Welspun takes Rs 501-crore hit over Egyptian cotton issue

Company takes Rs 501 crore hit in second quarter

Textiles manufacturer and exporter Welspun has posted a Rs 147.52 crore net loss in the quarter ended September due to a one-time hit of Rs 501 crore to resolve the controversy surrounding Egyptian cotton. The company reported a net profit of Rs 179.37 crore in July-September last year.

Triggered by a sharp increase in sales, Welspun’s total income from operations jumped 22 per cent to Rs 1,789.94 crore in July-September 2016 from Rs 1,469.44 crore in the same quarter last year. The company achieved its highest quarterly top line during the quarter.

The share of Indian textile products made of Egyptian cotton has fallen to 3-4 per cent now from 6 per cent a couple quarters ago. 

 

“We have taken a one-time hit of Rs 501 crore with regard to the traceability issue in Egyptian cotton, which we believe will be sufficient to cover the likely cost on this matter,” said BK Goenka, chairman, Welspun Group.

“The issue on Egyptian cotton was the traceability of the fibre. There was never any issue regarding quality, safety or its fitness for use. During the last two months, we worked with all our top customers to support their actions for a comprehensive resolution. Today, we continue to do business with all our customers but one,” Goenka said.

The company appointed Ernst & Young to review its supply chain management, systems and processes. E&Y suggested several remedial measures some of which Welspun has adopted.

Egyptian cotton until recently was supplying a significant portion of the value chain. Welspun plans to use radio-frequency identification technology to improve traceability. The company also plans to set up an international advisory council for the entire value chain of the textile industry. 

Despite 18.2 per cent revenue growth in the first half of 2016-17, Welspun forecast flat revenue for the full financial year. It plans to become a zero debt company by 2020 by shedding its Rs 2,500 crore debt. 

Welspun plans to expand its focus on branded and innovative products to become a $2 billion company in four years, with 20 per cent revenue coming in from domestic sales.

The company will set up a Rs 600 crore carpet plant near Anjar in 18 months. The investment will be met through internal accruals and debt.