Will now manufacture Egyptian cotton products in-house, invest Rs 600 crore for setting up new plant for flooring solutions.
Welspun India has taken a hit of Rs 501 crore on its books as a result of the scandal that led to global retailers like Target, Wal-Mart and Bed Bath & Beyond discontinuing sales of the home textile maker's Egyptian cotton products.
To arrest the damage caused to its brand and goodwill, the company has decided to stop outsourcing Egyptian cotton products and will now manufacture them in its own facilities in India. The entire issue, according to B K Goenka, chairman, Welspun Group, revolved around traceability of Egyptian cotton and not on the quality, safety or usability.
"We have taken a one-time hit of Rs 501 crore in the second quarter as a result of this issue. We believe, this provision is sufficient to cover all the likely costs. Due to this unforeseen event, we are likely to see a muted revenue growth in FY'17 as against our initial guidelines," said Goenka.
While the company had appointed consultancy firm EY to review and identify improvements in the supply chain, the senior management also engaged with all its customers / stakeholders over the last two months proactively and addressed their concerns. Post the review, the company is now taking steps that are aimed to reinstill confidence in the market.
"Being a vertically integrated manufacturer, we are moving towards making all Egyptian cotton products – from cotton to finished products – in-house. Going forward we will not outsource any intermediate products for Egyptian cotton and deploy dedicated resources in Egypt for its sourcing while also increasing third-party assurances for the products. We are also working towards using cutting-edge radio frequency identification device (RFID) technology to improve traceability of materials," he said, adding that this move will significantly reduce manual intervention in the company's supply chain processes.
The company has also put together a five-point programme (five pillars of growth) to meet its target of $2 billion revenue with 20% contribution – it currently contributes 5% to the total revenues – from the domestic market by 2020. The management will also be working towards becoming a zero net debt company which currently stands at Rs 2,500 crore. While the company's revenue for the second quarter ended September 30 grew 22% to Rs 1,790 crore from the year-ago period, it reported a consolidated net loss was Rs 147.52 crore in the second quarter. It had posted a net profit of Rs 179.37 crore in the same period of last financial year. Current revenue for half year of this fiscal grew 18% to Rs 3,383 crore.
In another development, the company's Board also approved a capital investment of Rs 600 crore in flooring solutions i.e. manufacturing of world class carpets, rugs, etc. This investment, Goenka said, will be done over 18 months spread over FY18 and FY19 and will benefit from synergies arising from the company's existing product line and customer base.
"The state-of-the-art flooring solutions facility will be set up at our existing manufacturing location in Anjar (Kutch, Gujarat) with a capacity of 7 million square metre annually. The funding will be done through a mix of internal accruals and debt," said Goenka.
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