Welspun India Slips 4%; Takes Rs 501 Cr One-Time Hit

Welspun India announced that it took a one-time hit of Rs 501 crore in the 2^nd quarter in order to provide for all the likely dues to Egyptian cotton issues. Post the announcement Welspun India share price dipped 4 per cent. The stock slipped 3.87 per cent to hit a low of Rs 59.60 on the Bombay Stock Exchange.

The company made net provision of around Rs 490 crore under exceptional losses, including a one-time loss and Rs 11 crore related to a fire incident. It also registered a loss amounting to Rs 147.50 crore for the Sept quarter as compared with a profit of Rs 179.40 crore in the corresponding quarter last year.

Revenue for the Sept quarter increased 21.8 per cent to Rs 1,789.90 crore from Rs 1,469.40 crore in the corresponding quarter last year. EBITDA margins shrunk 197 basis points to 25.5 per cent from 27.5 per cent in the same quarter last financial year.

On the other hand, the board of Welspun India has given the approval to the capital investment of Rs 600 crore in flooring solutions including manufacturing of carpets and rugs. This investment will be beneficial from synergies arising from the company’s existing product line and customer base. The capex will be done over 18 months spread over FY18 and FY19.

Welspun has taken the Egyptian Cotton issue very seriously and have proactively involved with all our stakeholders and appointed EY as external consultants to minutely examine the supply chain.

The company mentioned that it has taken steps to minutely keep a track and control its Egyptian cotton business, which had been under pressure early this year over quality issues. It will move towards producing all the Egyptian cotton products in-house i.e., from procuring cotton to the finished product.

The steps to be set up are:

• Deployment of a dedicated resource in Egypt for sourcing of Egyptian cotton.
• Increasing third party assurances namely Gold Seal from Cotton Egypt Association, vendor audit and DNA tests.

Welspun India recognized itself in a spot in August when U.S. retailer Target Corp blamed the company of selling cheaper sheets as premium Egyptian cotton for two years, harming the company’s reputation and damaging India’s image in quality control.

The Egyptian cotton imbroglio gave a massive hit to the company and hence incurred to a net loss in the quarter ended Sept. 30 from an otherwise healthy profit last year.

As seen on 16^th Nov, Welspun India share price is trading below 3 per cent at Rs. 60.50.