Walmart to review Welspun’s supply records
The road ahead for Asia’s largest home textile maker, Welspun India, looks rocky with US-based retailer Walmart saying it would review the supply chain and cotton certification records of the company and take suitable action — if any quality issues are found in Welspun’s supplies.
The road ahead for Asia’s largest home textile maker, Welspun India, looks rocky with US-based retailer Walmart Stores saying it would review the supply chain and cotton certification records of the company and take suitable action – if any quality issues are found in Welspun’s supplies.
Welspun India has already lost ~3,700 crore of market value in the past two trading sessions after Target Corporation, a US-based retailer, terminated its supply contracts due to quality issues. Any action by Walmart would be a big setback to the company, analysts said.
“The examination is underway and Wal-Mart plans to hold additional conversations with the supplier,” said Walmart’s spokeswoman Marilee McInnis. “If any issues are discovered, we will handle it appropriately. Welspun currently supplies a number of products, including bed sheets, to Wal-Mart,” McInnis told Bloomberg.
Investors of Welspun are jittery as analysts have given ‘sell’ recommendation to the stock till these quality issues are resolved. The share crash started after Target Corp terminated Welspun’s contracts after it detected irregularities in supplies. In the past two days, shares have lost 36 per cent of its value to close at ~66 a share on Tuesday. The crisis for the company started after Target said during the weekend that the Egyptian cotton bedsheets and pillow cases supplied by Welspun were made from lower quality cotton. Customers usually pay higher price for Egyptian cotton made products and, hence, Target offered to refund its customers.
Elara Capital said in the near term, investors should reduce their positions, given lower visibility of earnings. “In the medium- to longterm, we expect earnings to recover as the company focuses on improving its quality control processes and better sourcing of cotton,” it said. “We do not expect the current imbroglio to impact its core business and key customers. However, we incorporate impact of loss of business and cut our FY17 and FY18 earnings per share by 11 per cent and 14 per cent, respectively,” Edelweiss said.
Welspun said it has initiated immediate action to investigate the root cause of the problem. “We are appointing an external auditor (one of the Big Four) to audit our supply systems and processes. This is an issue of highest priority for us and we’ll take all necessary steps to address it. We have an impeccable record of supplying quality products to our customers globally,” the company said.