Wal-Mart Stores Inc, the world’s largest retailer, is reviewing supplier Welspun India Ltd’s cotton certification records after Target Corp terminated business with the Indian manufacturer over cheaper bedsheets being passed off as premium Egyptian cotton.
The stock fell by the daily limit of 20 percent for a second day, the biggest two-day tumble since 1999.
The examination is underway, and Wal-Mart plans to hold additional conversations with the supplier, company spokeswoman Marilee McInnis said.
If any issues are discovered, the retailer plans to “handle it appropriately,” she said.
Wal-Mart is Welspun’s third-biggest customer, according to data compiled by Bloomberg.
Welspun supplies a number of products, including sheets, to Wal-Mart, McInnis said.
Shares of Welspun fell to as low as 65.85 rupees in Mumbai trading yesterday.
On Monday, the company said it is reviewing its supply chain and hiring a “Big Four” accounting firm to examine its processes.
Target on Friday pulled the affected products off shelves and cut ties after it discovered sheets and pillowcases supplied by the textile manufacturer were mislabeled as Egyptian cotton.
After Monday’s decline, the stock has a market capitalization of US$1.2 billion.
Welspun Group said it wants to become one of India’s top 50 groups by market value by 2020, according to its Web site.
“It is likely that other customers too will start raising questions over Welspun’s supplies,” said Arun Kejriwal, a director at Kejriwal Research & Investment Pvt in Mumbai.
“The stock may have another rough day,” he said.
Bed Bath & Beyond Inc, the Indian manufacturer’s biggest customer, and Wal-Mart also carry Welspun Egyptian cotton sheets. Both retailers sell the company’s 500 and 800-thread count sheets online, labeled as Crowning Touch. They retail for as much as US$175 a set.
Welspun is engaging with key customers, Welspun managing director Rajesh Mandawewala said on a conference call on Monday.
Welspun makes towels, sheets, rugs and carpets for 18 of the top 30 global retailers. Other major clients include J.C. Penney Co and Macy’s Inc.
Every fifth towel sold in the US is manufactured by Welspun India, according to the company.
Sales to Target amounted to US$90 million in the fiscal year that ended in March, or about 10 percent of the company’s revenue, the company said on Monday.
Egyptian cotton, which has a longer fiber that creates a softer thread than other cotton, often carries a higher price because shoppers consider it to be of higher quality.
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