Welspun India shares slump for 3rd consecutive day as Wal-mart orders review
Home textile maker Welspun India slumped for a third consecutive day as the issue surrounding an inferior bedsheet variant supplied to one of its customers Target widened with another client Wal-Mart also now ordering a review.
Home textile maker Welspun India slumped for a third consecutive day as the issue surrounding an inferior bedsheet variant supplied to one of its customers, Target, has now seen another client Wal-Mart ordering a review.
Welspun shares hit the 10% circuit limit on Wednesday at Rs 59.30, a 52-week low. The stock had been in the 20% lower circuit limit in the previous two trading sessions. The sell-off over the past two sessions has wiped off Welspun India’s market cap by over Rs 3,500 crore.
The crisis broke after Target, Welspun’s second largest customer, said the company had supplied a variety of bedsheet substituting Egyptian cotton with a cheaper type of cotton. Due to this violation of code of conduct, Target said, it was in the process of ending all business with Welspun.
On Tuesday, world’s largest retailer Wal-Mart, which is also one of its customers, said it is also reviewing Welspun’s cotton certification records.
“If we discover an issue, we will handle it appropriately,” it said.
Welspun India reported a consolidated revenue of Rs 5,937 crore for year-ended March 2016. US customers account for two-third’s of its business.
Apart from Target, which accounted for 10% of its business, Welspun’s US customers include Wal-Mart, Bed & Bath and Beyond, Macy’s and JC Penney.
Welspun has already announced that it is “appointing one of the big four external auditors to audit supply systems and processes. This is an issue of highest priority for us and we will take all necessary steps to address it.”
A mail sent to Welspun on Wednesday seeking further clarifications didn’t elicit a response.
“ Export is a big business for Welspun so the implications of this could be huge. If the particular product was also shipped to other clients, this crisis could worsen,” said an analyst at a local brokerage.
Edelweiss Securities expects the loss of the contract with Target will lead to a fall in Welspun’s earnings per share for FY17 and FY18 by 11% and 14% respectively.
Another brokerage Elara Securities too sees Welspun’s earnings falling by 22%.
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