Mumbai, Aug. 22: Shares of Welspun India crashed 20 per cent on the BSE today after US-based Target Corporation said it was terminating its business ties with the textile maker for using cheap cotton instead of a premium Egyptian variant for its bedsheets.
On the BSE, the Welspun India stock hit the lower circuit, closing at Rs 82.30, a drop of Rs 20.55, or almost 20 per cent.
Investors sold the stock after Target, a key customer for Welspun, said on Friday that the latter was one of the producers of Egyptian cotton 500-threadcount sheets under the Fieldcrest label for the Minneapolis-based retailer.
"After an extensive investigation, we recently confirmed that Welspun substituted another type of non-Egyptian cotton while producing these sheets between August 2014 and July 2016. Neither Target nor Fieldcrest had any knowledge of this substitution. As soon as our investigation confirmed the substitution, we pulled all the remaining products from Target stores," a statement issued by the US-based company said.
Target also said it would fully refund those who have purchased the sheets between August 2014 and July 2016.
According to the US company, it discovered 7,50,000 sheets and pillowcases which were labelled as Egyptian cotton but were made with a different type of cotton.
Target accounted for nearly 10 per cent of Welspun India's revenues for the year ended March 31, 2016.
Welspun said in a statement that it had started investigations into the matter and an external auditor was being appointed to examine its supply system and processes.
"This is an issue of the highest priority for us and we will take all the necessary steps to address it," the company said.
According to Welspun India's annual report for 2015-16, it supplies to 18 of the top 30 global retailers, including Walmart, Costco, Bed Bath and Beyond, Macy's, Carrefour and Home Depot.
Market circles said Welspun's other customers might also raise the issue after this development.
Some of Welspun's well-known brands include Hygrocotton, Christy and Spaces. The company has set a target of $2-billion revenue by 2020.
