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After Target, Wal-Mart, JC Penny Review Welspun Products; Shares Extend Slide

After Target, Wal-Mart, JC Penny Review Welspun Products; Shares Extend Slide

Welspun India shares were locked down in lower circuit for the third straight session on Wednesday, though in some relief for investors, the stock fell 10 per cent today, following the revision in circuit limit from 20 per cent to 10 per cent.

Over the last three sessions, Welspun India shares have corrected by 43 per cent, leading to a market cap erosion of over Rs 4,000 crore.

The selloff in Welspun India, one of the world's largest textile manufacturers, started on Monday, following Target Corp's decision last week to sever ties with the company.

Target Corp terminated its contract with Welspun after it found that the company had substituted Egyptian cotton with non-Egyptian cotton in bedsheets and pillowcases sold under the Fieldcrest brand between August 2014 and July 2016.

Target Corp, Welspun India's biggest customer after Bed Bath and Beyond, accounts for 10 per cent of the company's revenues.

In further bad news for Welspun, its products have come under the scanner of other big clients. Wal-Mart Stores, Welspun's third-biggest customer, is reviewing Welspun's cotton certification records. (Read)

Fortune reported that JCPenney, Welspun's fifth-biggest customer, is reviewing the company's cotton products.

"JCPenney is conducting a thorough investigation of its Welspun textiles to ensure the integrity of its product claims," a company representative wrote in a statement to the magazine.

Sales of Egyptian cotton bedding account for only about 6 per cent of Welspun's total sales, but the loss to the company's credibility means other customers could withdraw all their business as Target has done, said Sumant Kumar of Elara Capital analyst.

Though brokerages such as Edelweiss Securities continue to view the stock positively, many others have turned bearish on the Welspun, following Target's contract termination.

Elara Capital has downgraded Welspun to "sell", while Centrum Wealth said it will review its "buy" rating on the stock.

Welspun India has initiated an external audit of its supply systems. Its Managing Director Rajesh Mandawewala said the company is "actively engaged with our clients."

However, investors are baffled by the lapse that has eroded the trust and confidence of Welspun's clients and shareholders.

Elara's Mr Kumar noted that Welspun executives have been vague on facts during conference call with analysts, which throws up more questions than answers.

Welspun India's shares ended 10 per cent lower at Rs 59.50, underperforming the Nifty that closed 0.2 per cent higher.

(With inputs from Reuters)