Sheela Foam - An exciting branded play

Is Kurlon listed? Couldn’t find it on screener.

Kurl-on is not listed but you can procure shares from allottees (through ESOPs etc).
I was looking at sites like https://3adeal.com/products-en/kurlon-limited/ for price action. I am unsure of the credibility of this site, but I know more reliable channels for procurement. I am wondering if there is a long-term (~10 years) play with traditional mattress companies.

Thank you. One can also play this with Maha Rashtra Apex, if one is so inclined. https://economictimes.indiatimes.com/markets/stocks/news/the-story-behind-gains-made-by-maha-rashtra-apex/articleshow/56492286.cms

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Companies like Sunday Mattress/Urban ladder are setting up offline trial stores, so the convenience (try and buy, consultative buying, immediate delivery) associated with offline stores can’t be ruled out. IMO, companies have to adopt an omnichannel approach. Traditional companies have to up their offering (trial, price, product & content ) or current online players have to build offline presence. I am unsure of the fund-raising capability of online markets given a relatively smaller market size (USD 1.5bn).

Difficult to place a bet without the knowledge of the approach a company will adopt.

Mattresses are made of either of following three types of material

  1. Coir
  2. Foam
  3. Spring

Now online player only sell foam based mattress, that’s too latex memory foam based.

In my 8 years of selling mattress in my offline store, I have learned that every individual has different needs and thus he needs different mattress.
One type doesn’t suit every one.

Also, even when we showed customer latex mattress to prospective customer, few opted for it.

SO there’s limitations to online play.

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Had there been price reduction by Sheela Foams due to softening RM ? Does Sfl has the pricing power? How is the competition intensity n with which players?

No price reduction.
They have pricing power but up to limited extent. Its not like apple where customer has no alternative.

I already mentioned competition in earlier post

It seems offline store purchase better for mattress
from personal experience
so Sheela foam will rise
but moat will be lacking

Q2 FY20 Sheela foam ltd (SFL) consolidated EBITDA increased to 70 Cr from 42 Cr (even though top line degrew by 7%). They seem to be getting benefited from low RM cost in particular TDI( Toluene diisocyanate).

Two major raw material used are for polyurethane foam production are Polyol and TDI. Quantity wise amount of Polyl used is twice(?) that of TDI but TDI price varies a lot impacting margins.(Polyol price remains largely stable?)

TDI prices have varied significantly in the last two year probably due to some delay in production coming online by global players,crude rise during few quarters of 2018,anti dumping duty on TDI imports.

TDI price started reducing from Q2 fy19 on wards which has started reflecting in increase in op margins in last few quarters for SFL.

Few points below about TDI collected from few sources (it may not be very precise information)

GNFC is the sole domestic manufacturer of TDI with installed capacity of 64,000 MTPA (TDI-II with 50,000 MTPA at Dahej initiated in 2014)

As per con-call of Sheela foam, TDI manufacturing and maintaining plant seems to be technically and may resulting in low production.

Even GNFC had operational difficulties and interruptions in their Dahej Plant-II. Globally its consolidated industry with top players controlling 70-80% market(Wanhua Chemical Group,BASF…etc) any pant shut down of major players can impact prices significantly.

Global TDI market expected to grow at a CAGR of 5% during the period 2017-2021.

In 2015, the global TDI capacity reached 3.02 million tons per year while the demand in 2015 is estimated at 2.08 million tons. Capacity in 2016 were at the level of 2,922 million tons per year.

In 2018, the global TDI capacity reached 3.355 million tons per year with China’s share of 0.91 millions tons/year.

(China’s share in global TDI production capacity)

Asia Pacific is the largest consumer with about 40% share of the global TDI market and the region will post the most considerable growth. Major demand for TDI is from Asia-Pacific region( 50%), the rest is from Europe - 25%, North America and others.

In China, the consumption of TDI was limited due to stricter government controls to protect the environment and furniture manufacturers are cautious to purchase of raw materials due to the ongoing trade war between China and the United States.

Significant capacity additions in last 3 years:

1.Wanhua Chemical’s new 300,000 tonne/year TDI plant in Yantai, China

2.Sadara Chemicals 200,000 tonne/year unit in Saudi Arabia

3.BASF’s 300,000 tonnes/year plant in Ludwigshafen, Germany

Overall TDI prices may remain low due to softer crude,low china demand and capacities coming online. This should results in further improvement in margins for SFL.

Discl: recently started buying…no significant position .

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SFL has come out with good set of no for Q3 aided by new aquisition at Spain and margins improvement due to low TDI price(Rs.129 per KG during Q3)

TDI price trend:
image

Due to low prices, Chinas TDI maker Canghou Dahua has suspended its 30KT/year capacity ,out of total capacity of 150KT/yr. This may not have significant impact on TDI prices unless some major shut downs happens at China due ongoing corona virus break out.

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What’s impact due to corona in their Europe operation?

They have operation in Spain.

In last concall they said it will contribute around 50 Cr.

But since SPAIN is in lock down and one of the worse affected by COVID19, we can assume that 50% or even more of this amount can be written off from this year BS

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CMO sharing idea on way forward

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Look at the response it’s getting online

Matress worth 10K sold in few mins

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Can anyone please help me with latest domestic TDI prices?. @spartan any outlook for sheela foam for the upcoming quarter. Need your insights.

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How much is quantum of TDI in foam making

Can anyone please guide me where i can find Polyol price trend for last one year

@nikhilbora
TDI prices of last few quarters as mentioned by Sheela foam ltd with results

QUARTER Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY210 Q1FY21
PRICE/KG 312 302 280 255 178 154 133 129 122 NA

Q1FY21 TDI prices yet to be updated which SFL will disclose during results scheduled pn 20/08/2020.

Going by one of the research report( I am not sure if I can share the report in an open forum) TDI price for current July-august 2020 month is Rs.138/kg compared to Rs.120/kg in June -July 2020.

There is no significant change in TDI price as of now. As long as TDI price remains low,company will have better margins. GNFC sole domestic producer of TDI getting impacted to low prices and there were reports that they will be approaching Govt for imposition of anti dumping duty .

Q1 results will be impacted ,particularly Indian business due to impact of lockdown. Spain and Austarlian units seems to be doing reasonably well and never closed even during lockdown as per management comments during concall.

There were interesting comments made by MD during Q4 concall about exports.
China was a major exporter to Europe and the USA. Due to covid impact, countries are looking at India as an alternate source. Company is getting large enquiries from the export market, even if 10% gets converted into orders it will be a huge opportunity for SFL. Already few trial orders are in place. They will be able to export from Spain and India. On conservative note the opportunity size will be around Rs.500 Cr in 2 years.

.

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Thanks for such a crisp and clear analysis.

Please help me some info about Polyol prices.