Sheela Foam shares rise 15% after stake acquisition in Kurlon and Furlenco

Shares of Sheela Foam surged as much as 15 per cent during the early trading session on Tuesday on the back of acquisition news by the mattress maker. Sheela Foam has announced the acquisition of a majority stake in Kurlon Enterprise and a significant stake in Furlenco's parent company.

The home comfort products manufacturer is going to acquire 94.66 per cent shareholding in Kurlon Enterprise at an equity valuation of Rs 2,150 crores; subject to customary working capital, debt and debt like items and other adjustments, if any. The indicative time period for the completion of the acquisition is by or before November 30, 2023, the company said.
 

Sheela Foam is also acquiring a 35 per cent stake in House of Kieraya (HOK)-owned Furlenco, which deals in furniture and rented-furniture market, for an equity valuation of Rs 857.14 crore. The deal is likely to be completed on or before August 30, 2023, the company added its statement.

Following the announcements, shares of Sheela Foam surged about 15 per cent to Rs 1363.55 during the trading session on Tuesday. However, the stock almost halved its gains to trade at Rs 1,297 at 10.05 am with a total market capitalization of 12,650 crore. The scrip had settled at Rs 1,188.10 on Monday.

The acquisition of Kurlon will help Sheela Foam to consolidate the existing fragmented market of mattresses and foam based products. It will further diversify Sheela Foam’s existing customer base into Southern and Eastern parts of India. With this acquisition, It expects it will have a combined market share of around 21 per cent in the mattress market in India.

The Furlenco's deal will help Sheela Foam to enter the fast-growing branded furniture and furniture rental market, and an opportunity to further diversify its presence even in the furniture sales market and become a full portfolio company in the segment.

Established in 1962, Kurlon Enterprises manufactures products like mattress, furniture, cushions, pillows and coverings. The company reported revenues of Rs 808.80 crore in FY22, up from FY21 when it reported Rs 767.25 crore in revenue. It has not yet declared its FY23 financial results.

Sheela Foam has taken an aggressive step and announced the acquisition of Kurlon. This is an attractive price considering the FY20 PAT of Rs 80 crore, which implies 26 times. Thereafter, Kurl-on’s PAT moderated. Sheela Foam has taken a 35 per cent stake in Furlenco. Together, the total outlay shall be 2,300 crore and details of the funding shall be awaited, said Nuvama.

"The brands are complimentary in product dominance and geographies. Cost synergies are apparent—bulk RM buying, logistics and plants’ optimisation. While the deal is positive on attractive valuation, reviving growth is key for both brands. The Furlenco acquisition, on the other hand, has clear cross-sell opportunities," it added with a 'hold' rating with a target price of Rs 1,187.

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