Welspun makes ₹489-cr provision over fake Egyptian cotton issue

Welspun India has made a one-time provision of ₹489 crore to meet expenses and losses arising from export of home textile made of fake Egyptian cotton.

In August, Target Corporation, the US second largest retailer, severed its ties with Welspun after it found the bedsheets and pillow covers made by the company between August 2014 and July 2016 were wrongly labelled to have been made of Egyptian cotton. Post-provisioning, the company registered net loss of ₹148 crore in the September quarter against a net profit of ₹179 crore logged in the same period last year. Revenue in the September quarter increased 22 per cent to ₹1,790 crore (₹1,469 crore).

The company is facing three class action suits filed by its European customer for mis-selling Egyptian cotton textiles. After the controversy, it has decided to integrate the entire process of making Egyptian cotton product in-house by appointing a dealer in Egypt to source only certified cotton.

BK Goenka, Chairman, Welspun Group, said the company has decided to simplify the process of sourcing and decided to stop buying yarn and fabrics made of Egyptian cotton. “We would now source only certified Egyptian cotton and make the yarn and fabrics out of it in our own factory. Traceability of sourcing was the major issue when we were blamed by the overseas retailers,” he said.

Terming the entire controversy over Egyptian cotton episode as a learning experience, Goenka said the company has taken slew of steps including third part assurance such as Gold Seal from Cotton Egypt Association, vendor audit and DNA test.

Earlier, the company used to source yarn and fabrics made of Egyptian cotton from 25-30 vendors and this made it difficult to trace back the source of cotton when the controversy was raked up. Currently, sale of Egyptian cotton products account for 3-5 per cent of its annual revenue against 6 per cent before the fake Egyptian cotton controversy was raked up.

The company will invest ₹600 crore to set up a new plant to produce carpets and rugs. It will raise debt of ₹420 crore and manage the rest of the capital from internal accruals. It has gross debt of ₹3,280 crore and net debt of ₹2,500 crore as of September quarter.

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