Mumbai: Wal-Mart Stores Inc., the world’s largest retailer, said on Tuesday it is reviewing Welspun India Ltd’s cotton certification records following Target Corp.’s decision to snap ties with the Indian textile maker.
Welspun stock plunged 20% for a second successive day to close at Rs.65.85 at Tuesday’s close, the lowest in 15 years, the two-day rout wiping Rs.3,717.48 crore off its market value.
American retailer Target, Welspun’s second largest customer, said it is cutting business ties with the textile firm, which it accused of passing off cheap cotton bed sheets as those made of fine Egyptian cotton between August 2014 and July 2016.
“Yes, Welspun is a current supplier and supplies us with a number of products, including some sheets. We are currently reviewing Welspun cotton certification records and plan to have additional conversations with Welspun. If we discover an issue, we will handle it appropriately,” a Wal-Mart spokesperson said in an email response to Mint.
Wal-Mart is Welspun’s third biggest customer, behind Target and Bed Bath and Beyond Inc., according to data compiled by Bloomberg. Welspun currently supplies a number of products, including bed sheets, to the retailer. The company makes towels, sheets, rugs and carpets for 18 of the top 30 global retailers. Its other major clients include J.C. Penney Co. and Macy’s Inc. It also manufactures towels for the Wimbledon tennis championships and the Rugby World Cup.
“Sales from the US account for two-thirds of Welspun’s sales. If the other companies also start investigating the quality of supplies from Welspun and find issues with it, then could be a cascading impact on revenues,” said Sumant Kumar, an analyst at Elara Securities (India) Pvt. Ltd.
Welspun has appointed an external auditor (one of the big four) to audit its supply systems and processes. “This is an issue of highest priority to us and we will take necessary steps to address it,” Welspun said in a statement to BSE.
Rajesh R. Mandawewala, managing director at Welspun India, told analysts on Monday that the company had been selling the same material to a “few other customers” as well.
“We are actively engaged with our customers. Most of them have been supportive,” he said, sharing that the product made up 3-6% of its overall sales.
Mandewewala said the firm was in talks with audit firms to restore the robustness of its supply process and the audit should be completed in 6-8 weeks.