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Summary: A company made a large, messy acquisition, spent three years fixing what it inherited and has now returned to double-digit margins with falling debt. The stock is still priced as though none of that happened. The question is whether the earnings will follow.
The stock has fallen 70 per cent from its 2022 peak. Profits are still well below pre-acquisition levels. Every visible number points the same way: this looks like a bad acquisition.
It is not.
The mess is behind Sheela Foam now. Margins are back. Debt is falling. FY26 was the first full year of double-digit revenue growth alongside normalised profitability. The business has already done what it needed to do. What hasn't caught up yet is the stock price.
The acquisition that looked worse than it was
Sheela Foam, the company behind Sleepwell, India's largest branded mattress maker, acquired Kurlon in mid-2023 for Rs 2,035 crore. Kurlon was dominant in the south and east, markets that Sleepwell had never meaningfully penetrated from its north and west stronghold. The logic was sound. What Sheela Foam inherited was not.
Kurlon ran its distribution through company-operated regional centres feeding into multi-brand outlets. Sheela Foam used a distributor-led model anchored around exclusive stores. Two businesses, two entirely different operating models, now sitting under one roof.
The balance sheet absorbed the full weight of it. Fixed assets nearly quadrupled, from Rs 865 crore to Rs 3,129 crore, inflating capital employed without contributing to operating earnings. Depreciation more than doubled, from Rs 90 crore in FY23 to Rs 183 crore by FY25. Interest costs surged nearly fivefold to Rs 121 crore over the same period as debt rose. And Kurlon itself came in weak, as EBITDA margins had already fallen to 3.6 per cent by FY24.
The execution gap showed up quickly. In FY25, Sleepwell grew 22 per cent. Kurlon managed 6 per cent.
The numbers reflect the reality
Kurlon’s acquisition has put pressure on Sheela Foam’s margins and profitability
|
|
FY22 | FY23 | FY24 | FY25* | FY26 |
|---|---|---|---|---|---|
| Revenue (Rs cr) | 2,866 | 2,873 | 2,982 | 3,439 | 3,821 |
| EBITDA (Rs cr) | 315 | 298 | 301 | 250 | 414 |
| EBITDA margin (%) | 11 | 10.4 | 10.1 | 7.3 | 10.8 |
| PAT (Rs cr) | 219 | 201 | 195 | 96 | 161 |
| PAT is profit after tax EBITDA is earnings before interest, tax, depreciation and amortisation *FY25 was the first full year post-Kurlon consolidation |
|||||
The fix
Management did not try to grow through the mess. They cleared it out first.
More than 35 distribution centres were shut. Company-owned stores were cut from around 50 to 24. Six redundant plants were closed, taking the total count from 18 to 12. Foaming operations from four Kurlon facilities were moved into Sheela Foam's own plants, which use a pressure-controlled process that improves foam yields by roughly 10 per cent. The combined scale of the entity also unlocked better purchasing terms on core raw materials.
The results are now visible. Kurlon's EBITDA margin stood at 3.6 per cent when the deal closed. Both mattress brands now run at 10.7 per cent. Debt has fallen from above Rs 1,200 crore at its post-acquisition peak to Rs 712 crore in FY26. Interest costs will halve going forward. Depreciation is set to fall further in FY27.
One accounting change is worth flagging. The company has extended the useful life of foaming machines from 20 to 40 years, citing that these machines often run well beyond two decades in practice, and switched from an accelerated depreciation method to a straight-line one that spreads costs evenly over the asset's life. Both moves reduce the depreciation charge on paper without changing what the business actually generates in cash. They are aggressive, and they arrive together at the precise moment the company needs to show earnings recovery. Readers should keep that in mind when looking at the FY27 profit numbers.
Where growth comes from next
The integration question is settled. What remains is the growth question.
Production capacity can be scaled 2 to 2.5 times without meaningful capital addition. That makes distribution the key lever, not manufacturing. The combined entity already has over 6,000 exclusive outlets across 550 cities and more than 10,000 multi-brand outlets. Management's plan is to take the exclusive network to 10,000 stores over four years through the franchise route, with setup support of around Rs 6 lakh per store. The expansion is capital-light by design.
Rural India is the volume lever in this plan. The company's sub-Rs 10,000 brands are converting traditional cotton mattress users into first-time branded buyers, and a dealer network of over 8,400 dealers has already been built out. Mattress volumes grew 12 per cent in FY26. Value growth was slightly lower at 10 per cent, because these online and rural channels sell at roughly Rs 10,000 per mattress against nearly Rs 15,000 in physical stores, pulling down the average selling price.
This is the central tension in the growth story. For revenue to keep compounding, the 10,000-store physical expansion cannot slip. Volume gains in lower-priced channels alone will not carry it. Management's guidance of 12 to 14 per cent revenue growth, and a path to 15 per cent EBITDA margins by FY28, depends on the higher-value physical channel growing alongside the rural push. With the cost base now largely fixed, much of the incremental revenue should flow through to the bottom line, but only if both channels deliver.
The rest of the business
A growing share
Foam and mattresses dominate Sheela Foam’s revenue pie
| Revenue (Rs cr) | FY21 | FY22 | FY23 | FY24 | FY25 | FY26 |
|---|---|---|---|---|---|---|
| Mattresses | 711 | 829 | 874 | 1,053 | 1,377 | 1,497 |
| Foam | 944 | 1,246 | 1,167 | 1,190 | 1,189 | 1,352 |
| International | 749 | 860 | 833 | 736 | 737 | 813 |
The industrial foam business, less visible than mattresses, supplies specialised foams to automobile manufacturers and the railways on recurring contracts. It has moved into newer application areas: aviation insulation, ceramic filters, acoustic solutions for generators, footwear insoles. B2B volumes grew 18 per cent in FY26 as these verticals gained traction.
International revenues look flat, but that is largely a pricing effect. Volumes grew even as falling raw material costs compressed the reported figure. Australia is mature and managed for cash, not growth. Spain is the ambition: a small player in a large European market, with capacity recently expanded and a bed-in-a-Box strategy now aimed at the US. Neither market is being asked to carry the growth story.
What the stock is pricing in
The risks are real. Raw material costs remain volatile. The unexpected shutdown of GNFC's TDI plant in Q3 FY25 forced Sheela Foam to source at elevated prices during the festive season; the worst possible moment. Online competition from Wakefit, The Sleep Company and Duroflex remains intense. The company's earlier attempt to defend market share in that channel, through the discount-led SleepX brand, failed. Sleepwell's direct digital push is showing early traction, but it is still early.
The stock does not look cheap at 40 times trailing earnings. But trailing earnings are a poor lens here. They sit on a balance sheet still burdened by acquisition costs that have already been absorbed. Cash EPS, which strips out non-cash charges, stands at Rs 29.1 against a reported Rs 14.6, putting the stock at roughly 20 times what the business actually generates in cash.
Over the past decade, Sheela Foam's revenues grew at 9 per cent annually while profits managed just 4 per cent. Some of that gap is structural: the foam business runs on thin margins by nature, and input costs that move daily will always create windows of compression. But a meaningful part of that gap was the acquisition. That chapter is closed.
The business is out of the mess. Margins are back. Debt is falling. FY26 was the proof. The rerating argument here is not about the market paying a higher multiple on the same earnings. It is simply about earnings catching up with what the underlying business has already become.
Want to know if Sheela Foam is in our recommended portfolio?
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