Welspun India shares slump 20% after Target severs business ties
MUMBAI: Shares of Welspun India, one of the world’s largest textile manufacturers, plunged 20% on the Bombay Stock Exchange (BSE) on Monday after US-based retailer Target, its second-largest customer, said it was in process of terminating all businesses with the company.
Target said in a statement that after an extensive investigation it had confirmed that Welspun, which uses Egyptian cotton to make bedsheets and pillowcases sold by the retailer, substituted another type, of non-Egyptian cotton, to make these sheets between August 2014 and July 2016..
Welspun shares hit ₹82.30 to fall 20%, its lower circuit limit, wiping off ₹2,000 crore from the company’s market cap in a single session.
“This is a clear violation of Target’s code of conduct and our Standards of Vendor engagement...We have informed Welspun that we are in the process of terminating our relationship with them,” Target added.
For Welspun, which reported ₹5,937 crore in consolidated revenue in 2015-16, the development will come as a big blow, since the company’s credibility will take a hit. Target accounted for around 10% of Welspun’s revenues, according to an analyst, who didn’t wish to be named. Its largest client is Bed Bath & Beyond Inc and other customers include Wal-Mart and Macy’s, among others.
“This is a big negative development for Welspun. Export is a major business for Welspun, so this will have long-term implications,” said the analyst quoted above.
Welspun on its part plans to hire external auditors to investigate the matter, which could have emerged from its raw material supply chain.
“We have initiated immediate actions to investigate the root cause. We are appointing one of the big four external auditors to audit our supply systems and processes. This is an issue of highest priority for us and we will take all necessary steps to address it,” Welspun said in a statement to the stock exchanges.