Sleepwell is not the only reason for its dream run. Here’s why investors find Sheela Foam cozy

The decades-old company has built a successful mattress brand and a sound distribution system 

Brand building in the mattress business is quite a challenge. It took us five years after we started off —Rahul Gautam, Managing director, Sheela Foam

The stock that promises a good night’s sleep has been delivering high excitement over the past few months. Sheela Foam has soared from Rs.1,320 on November 10 to Rs.1,690 on December 24! That is 22% in just over a month. Of course, a buoyant stock market has helped, but there are other factors at play as well. Analysts have attributed the surge to the improved performance of the company’s subsidiaries in Australia and Spain, a faster than expected recovery in demand and the festive season.

Sheela Foam has had a great track record, so far. In a low-involvement business such as mattress, creating a brand is never easy. But, the company that started as a foam manufacturer in 1971 has managed to do it with its Sleepwell range, which is now the largest player in the segment. Sheela Foam today gets 82% of its revenue from home comfort products, of which the mattress line is a big part. The remaining 18% comes from technical foam, which is used in the automotive industry, sportswear and sound absorption systems.

“Brand building in the mattress business is quite a challenge. It took a good five years after we started off in the mid-1990s before any semblance of the exercise became successful,” says Rahul Gautam, managing director, Sheela Foam. In FY20, the company posted revenue of Rs.21.73 billion, up from Rs.15.50 billion in FY16. It grew its profit from Rs.1.04 billion to Rs.1.94 billion, over the same period.

Power behind the nap
Gautam, whose company is named after his mother who founded it, says that there are no entry barriers in the business. This translates to a highly competitive space, and there were plenty of challenges to surmount. “In the past, mattresses were never a top-of-mind purchase item. High government taxes with no proper store network were serious challenges that the industry had to counter,” he says.

When asked why his company has done so well despite the hurdles, he points to the distribution network (See: Top spender). The brand has a presence across 6,000 outlets in India, of which 4,400 are exclusive franchise outlets, with the other 1,600 being multi-brand. Contrast that to rival Kurlon with a presence in 1,500 exclusive retail outlets; for FY19, says a report from ratings agency, ICRA, Kurlon had revenue of Rs.11.16 billion and net profit of Rs.740 million.