Sheela Foam Ltd Management Discussions.


Global Economy

In 2017, global economic growth was broad based and the fastest since 2011 at 3.8%. Approximately two-thirds countries accounting for about three-fourths of total global output, witnessed faster growth as compared to the previous year. Recovery of investment demand in advanced economies, continued strong growth in emerging Asia, and an upswing in Europe, led to this growth.

Advanced Economies grew 2.3% in 2017 versus 1.7% in 2016 primarily driven by strong pick up in investment spending. Led by strengthening private investment,United States (US) witnessed 2.3% growth in 2017 versus 1.5% in 2016. The Euro area witnessed 2.3% growth in 2017 versus 1.8% in 2016, aided by policy stimulus and strengthening global demand.

Emerging Market and Developing Economies grew 4.8% in 2017 as against 4.4% in 2016. Growth in net exports led to robust growth in China. Indias growth was led by strong private consumption. Argentina, Brazil, Nigeria and the Russian Federation saw cyclical improvements.

Global growth is expected to gain some momentum in 2018 and 2019 with 3.9% growth expectations in both the years. Sustained strong momentum, favourable market sentiments and accommodative financial conditions are expected to be the major growth drivers. Growth is expected to be broad based with robust growth in both advanced economies and emerging market and developing economies. India and China are the only two economies that are projected to surpass the worlds growth rate at 7.4% and 6.6% respectively in 2018. Climate change, geopolitical tensions, and cyber security breaches pose threats to the medium-term global outlook.

(Source: IMF-World Economic Outlook April 2018)

Indian Economy

In FY 2017-18, Indias GDP at constant prices is expected to grow by 6.6% as compared to 7.1% in the previous year. Acceleration in manufacturing, rising sales growth, a pick-up in capacity utilisation, strong activity in the services sector and a record agricultural harvest negated the after effects of demonetisation, and the implementation of Goods & Services Tax (GST). As per the Second Advanced Estimates by CSO, industrial, services and agriculture sectors clocked 4.8%, 8.3% and 3% growth respectively in FY2017-18.

The expectations of the global community from Indias economy to deliver on its potential continued to remain high as the country retained the tag of the fastest growing economy in the world leaving China behind. The governments impetus on Make in India, investment in road and transportation infrastructure & Smart Cities, rising middle class disposable income and lower inflation contributed to this growth.

Indian economy is consolidating the gains from the recent reforms and is moving in the right direction. Improved domestic macro-economic conditions, gradual revival in rural sector and small scale businesses and increased push towards infrastructure projects are providing strong impetus to growth. Construction is likely to receive a boost from increased public infrastructure spending aimed at improving the nations rural infrastructure. Another factor that is expected to boost growth is the rise in foreign direct investment (FDI) as a result of ongoing improvements to domestic business conditions and regulatory amendments to encourage higher foreign investor participation.


As per IMF, India is expected to grow at 7.4% in FY 2018-19 and 7.8% in FY 2019-20, leaving its nearest rival China behind. Revival in rural demand, increased infrastructure spending and high optimism in domestic consumption is likely to drive Indias growth, even as increasing debt, increase in crude oil prices and trade protectionism pose risks to growth.

The size of the Indian mattress market is pegged at 100 bn comprising polyurethane (PU) foam, rubberised coir and spring mattresses

Source: economy-likely-to-grow-at-7-3-pct-this-fiscal-report/1153277/


Indian mattress industry

The size of the Indian mattress market is pegged at Rs.100 bn comprising polyurethane (PU) foam, rubberised coir and spring mattresses. The Indian mattress market is dominated by small and unorganised players which specialises in coir, cotton and foam mattresses. The unorganised players constitute around 65% of the total market. The organised segment comprises of branded players who manufacture high quality mattresses by using, premium foam, spring and coir combinations. A gradual shift from un-organised to organised players is visible, as branded players are educating customers about the material used in mattresses. The shift is expected to gain pace with the launch of economy products and subsequent cost increase for un-organised players led by GST.

As people are becoming more health conscious and aspiring luxury lifestyle, there is an evident rise in the awareness of the relation between good sleep and a good quality mattress especially among the youth. A major growth driver for the mattress market in India is the growing urban population who is ready to spend considerable amounts on luxury and comfort. The major market for modern mattresses is in urban area. The rural market is dominated by Cotton Mattress or other sleeping surfaces.

