Welspun India Orders Audit After Losing a Major Client
Welspun India to appoint external auditors after losing a major client
Welspun India Ltd. swung into damage control mode after U.S. retailer Target Corp. terminated all business with the company for using cheaper quality cotton in bed sheets.
Welspun announced that it will appoint an external auditors, one of the top four firms, to audit its supply systems and processes, in a statement to the Bombay Stock Exchange. Sales to Target were $90 million or 10 percent of Welspun’s total sales in fiscal year 2015-16.
Target claimed that it discovered 7,50,000 sheets and pillowcases which were labeled as Egyptian cotton but were actually made with another type of cotton.
Welpsun conducted a conference call after Target announced an end its business relationship with Welspun. Here are the key takeaways:
- The external audit will be completed by 6-8 weeks.
- Egyptian cotton sheets accounted for only 10 percent of the business with Target.
- The company acknowledged that fault is likely to be with their own systems.
- There were no quality or safety issues with the finished product supplied; the problem was with the origin of the raw material.
- The company supplied the same product to several other clients. Total sales of similar products constituted 3-6 percent of Welspun’s sales over the past few years.
- The sales from U.S. account for two-thirds of Welspun’s sales.
Apart from Target, Welspun is a major supplier of towels, sheets, rugs and carpets to 18 of the top 30 global retailers, including Bed Bath & Beyond Inc., Wal-Mart Stores Inc., J.C. Penney Co. and Macy’s Inc.
Welspun India stock slumped 20 percent to Rs 82.60 on Monday. It’s the biggest fall in a decade.