Welspun India shares extended losses for third straight day on Wednesday and were locked in lower circuit as investors continued to remain concerned about its stocks following US-based Target Corp ending business contract with the Indian textile company over quality of the cotton used in bed sheets. Share price of the company has been slipping ever since Target Corp announced this on Friday last week after market hours. Welspun India shares slumped 9.95 per cent at Rs 59.30 on Wednesday.
The company’s stocks have fallen 43 per cent in last 3 days – since Target Corp decided to terminate its contract with Welspun India over use of non-Egyptian cotton in sheets and pillowcases. In terms of market-cap the company has wiped off Rs 4,375 cr to Rs 5,958.02 cr from Rs 10,333.60 crore on Friday.
After the news, Walmart and JC Penny are reportedly reviewing Welspun India textiles. Welspun India draws 10 per cent revenue from Target Corp and 15 per cent comes from JC Penny and Walmart. Target Corp after a probe informed Welspun India that it is pulling out all remaining products from Target stores and Target.com. The Gujarat-based textiles maker has ordered an investigation into the matter and was appointing an external auditor to audit its supply systems and processes.
Analysts, however, don’t see any long-term impact of the event and have a ‘Buy’ rating on the stocks. Edelweiss said, “Target Corp cancelling contract with Welspun India is a blemish and the loss of this contract will lead to a fall in FY17/18E EPS by 11%/14%. We believe this will not impact company’s core business and key customers, given its long standing relationships and strong execution track record. The brokerage house maintains ‘Buy’ rating with target price of Rs 101.
Chandan Taparia, analyst at Anand Rathi Securities also said while speaking to FEonline that the textile company will have a short term impact with target price of Rs 55. He however sees a recovery in the long-run with target price at Rs 120- Rs 130.