Welspun India shares plummet again in cotton sheet dispute

Welspun India's shares plunged 20 percent for a second day on Tuesday, as the fallout from Target Corp's decision to terminate business with the firm for passing off cheap sheets as premium Egyptian cotton escalated.

Shares in Welspun, one of the world's largest textile manufacturers, were suspended after a few hours of trading, as on Monday, after dropping by 20 percent, their daily limit.

Target said on Friday that it was severing ties with Welspun after its extensive investigation had confirmed that the Indian company, which purportedly used Egyptian cottons to make sheets and pillowcases sold to the retailer, substituted non-Egyptian cotton instead.

Target is Welspun India's biggest customer after Bed Bath and Beyond. It accounted for about $90 million, or 10 percent of the company's total business in the financial year through March, Welspun executives said on a conference call on Monday.

Welspun said on the call that it was investigating the product specification issue and would hire a Big Four accountancy firm to review its supply processes.

Wal-Mart Stores Inc, Welspun's third-biggest customer, is also reviewing the company's cotton certification records, the Wall Street Journal reported.

A spokesman for Welspun said the company did not wish to comment on the reported Wal-Mart review.

The U.S. retail giant accounts for about 8 to 9 percent of Welspun's revenues, according to Elara Capital analyst Sumant Kumar.

"The risk is there as these are still early stages, so we need to wait and see," Kumar said.

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

Analysts said Welspun did not provide clear answers during Monday's conference call, when asked whether other customers could follow Target's move to cut ties.

"We are actively engaged with our clients," Welspun's Managing Director Rajesh Mandawewala said, in response to that query on the call.

Kumar, in his note, said Welspun executives were vague on facts during the call, which threw up more questions than answers.