation policy, and capex

• Core questions
• Marketing expense run-rate; depreciation outlook; capex for FY27; depreciation policy change rationale.
• Management response
• Marketing: FY26 ~4.5% of sales; Q4/Q3 slightly lower in Q4.
• Depreciation: incremental capex depreciation expected INR140–145 crores consolidated (implying ~INR35 cr/qtr).
• Capex FY27: INR125–150 crores including maintenance, debottlenecking, store openings.
• Depreciation policy: realigned useful life to reflect long asset lives (machines 40–50 years) to avoid skewing early depreciation.
• Notable signals
• Depreciation policy change is a credibility-sensitive area; they justified it as accounting realism rather than earnings management.

Theme D: U2O scalability and value vs volume gap

• Core questions
• How scalable is U2O strategy across states?
• Why does U2O show large value growth vs volume growth?
• Management response
• U2O value/volume gap attributed to higher model introduction and price increases:
  • “introduced a higher model… at a higher price point”
  • “price increase in both the models”.
• Scalability question was partially deferred due to audio issues; later they emphasized distribution reach and product innovation.

Theme E: International profitability drivers & potential sale

• Core questions
• Why did Australia gross margin expand but expenses also rose? Is Spain margin stable? Any intent to sell international businesses?
• Management response
• Australia: efficiency measures + customer price hikes; margin improvement with minor aberration.
• Spain: “real surprise” due to better pricing realization; stable margin expected 30–32% (they framed as stable profitability range).
• Sale exploration: still “open to that” but not switched off; will pursue only at the right time/right party.
• Notable signals
• They explicitly maintained profitability targets for overseas (intent not to chase “16–18%” but “retain between 10% to 12%”).

Theme F: Furlenco plans, IPO timing, and returns

• Core questions
• Long-term plan for Furlenco; IPO timing; ROE/ROCE; debt/interest cost implications.
• Management response
• Next year plan: revenue ~INR500 crores (tracking well).
• IPO decision: “somewhere in the next 3 to 4 months” (decision window).
• Returns: ROCE for Furlenco “around 30% to 35%”; they corrected holding % to ~43% fully diluted.
• Unusually strong / specific answer
• IPO timing window is fairly concrete compared to earlier calls.

Theme G: Synergy savings timeline

• Core questions
• Pending synergy savings of ~INR40 crores: when will machines be installed and benefits realized?
• Management response
• Delayed by 1.5 quarters; expected installation “by the mid or end of this quarter” with scaling in subsequent quarters.

Theme H: TDI procurement continuity during war/supply disruptions

• Core questions
• How did they procure required TDI quantity when GNFC shut down and China supply was constrained?
• Management response
• GNFC shutdown temporary; traders increased rates but material available.
• They hedged risk by adding a new supplier partner (mix of Korea/Japan/China sources).
• “no stock out situation” though they paid more at times.

4. Guidance / Outlook

Explicit guidance (quantitative)

• Growth target (medium term):
• “target… around 15% plus” growth (Amit).
• Raw material pass-through / margin near-term:
• No explicit margin % guidance for Q1/Q2, but they stated impact should be limited to “50, 100 basis point” and not “material”.
• Capex FY27 (consolidated):
• INR125–150 crores (includes maintenance + debottlenecking + store openings).
• Depreciation outlook FY27 (consolidated):
• INR140–145 crores (implied ~INR35 cr/qtr).
• Furlenco:
• FY27 revenue plan: ~INR500 crores.
• IPO decision window: “next 3 to 4 months”.
• Interest cost (qualitative with numbers):
• Finance cost expected around INR50-odd crores until major capital structure changes.

Implicit signals (qualitative)

• Margin sustainability narrative
• Management believes gross margin volatility will be buffered by inventory/pricing lag and that EBITDA will be supported by volume-driven operating leverage.
• Demand resilience
• They attribute volume spikes to genuine demand + competitor supply constraints during war, and they do not expect channel stocking issues because foam is bulky.
• International posture
• They remain open to selling international businesses but will continue operating to maintain performance until a suitable deal emerges.

5. Standout Statements (direct / high-signal)

• Performance milestones
• “highest ever annual foam production, highest ever top line and the highest ever EBITDA.”
• Integration maturity
• “Kurlon acquisition has moved beyond integration and is now visibly contributing.”
• Return metrics
• “ROCE… around 18%… even before Kurlon… around 17%.”
• Near-term margin stance
• “we don’t expect any impact… in the first and the second quarter” (with caveat of possible 50–100 bps due to volatility).
• Raw material volatility framing
• “pricing… is like a crystal ball gazing… oscillations or volatility will reduce” after war ends.
• Dividend milestone
• “This is the first dividend recommended… since listing.”
• Synergy delay admission
• “It is delayed by 1.5 quarters” (for the remaining INR40 crores synergy).
• Furlenco IPO timing
• “decision somewhere in the next 3 to 4 months’ time.”
• International sale posture
• “we are open to that… but… still do whatever is necessary to maintain that business.”

