Capitaline

Analyst Meet / AGM 24-Aug-20

Conference Call

Sheela Foam

Expects normal business from Diwali

Sheela Foam conducted conference call on 21 August 2020 to discuss the financial results and performance of the company for the quarter ended June'20. Mr. Rahul Gautam - Managing Director, Mr. Tushaar Gautam- Director, Mr. Rakesh Chahar - Director, Sales & Marketing and Mr. Dhruv Mathur - CFO of the company addressed the Concall.
Highlights of the Concall

Australia and Spain is seeing second wave of Covid-19. However, it is not as bad as the as the first one. In Australia they have already locked down one city which is Melbourne. Sydney is also partially lockdown. Spain has not done any lockdown.

About 80 to 90% of the markets are open. The company has also reached its capacity utilisation to levels ranging between 80 to 85%. July did a business of around 80% of previous year and August it was around 85% of previous year.

The smaller town came performed better because the impact of Corona was larger in the larger town. Also the organized sector did better than the unorganized sector.

The company expects that business should be back to normal times from Diwali this year.

The company's dependence on imports for raw materials from china is very little. Rather, the company is looking for areas where they can substitute products imported from China and also increase exports to other countries.

The government has identified some 11-12 sectors, including the furniture side, which the government intends to develop as a big cluster to take care of nullifying the imports and increasing exports etc. The government is thinking of making SEZs where the land and labour laws would be different and competitive with any part of the world.

The average price of TDI (Tolune di isocynate- Raw Material for Foam) was Rs. 124 per kg in Q1FY21 compared to Rs. 122 per kg in Q4FY20 and Rs. 154 per kg in Q1FY20. However the prices have now sharply moved to around Rs 160 per kg. Another raw material Polyol prices has moved to around Rs 110 per kg.T he company expects Polyol prices to move further to around Rs 130-140 per kg.

Gross margins decreased from 49.7% in Q1FY20 to 46.3% led by higher sales of lower priced products, lower discounts on purchases and no GST refund of 0.5% of sales (stopped in March'20)

The company expects to maintain its current EBITDA margin of around 14% in the coming quarters.

The demand is good and strong in Australia and Spain. The company expects that the turnover from Spain in the coming days will be much better.

The Spanish center is the manufacturing hub of a lot of the western part of Europe. It is still a low cost economy but it continues to be part of the European Union. Other than the European market opportunity, there is now the opportunity of supplying from Spain to the US. It has the opportunity of supplying to the northern part of Africa.

The company has ventured into IT business. The name of the company is crackle. It is targeting the IT needs of mid and small level companies and it is already getting orders.

Organized sector is around 35% of the total market and in the organized sector the company share has been increasing every year. In the last survey that was done it was around 30%.

The company has maintenance capex of Rs 50 crore every year. The company has bought a land in Jabalpur and capex of Rs 50-60 crore is expected in that for next two years

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