The organised mattress market encompasses three types of mattresses namely PU foam, spring and coir. PU foam mattresses dominated the overall organised market capturing ~50% share followed by coir and spring mattresses constituting 30% and 20% share respectively. South India is considered as production hub of rubberised coir mattresses. However, there has been a steady decline in market share of coir mattress mainly due to inherent quality issues such as premature sagging and rise in price of rubber which in turn has led to rise in the final price of the product. Also, the consumerism driven Indian market with surplus disposable income is ready to embrace the International standard Foam and spring mattress occupying 85% of the total market share. Institutions such as hotels, hospitals and educational institutions contributed the remaining 15%.

Based on distribution channel, the mattress market is dominated by distributor/dealer network followed by own/franchisee stores and online mode accounting for nearly 88%, 10% and around 2% of the total sales respectively. Organised players have started online sales by way of partnerships with online portals and also by establishing their own websites.

Based on price, the organised market is divided into four pricing segment, namely, the economy segment (up to Rs.8,000), the mid-segment ( 8,000-Rs.30,000), the premium segment ( 30,000-Rs.75,000) and luxury segment ( 75,000 and above).

Indian flexible PU Foam industry

Global PU foam market is expected to reach USD 25.1 bn in 2020 from USD 17.3 bn in 2015 growing at 7.8% CAGR. Asia Pacific is the dominant market, with China being the leading manufacturer and consumer of PU foam. Increasing demand from bedding & furniture industry owing to rising urban population in emerging economies of Asia Pacific such as China, India, and Indonesia is anticipated to drive growth over the forecasted period.

The Indian flexible PU Foam industry is estimated at Rs.65 bn. The flexible PU Foam is manufactured as Slab stock Foam and Moulded Foam. Major part of the PU foam market is dominated by Slab stock foam (Around 65-70%). Flexible slabstock foam mainly finds application in mattress and furniture, whereas Moulded Foam is mostly used in Automotive Industry.



GST acting as an enabler:

Reduction in GST rate on Foam and Spring Mattresses from 28% earlier to 18% now gives competitive advantage in pricing to organised players. Also, as the economy shifts to a more formal setup when GST and e-way system fully plays out, the organised players in the mattress industry will see very large growth.

Rapid urbanisation, growing youth and rise in nuclear families:

With a median age of 28 years and 62% of the 130+ Crore Indian population under 35-year age band consciousness for comfort sleeping is on the rise. By FY 2024-25, urbanisation is expected to stand at 40% with nearly 75% households moving to a nuclear setup. These factors work in favour of modern mattress. (Source: BCG report)

Increasing disposable income levels:

Indias personal disposable income is expected to increase from USD 130 bn in 2015 to USD 220 bn by 2020 growing at 10.5% CAGR.

(Source: KPMG survey)

Changing consumer lifestyle:

Urbanisation, increasing use of technology, brand and style awareness and hectic life routines have contributed in changing consumers preference for bedding. With rising exposure to developed economies due to foreign travel consumers are increasingly preferring PU foam mattresses/spring mattresses.

Health awareness:

There is growing awareness among the consumers about the role of sleep for Good health. This will lead to spurt in demand for good quality products for sleeping.

Housing growth:

The governments push for housing for all by FY 2021-22 and smart cities project will give rise to residential setups.In February 2018, creation of National Urban Housing Fund was approved with an outlay of Rs.60,000 Crores. Under the Pradhan Mantri Awas Yojana (PMAY) 1,427,486 houses have been sanctioned in FY 2017-18. In March 2018, construction of additional 3,21,567 affordable houses was sanctioned under the scheme. This growth in housing sector will lead to growth in demand for mattresses.

Hospitality: The hospitality sector in India is expected to grow at 16.1% CAGR to reach Rs.27.97tn by 2022. This portends tremendous growth potential for mattress industry.

(Source: KPMG report)


Transportation & warehousing: PU foam and mattresses being bulky in nature lead to difficulties in handling and warehousing, and also pose cost-related challenges. This makes long distance transportation of these items a challenging task.

Consumers lack of understanding: The concept of spring and PU foam bedding is new to the Indian culture. Importance of good quality bedding for good sleep is slowly gaining traction. Additionally high costs of these mattresses make them less lucrative for the price sensitive Indian consumer.


The rapid augmentation in the market is likely to be witnessed mainly on account of rapidly surging real estate and hospitality sectors along with rising trend of nuclear families. The mattress market is witnessing change in terms of products demanded with the sale of Foam and Spring mattresses seeing a continuous upward trend. The spring and foam mattress market is expected to gain more share at the cost of coir mattresses. Additionally, purchase of good quality hybrid mattress is becoming more prominent with increasing health consciousness and back pain problems. Owed to this, focus on production of specialised or hybrid mattress is gaining steam. The e-commerce space is poised to emerge as the next big wave in the mattress market owing to the vast consumer base seeking solutions online for everyday needs and vast availability of standardised high quality products by branded players.

