Welspun hits lower circuit again as Wal-Mart orders review, but IKEA to continue business
NEW DELHI: Swedish home furnishing giant IKEA said it would continue doing business with Welspun India while it awaits the outcome of the Indian textile manufacturer’s probe into its sales practices.
Welspun’s shares have plummeted this week after US bigbox retailer Target terminated business with the firm, saying it had passed off cheap sheets as premium Egyptian cotton.
“To our knowledge and according to our continuous verifying processes, the supplier delivers according to our agreements,” IKEA said in a statement issued on Wednesday in response to a Reuters inquiry.
“However, we will follow their ongoing investigation carefully and await the outcome. Until then our business collaboration continues as usual.”
IKEA also said it did not buy products made from Egyptian cotton. It said that, from the end of its 2015 fiscal year, it only bought cotton from more sustainable sources whose standards were not met by Egyptian producers.
Closer home, Welspun’s worry were compounded after US retail giant Wal-Mart ordered a review into the Indian company’s cotton certification records. “If we discover an issue, we will handle it appropriately,” Wal-Mart said.
Welspun shares hit the 10% circuit limit on Wednesday at ₹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’s market cap by over ₹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.
Target is the second largest discount retailer in the US after Wal-Mart. For Welspun, US customers account for two-third’s of the business.
Welspun India reported a consolidated revenue of ₹5,937 crore for year-ended March 2016.
Apart from Target and WalMart, Welspun’s US clients include Bed & Bath and Beyond, Macy’s and JC Penney.
“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 2016-17 and 2017-18 by 11% and 14% respectively.
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.