According to a person familiar with the planned deal, Sheela Foam is in talks to acquire a controlling stake in rival Kurlon Enterprise, the company that sells Kurl-on branded mattresses.
Other contenders for the stake include the Welspun Group, Bain Capital, TA Associates, and KKR, according to the source.
Sheela Foam and Kurlon did not respond to Moneycontrol’s email inquiries about a possible transaction.
The Sleepwell product line is Sheela Foam’s flagship brand. In the second quarter of FY23, revenue fell 8% year on year to Rs 722 crore, while net profit fell 30% to Rs 53.6 crore. The company’s shares have doubled over the past three years but have declined 17 percent so far in 2022.
According to the company’s website, Kurlon has a nationwide network of over 10,000 dealers, 72 branch and stock points, and nine manufacturing facilities spread across Karnataka, Odisha, Madhya Pradesh, Uttaranchal, and Gujarat.
Despite the fact that Kurlon and Sheela Foam are the largest mattress companies, a possible merger between them may not be scrutinised by the Competition Commission of India because Kurlon’s revenue is less than the Rs 1,000 crore approval threshold.
According to the company’s Annual Report 2020-2021, Kurlon’s revenue from operations fell to Rs 768 crore in FY21 from Rs 961 crore in FY20, while profit after tax fell roughly 67 percent to Rs 25.2 crore.
If the deal with Kurlon goes through, Sheela Foam’s market share in India’s organised mattress segment could rise to 35-40% from 20-25%, according to the source.
Kurlon, the holding company of Kurlon Enterprise, recently bought Motilal Oswal Private Equity Advisors’ 10 percent stake in the company at a valuation of Rs 3,250 crore. Following this, the holding company now owns an over 94 percent stake in Kurlon Enterprise. Motilal Oswal Private Equity Advisors had invested Rs 90 crore in India’s top mattress maker Kurlon in September 2015.
Kurlon Enterprises is expected to be valued at Rs.850 per share whereas in pre-IPO space it is available at 575 per share
According to the person, Sudhakar Pai, chairman and managing director of Kurlon Enterprise, has decided to hand over the reins of the company to someone who can run the business efficiently.
Mattress companies in India have recently raised funds as the market expands. PE funds have made investments in Duroflex, Wakefit, Springwell, and The Sleeping Co over the last three to four years. According to industry experts, the market is massive and has significant growth potential.
“The overall industry is going only at about 6 to 8 percent,” Chaitanya Ramalingegowda, cofounder of Wakefit, told CNBC-TV18 recently. “The organised part is growing as much as 12 to 15 percent and the online part is growing as much as 25-30 percent a year because the base is so small.”
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