Sheela Foam has largely received positive recommendations from analysts at brokerage houses. However, analysts have been quick to point out that the market conditions are dangerous and the company’s asking price leaves little on table for listing gains. The street view is quite similar to what we said in our review of the upcoming IPO which comes in the aftermath of the government’s demonetization move.
SMC Global Securities has offered a “three star” rating which indicates fair fundamentals. “The Company firmly believes in making investments for achieving product excellence and implementing the dynamic and diverse specifications of its customers. The company has a significant opportunity to leverage its Sleep well brand to further improve its market share. None of the listed companies in India are engaged in its line of business. Given the present secondary market condition, only serious long term investors, who want to add some new business into their portfolio, may opt the issue,” said SMC in its IPO note.
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Angel Broking has also ruled out listing gains in the upcoming IPO amid volatile market conditions. “On its FY17E’s PAT of INR121cr, the issue on its upper band is priced at P/E ratio of 27x which is at par with consumer durable peers which have strong brand and higher B2C sales. We consider following strong points as well 1) Net cash positive balance sheet 2) easing working capital cycle from >40 days in FY12 to current 26 days 3) improving return ratios with better product mix and 4) promoters experience. Considering the market conditions we would not suggest IPO for listing gains but rather we recommend ‘Subscribe’ on this issue for medium to long term perspective,” recommended the analysts while advising caution to investors.
In its report on Sheela Foam IPO, Choice Broking noted, “Over FY12-16, SFL has posted a healthy financial performance, with top-line, EBITDA and PAT increasing by 10.4%, 33.4% and 91.8% CAGR, respectively. FY16 was exceptionally better as compared to previous years, mainly due to lower raw material prices.” However, the brokerage house is with the street view that the current market conditions are too risky for listing gains. “Considering the above observations and the current scenario, we feel that there will be bleak prospects of listing gains. For investors with a long term horizon, we recommend a “Subscribe with Caution” rating for the public issue,” said its research report.