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Analyst Meet / AGM
05-Feb-21
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Conference Call
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Sheela Foam
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Expects 17% margin to sustain
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Sheela Foam conducted conference call on 04 February 2021 to discuss the financial results and performance of the company for the quarter ended Dec'20. Mr. Rahul Gautam - Managing Director, Mr. Tushaar Gautam- Director, Mr. Rakesh Chahar - Director, Sales & Marketing and Mr. Davinder Ahuja - VP Finance of the company addressed the Concall.
Highlights of the Concall
- Volume growth has positively surprised. India mattresses business benefitted from consumer shift from cotton to foam and from unorganized to organized market. Australia and Spain demand increased due to increased time at home, restricted imports from China and govt support.
- The company feels consumer focus is on health and channel preference is changing towards e-commerce.
- The e-commerce segment is witnessing strong growth. The company is reasonably present in e-commerce and is increasing its presence..
- Affordable housing focus and increased allocation to railways in the budget means more business opportunity for Sheela Foam.
- Raw material prices were volatile in the previous six months. Prices rose extremely high, but are reducing now. TDI is at Rs170 per kg and Polyol at Rs200 per kg. The company expects TDI to stabilize at Rs150-170 per kg levels by Feb-end. Contribution to input is around 20% is Polyol and 30% is TDI while rest is spring and textile etc.
- Lower marketing and selling expenses plus help from operating leverage helped increase margins to 17.5% from 14% in FY20 despite gross margins falling to 43% from 49% The company expects margins to sustain going forward
- The company does not pass on the entire increase in RM to customers. There is also a function of product mix.
- The company had entered the Australian market as it was a developed market. Its learnings and raw material suppliers could be leveraged
- The company entered the Spain market in 2019. EU is the biggest market of PU foam in the world, SFL needed a foothold there, Spain subsidiary has only 1% share in EU. The company is in a low cost area of Europe and now even exports business has opened up.
- The company is planning to come up with one plant in Central India (Jabalpur). Other than that, it will be maintenance capex.
- The company estimates that USD 600 million opportunity for exports in US. This is primarily supplied by China as a bed in a box and buyers have been looking beyond China now. Competing with China and the Chinese manufacturers is tough but SFL has had many enquiries. In-fact, the company has been supplying to them (some from Spain, some from India). There are some challenges like shipping disruption and container availability which will go away soon. Next financial year, the company expects exports will cross Rs 100 crore.
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