Led by increasing demand from end user industries, the flexible PU foam market is expected to grow at 11-12% CAGR during FY 2016-21. In FY 2020-21, the market for flexible slabstock foam and flexible moulded foam is estimated to be around Rs.53-58 bn and Rs.33-38 bn respectively.

Due to rising disposable incomes and the evolving perception of mattresses as health investments, the demand for premium segment mattresses is expected to grow at a fast pace. To leverage its position in the premium segment, the Company intends to increase focus on personalised home-comfort products in terms of both innovation and production so as to premiumise margins. Further, the Company is looking to develop niche and higher-margin products including more sophisticated grades of technical PU Foam. The Company is striving to expand the depth of its domestic retail presence and launch Sleepwell branded ultra-premium products. Besides, it is also looking to ramp up its position in the base-line comfort products range at lower price points specifically aimed at rural retail customers. It is also looking to upscale export operations to sell higher volumes of technical foam to manufacturers located in SAARC nations.

The Company has already started production using Vertical Variable Pressure Foaming technology. The Foam produced through this technology is more durable and comfortable. The Companys unwavering focus to consolidate customer recall of various customised product sub-brands such as My Mattress and Perfect Match is likely to bear fruits in the coming future. The Company is furthering this by promotion through different forms of marketing, increasing retail presence, capitalising on the strength of distribution network. The Company continues to build brand leadership in core home comfort products, such as mattresses and bedding material, as well as higher-grade technical PU Foam lines which represents a significant opportunity for its future growth.


During the year under review, Net Revenue from operations on standalone basis, increased to Rs.1,667 Crores from Rs.1,472 Crores, registering a growth of 13.2% over last year. The Profit After Tax for the current year increased to Rs.125 Crores from Rs.111 Crores, up 13% over the last year. The Net Revenue from operation from Australia increased to Rs.309 Crores from Rs.304 Crores, registering a growth of 2% over last year. The Net Profit was Rs.8 Crores in FY 2017-18 as against Rs.15 Crores in FY 2016-17. The continuing and unprecedented high price of TDI has dented EBITDA and Net Profit of Australian operations.

On Consolidated basis, Net Revenue from operations increased to Rs.1,976 Crores from Rs.1,776 Crores, registering a growth of 11.3% over last year. The mattress volume growth stood at 4%. This growth was achieved despite the subdued demand due to GST implementation. The EBITDA was Rs.216 Crores in FY 2017-18 as against Rs.196 Crores in FY 2016-17. The Profit After Tax for the current year increased to Rs.134 Crores from Rs.126 Crores, up 6.3% over the last year.

The average price of TDI, one of the significant raw materials, was Rs.273 per kg in 2017-18 as against Rs.194 per kg in FY 2016-17 due to Force Majeure outages in a few plants globally. The Company started procurement from the new plant in Sadara.

The Company effected two price increases to partly mitigate raw material price pressure. The rate of GST on Foam and Spring Mattress was reduced from 28% to 18% in mid-November. The Company immediately passed on all the benefits to the customers.

The Company introduced economy model mattress "Starlite" and Mid Level Mattress "Feather Foam" in July 2017 and Feb. 2018 respectively. Post successful test marketing of the model in North India these models are being launched pan India. On the furniture side of the business, the Company has tied up with carpenters & upholsters under "Anmol Bandhan Scheme". This will help in selling Sleepwell and Feather Foam Furniture Foam.

The Company has increased sale of Technical Foam by increasing its customer base .The Company has been able to develop different kinds of high quality technical foams through constant Research & Development.


Macro-economic risk

The growth of housing, hospitality and automotive sectors is directly correlated to macro-economic performance. Any slowdown in Indian economy could thus adversely impact the performance of the Company which serves these sectors.


Favourable indicators such as moderate levels of inflation, growth in industrial sector, greater stability in GST, recovery in investment demand, expectations of good monsoon, and ongoing structural reforms could propel Indian economy to grow at an accelerated pace

Income level is expected to triple by 2025 with working population to increase by 33% to reach 1.14 bn by 2025

Increased banking penetration and financial inclusion, formal payment structure for contract labors and daily wage earners, and shift of rural economy and small scale sector to e-payments bode well for economic development.