6. Red Flags / Positive Signals

Red flags
– Limited transparency on realized pass-through by segment
– They avoided % pass-through for mattresses/foam initially; later gave average raw material increases and some qualitative channel differences.
– Near-term margin confidence relies on assumptions
– Inventory mapping and pricing lag are plausible, but they also admit volatility could still cause 50–100 bps swings.
– Synergy timing slipped
– INR40 crores synergy delayed by 1.5 quarters—a credibility-sensitive deferral.
– Depreciation policy change
– While justified, it can affect reported earnings comparability; investors may scrutinize whether it smooths optics.

Positive signals
– Concrete capex and depreciation numbers for FY27
– Clear balance sheet progress
– Net debt reduction and dividend recommendation.
– Operational resilience
– “no stock out situation” during TDI disruptions; hedged supplier risk.
– Multiple growth engines scaling simultaneously
– Retail showrooms + e-commerce + U2O + foam growth.

7. Historical Comparison & Consistency Analysis (vs prior 3 calls)

a. Change in Tone Over Time

• Current call (May 2026): More Optimistic
• Strong milestone language (“highest ever… EBITDA”) and dividend.
• Prior calls:
• Q3 FY26 (Feb 2026): Optimistic but more “integration/visibility improving” tone; emphasized Kurlon merger completion and expected Q4 price impact.
• Q2 FY26 (Nov 2025): Optimistic with “sustainable margins” narrative, but more cautious on raw material direction and overseas normalization.
• Q4 FY25 (May 2025): More defensive—acknowledged consumer headwinds and that margins were not yet at target.
• Shift classification: More Optimistic
• Management now speaks as if integration is largely done and profitability is sustainably expanding, not just “on track”.

b. Tracking Past Commitments vs Outcomes

• Synergy completion / pending synergy
• Past (Nov 2025 / Feb 2026): INR250 crores total synergy; INR190 crores realized; remaining ~INR60 crores expected via new machines.
• Current (May 2026): Remaining INR40 crores delayed by 1.5 quarters; installation expected mid/end of current quarter.
• Status: ⏳ Delayed (not fully delivered yet; timeline pushed).
• Dividend
• Past (Feb 2026): Dividend was discussed as “process being reviewed” (no commitment).
• Current: Dividend recommended 20% for FY26.
• Status: ✅ Delivered (first-time recommendation).
• Furlenco IPO direction
• Past (Nov 2025): Furlenco raising equity; IPO discussed as a future possibility once scale threshold reached.
• Current: IPO decision window “next 3 to 4 months”.
• Status: ⏳ Evolving toward commitment (more concrete now, but still a decision pending).

c. Narrative Shifts

• From “integration and margin catch-up” → “execution and scaling with profitability”
• Earlier calls emphasized integration completion and synergy realization; now they emphasize “integrated platform” and “profitable growth together”.
• Raw material volatility moved from “headwind/deflationary” to “managed volatility”
• Q2 FY26: raw materials at low levels; expected increase soon.
• Current: raw materials volatile due to war; they claim they can “sail through”.
• International posture
• Earlier: overseas turnaround and profitability normalization.
• Current: overseas margins framed as stable ranges and explicit intent not to chase higher margins.

d. Consistency & Credibility Signals

• Medium credibility (improving, but with slips)
• Strengths: they provide more quantitative FY27 capex/depreciation; they admit delays (synergy) rather than fully deflecting.
• Weakness: synergy deferral (INR40 crores) and reliance on assumptions for margin stability in volatile raw material conditions.
• Overall: Credibility Medium (not yet “high”) due to at least one notable timing slip.

e. Evolution of Key Themes

• Demand / volumes: Improving/stable
• Mattress volumes: Q3 FY26 +11% (9M), current FY26 volume growth ~15% (full year).
• Margins: Improving
• Core EBITDA margin moved from ~10% range (earlier) to Q4 FY26 11.5% and FY26 ~10.7–10.8%.
• Cost discipline: Stable/strengthening
• Fixed cost control repeatedly cited; depreciation policy realignment.
• International: Improving but framed as “range-bound”
• Australia/Spain margins improved; intent to keep profitability within sustainable band.

f. Additional Insights (cross-period intelligence)

• A risk is becoming more explicit: Middle East supply chain risk
• Earlier calls discussed raw material direction; current call explicitly flags Middle East evolving situation and potential implications for availability/supply chains.
• Defensiveness in Q&A around margins
• When asked about Q1/Q2 margin pressure, management strongly denied material impact and leaned on inventory lag—suggesting they are protecting the margin narrative despite volatility.
• Synergy delivery is still not fully “clean”
• Even with strong FY26 results, the remaining synergy is delayed—implying that some margin upside may still be contingent on execution of delayed capex/machines.