Welspun India m-cap down over Rs 3,500 cr in two-days; 5 reasons why Target deal is hurting the stock

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Updated: August 23, 2016 11:11:54 AM

Welspun India stocks have been witnessing pressure ever since US retail giant Target Corp has said that it will snap ties with the textile major over cotton quality controversy.

welspun-india660Welspun India shares under pressure: After hitting the lower circuit on Monday and losing over Rs 3,500 crore in market capitalisation in last two trading sessions, shares of the company extended losses on Tuesday as well.

Welspun India stocks have been witnessing pressure ever since US retail giant Target Corp has said that it will snap ties with the textile major over cotton quality controversy. After hitting the lower circuit on Monday and losing over Rs 3,500 crore in market capitalisation in last two trading sessions, shares of the company extended losses on Tuesday as well.

The scrip of the company was locked in lower circuit and fell 20 per cent to Rs 65.85 on Tuesday. The market-cap fell to Rs 6,16.12 cr, on Tuesday from Rs 10,333 cr on Friday.

As a damage control exercise to its reputation, Welspun India on Monday informed BSE that it has ordered a probe into the matter. In a filing it said, “We have initiated actions to investigate the root cause. We are appointing an external auditor to audit our supply systems and processes. This is an issue of highest priority for us and we will take all necessary steps to address it.”

Here are 5 things to know why Welspun shares are getting affected by scrapping of Target Corp deal

1. US-based Target Corp is Welspun’s second-biggest customer with the latter drawing its 10 per cent revenue from Target Corp
2. Target Corp has said that Welspun substituted Egyptian cotton with a cheaper variant of cotton while supplying it bedsheets
3. Target Corp said that after an extensive investigation, it has confirmed that Welspun, which uses Egyptian cotton to make bedsheets and pillowcases sold by the retailer, substituted another type of non-Egyptian cotton when producing these sheets between August 2014 and July 2016. It has pulled all the remaining products from its stores and on its website target.com, the company said in a release on Friday.
4. Analysts are mixed about the impact of the event on the company stocks. Indepent market analyst Ambareesh Baliga told CNBC TV18 that it is too early to guage impact of Target Corp terminating contract with Welspun India, but it does impact the company’s reputation.
5. Chandan Taparia, analyst at Anand Rathi Securities sees the company to have a short term impact with the shares target price of Rs 55, while he forecasts a recovery in the long-run with target price at Rs 120- Rs 130.

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