As per IMF, India is expected to grow at 7.4% in 2018 and 7.8% in 2019, leaving its nearest rival China behind to re-emerge as one of the fastest growing major economies

* With only 35% of the total modern mattress market being organised, it portends a huge scope of growth for the market

The Companys Australian subsidiary reduces dependence on Indian economy alone

Competition risk

Given the large growth potential the modern mattress market has, there is risk of heightened competitive activity from existing players and likelihood of new entrants. The Company needs to be agile to produce low cost high quality products to protect market share.


The Company boasts of a rich cultural heritage and its Sleepwell brand enjoys a strong brand equity with a wide variety of home range products and technical grade products

The Company invests in technology to ensure it stays ahead of competition. The Company has advanced manufacturing equipment and has improvised its shop floor operations. This also helps controlling costs and enhance operational efficiencies enabling it to keep prices competitive

Continuous focus on R&D has led to development of innovative products with unique features like customisation of mattress through My Mattress and use of scientific analysis to assist customers in choosing right products through Perfect Match. This leads to strong brand resonance The Company has more than 2,750 Exclusive Brand Outlets (EBOs) which helps create a USP in shopping experience and promoting premium range of products

To take share from unorganised Market, the Company has launched Low Priced Mattresses, immediately after GST implementation to stay ahead of Competition.

Inventory risk

The Company faces risk of inventory pile-up in case its marketing team is unable to sell its products.


The Company has a strong distribution network of 110+ exclusive distributors, 2,750+ exclusive retail dealers and 3,500+ multi-brand outlets. This deeply penetrated network enables to maintain a steady sale of products

Additionally, the Company invests in media spends across television, radio, newspaper, OOH and magazines to maintain brand visibility and customer recall

The Companys inventory management is robust owing to its IT infrastructure which enables efficient product distribution. The system ensures timely availability of products and real time inventory management

Raw material risk

The Company faces the risk of unavailability/reduced availability of raw material. The price and quality of raw material may also fluctuate hampering production.


The Company procures its key raw materials (Polyol and TDI) in bulk quantity leveraging its huge scale of operations. This helps it to source the raw materials at most competitive rates. Further ,it also maintains a balance between Imports and Local Procurement

The Company enjoys long-standing relationship with large suppliers ensuring unhindered supply of materials at competitive rates

The Company has provision to store its key raw material for long durations avoiding risk of unavailability in case of supply shortages

Counterfeiting risk

The Company faces the risk of spurious/counterfeit products soiling its market reputation and leading to loss of sales.


The Company has invested in technology to be able to track its genuine products with the help of RFID micro-chips

Regular market checks and long standing relationship with dealers enables to keep a check on sale of counterfeit products


The Company has clearly laid down policies, guidelines and procedures keeping in mind the nature, size and complexity of business operations. The Company maintains proper and adequate system of internal controls with well-defined policies, systems, process guidelines, and operating procedures. The Company ensures strict adherence to various procedures, laws, rules and statutes. All transactions are recorded and reported in accordance with the Accounting Standards. Internal Audit is periodically conducted by the Independent Firm of Internal Auditors. The Audit Committee closely oversees the business operations on a regular basis and any deviations are promptly reported to the Senior Management to ensure normalcy is established at the earliest. MIS systems are effectively used to keep all expenses within budgetary allocations and corrective measures are promptly undertaken in case of any variance.


Human capital is one of the key resources for the Company to ensure business sustainability and growth.The Company ensures a safe, conducive and productive work environment across all plants and offices. The Company continually strives towards attracting, retaining, and developing the best talent required for the business to grow. The Company provides regular skill and personnel development training to enhance employee productivity. Unwavering focus on transparent and engaging work environment enables it to achieve higher employee satisfaction levels.

The company boasts of well defined HR policies which take care of both personal and professional growth of its employees. Polices nurture a culture that leads to alignment of employee goals with those of the Company. During the year, the Company continued to witness healthy employee and industrial relations with harmony and peace. As on 31 March, 2018, the Company had a total of 3,295 employees.


The statements in the Management Discussion and Analysis Report that describe your Companys projections, estimates and expectations are "forward-looking statements". They are within the meaning of applicable securities laws and regulations. Actual results could differ from those expressed or implied depending upon the economic conditions affecting demand/supply, price scenario in the domestic and international markets in which it operates, changes in government regulations, tax laws and other statutes. Your Company undertakes no responsibility to publicly amend, modify or revise any forwardlooking statements on the basis of any subsequent development, information or events.