Textile exporter Welspun India lost ₹2,000 crore in market capitalisation on Monday after US-based Target Corporation, one of its biggest customers, severed ties following a cotton supply dispute.

The stock was locked in the lower circuit after plunging 20 per cent to ₹82 on Monday.

Target said an extensive investigation had confirmed that Welspun, which claimed to have supplied bedsheets and pillowcases made of Egyptian cotton, had in fact substituted it with different material between August 2014 and July 2016.

Target has pulled out all Welspun products from its stores and portal target.com, the company said in a release. “We have informed Welspun that, due to this conduct, we are in the process of terminating our relationship with them,” it added.

Welspun admitted to lapses at its end. Two-thirds of the company’s business come from the US.

In a conference call with analysts, the company said it outsources the procurement of cotton and cotton yarn, and is hence conducting an audit on its entire supply chain. The audit, to be completed in 6-8 weeks, would provide clarity on gaps in the system, it said.

Welspun refused comment on why Target’s action had taken two years.

Of its total revenue from Target of $90 million (₹600 crore) in FY16, the specific rejected product revenue accounts for about $8.5 million (₹57 crore). The company has bagged orders worth $4.5 million (₹30 crore) from Target this fiscal, for which it is yet to start supply, Welspun said.

The shipment of similar products to other customers accounts for 3-6 per cent of the total revenue. “In our opinion, the whole incident could lead to de-rating of the stock. Also, there could be downward revision of earnings,” said an analyst.

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