Welspun India shares on a free-fall mode, tanks 40% in 2 sessions after US client ends contract
Since January, the stock has crashed 93 percent owing to sustained selling pressure by investors
Pessimism in Welspun India shares continued for the second straight session, with the stock being frozen at the lower limit of 20 percent since early trade.
Having hit the lower circuit of 20 percent a day before, Welspun India stock has tanked 40 percent in just two sessions in view of a contract cancellation by a US-based client.
On BSE, Welspun India stock traded at Rs 65.85 a share. Since January, the stock has crashed 93 percent owing to sustained selling pressure by investors.
On Monday, news reports suggested that US-based Target Corporation, one of the key clients, cancelled business ties with Welspun India, makers of terry towel and bedsheets, for using cheap quality cotton while supplying bedsheets.
Although, Welspun's management tried to allay investors fears following the loss of a major client, market seemed to be in no mood and hammered the stock amid worries of its impact on the company's earnings going ahead.
Analysts feared the cancellation of business ties may prompt other major customers such as JC Penny and Walmart etc. among others to review contract, thereby hurting the company's bottomline.
According to a media report, Target Corp accounted for 10 percent Welspun India's overall revenue, while the company derives two-thirds of its revenues from its US-based clients.
Target Corp said that after an extensive investigation it had confirmed that Welspun, which uses Egyptian cotton to make bedsheets and pillowcases sold by the retailer, substituted another type, of non-Egyptian cotton, to make these sheets between August 2014 and July 2016, Moneycontrol reported.
Target has pulled all the remaining products from its stores and on its website target.com, the company said in a release on Friday.
Welspun India said in a release to the BSE on Saturday that it was investigating a product specification issue with one client program, without specifically naming Target Corp.
"We have initiated immediate actions to investigate the root cause. We are appointing an external auditor (one of the Big Four) to audit our supply systems and processes," Welspun said.
"This is an issue of highest priority for us and we will take all necessary steps to address it," the company added.
Weak global trends and persistent foreign fund outflows coupled with rising crude prices led to domestic markets snapping their three-day positive streak. However, they bounced back on the back of gains in oil & gas, metal, and auto sectors.
Markets ended higher for the third consecutive session led by a rally in IT stocks and positive global sentiment
Among the sectoral indices, IT was the only laggard. Media was the biggest gainer. Oil & gas, banking, financial services, consumer durables, auto, metal and FMCG rose between 1 and 2 percent. BSE Midcap and Smallcap indices gained over 1.5 percent.