Keep Distance: Welspun India Limited

Welspun India Ltd (WIL) lost over Rs.2,000 crore in market capitalisation today. The stock fell 20% today hitting lower circuit with lacs of shares not finding any buyer which essentially means that it may further plummet from current levels. Just in case you are not aware about the development which has led to this battering of stock, consider this: Target Corp., which is one of their major customers (account for around 10% of their sales), has stated that it is in the process of terminating its business relationship with WIL. They have further stated the reason for the same: WIL substituted Egyptian cotton with a cheaper variant of cotton while supplying bedsheets to them. Are you kidding me!

Earlier, I used to see such price falls as great opportunities to buy the stock at a discount. But this is serious. Put it simply, it is cheating. Now WIL will have to deal with the domino effect of the same. The fallen reputation can result in further loss of revenue or even lawsuits from other customers. WIL has given a statement that they will get the same audited by an independent third party. But generally speaking, such deeds are not easily forgotten by the market. It will be very difficult for them to save themselves from this.

I would urge everyone to stay away from this stock even if it hits lower circuit tomorrow. Be more careful if it starts to move up a bit, don’t fall into the trap. This is surely not the time to be greedy. This may be sounding like a sermon from me, but believe me I am also reminding myself of the danger as I write this. Just stay away!

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