Welspun slumps further as Walmart orders review of ties

Shares of textile maker Welspun India slumped for a third consecutive day today as the issue surrounding an inferior bedsheet variant supplied to one of its customers, Target, has now seen another client Walmart ordering a review (See: Investors target Welspun India after Target severs business ties). Welspun shares hit the 10 per cent circuit limit today at Rs59.30, a 52-week low. The stock had been in the 20-per cent lower circuit limit in the previous two trading sessions. The sell-off over the past two sessions has wiped off by over Rs3,500 crore from Welspun India's market capitalisation.

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 Walmart 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 Rs5,937 crore for year-ended March 2016. US customers account for two-third'\s of its business.

Apart from Target, which accounted for 10 per cent of its business, Welspun's US customers include Walmart, 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.'' Further queries to Welspun have not elicited 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,'' an analyst at a local brokerage told the Hindustan Times.

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 per cent and 14 per cent respectively.

Another brokerage Elara Securities too sees Welspun's earnings falling by 22 per cent.