Sheela Foam shares shot up 15% after the firm confirmed the buyout of rival Kurlon Enterprises and proclaimed its decision to pick up a 35% stake in furniture rental business Furlenco, also known as House of Kieraya Limited, for Rs 300 crore.

Sheela Foam will obtain a 94.66% stake in Kurlon Enterprises at an equity assessment of Rs 2,150 crore, the company mentioned in a regulatory filing.

“This is a striking price considering the FY20 PAT of Rs 0.8bn, which suggests 26 times,” said Nuvama Institutional Equities.

The transaction will permit Sheela Foam to attain a total of 3.46 crore equity shares in the company.
At 9:28 am, shares traded 7.6% higher at Rs 1,278 on the BSE.

Sheela Foam and Kurlon Enterprises will hold a combined market share of around 21% in India’s modern mattress market. They have corresponding distribution networks, with Sheela Foam largely using an exclusive distribution network and Kurlon Enterprises having a sturdy presence in multiple distribution canals. Additionally, their industrial facilities complement each other, enabling the combined entity to serve customers more professionally and decrease logistics costs, highlighted Nuvama Institutional Equities.

He pointed out that the achievement funding of Rs 850 crore will be through cash, while the stability of Rs 1,500 crore of debt and equity. Also, the full benefit of this acquisition will be noticeable from FY25 onwards. However, it will immediately add about 300 bps in synergy assistance with Kurlon.

Meanwhile, Furlenco’s acquisition will allow Sheela Foam to enter the exclusive furniture market and enable cross-selling between the two companies.