Welspun India 36% Down in 2 Days : Target Corporation Contract Causes More Damage

Since Monday, 22nd August, 2016, Welspun India shares crashed for the second straight session, leading to a 36% decrease in the stock.

The selloff in Welspun India, one of the world’s largest textile manufacturers, has spread out investors’ affluence to the tune of Rs 3,720 crore in just two days.

On Tuesday, 23rd August, 2016, the scrip of the company was locked in lower circuit and cut down 20% to Rs 65.85. The market-cap decrease to Rs 616.12 crore, on Tuesday from Rs 10,333 crore on Friday.

On Monday, Welspun India informed BSE that it has ordered an inquiry into the matter. In a filing it said that, “We have begun actions to examine the core cause. We are hiring an external auditor to audit our supply systems and processes. This is an issue of highest priority for us and we will take all required steps to address it.”

Welspun India 36% down in 2 days
Welspun India 36% down in 2 days

Why Welspun Shares are Getting Affected by Scrapping of Target Corp Deal???

  • US-based Target Corp is Welspun’s second-biggest client with the latter drawing its 10% profits from Target Corp.
  • Target Corp has said that Welspun replaced Egyptian cotton with an inexpensive variant of cotton while supplying it bed sheets.
  • Target Corp also said that after an extensive inquiry, it has confirmed that Welspun, which uses Egyptian cotton to make bed sheets and pillowcases sold by the seller, replaced another type of non-Egyptian cotton when producing these sheets between August 2014 and July 2016.
  • It has pulled all the remaining products from its stores and on its own website com.
  • Specialists are mixed about the impact of the event on the company stocks.
  • Chandan Taparia, expert at Anand Rathi Securities sees the company to have a short term effect with the shares target price of Rs 55, while he estimates a recovery in the long-run with target price at Rs 120 to Rs 130.

Brokerage Edelweiss said that Welspun’s sales to Target stood at $90 million, which was about 10% of its total profits. Overall, Egyptian cotton sheets contributed 3-6% of profits in previous two years.


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