Companies & Sectors
Veritas charges DLF of window dressing

Since the IPO, the DLF management has faltered at every step in executing its grandiose vision, Veritas points out, even as the stock price has crashed 80% from its peak

Veritas, an independent Canadian Research Firm has said in its latest report on DLF that it does not believe the disclosed book equity and asset base of the company. In fact it argues that via its dealings with DLF Asset (DAL), from FY06-07 to FY10-11, the company has inflated sales by at least Rs11,236 crore and its profit before tax by Rs7,233 crore.”

DLF merged with DAL, which was aimed at repaying the massive debt accumulated by DAL. It was tantamount to a bailout, says Veritas, where promoters had to sell their stake to infuse cash in DAL. Most pertinently, DLF had inflated its numbers and Veritas thinks that something is amiss.

According to Veritas, which earlier blew the whistle on the Ambani brothers, “We also believe that DLF has undertaken questionable related-party transactions to boost the value of DAL prior to its acquisition by DLF, thereby subverting the interest of minority shareholders via a higher purchase price for DAL.” It also stated as a matter-of-factly that “If your investment decision incorporates management integrity, then bypassing DLF will be an easy choice,” Veritas said.

DLF, once the poster boy of Indian real estate, continues to destroy shareholder’s money. As is known, the real estate company is trying to undo every expensive move it has made by selling off  ‘non-core’ assets in order to bring in cash to meet current obligations. As of December 2011, the net debt of DLF was Rs22,758 crore.

“(DLF) is an organization under duress. Management is scrambling to consummate assets sales, rationalize its land bank and divest non-core operations within five years of a much-publicised initial public offering (IPO)—in May 2007 at a price of Rs525, proclaiming DLF as a builder of modern India, and the best positioned company to benefit from India’s great leap forward,” Veritas said.

“Since the IPO, (DLF) management has faltered at every step in executing its grandiose vision to be a conglomerate with tentacles spread across hotels (the joint venture with Hilton has ended and Silverlink Resorts is up for sale), build mega townships (exited Bidadi in Karnatka and Dankuni in West Bengal), become free cash flow positive by FY10-11 (Rs -936 crore, for the year), build a mega convention centre in the NCR region (exited in 2009), and so on,” the report noted.

DLF valuations are out of sync with reality and investors should sell it off, says Veritas. “At its current stock price, DLF trades at a trailing twelve months enterprise value/earnings before interest, taxes, depreciation, and amortization (TTM EV/EBITDA) multiple of 18.9x. The company has no free cash flow and no credible plan to de-leverage its balance sheet. A slowing real estate market in a high inflation environment and overexposure to Gurgaon—amongst India’s most speculative real estate markets—will create tremendous pressure on the company’s balance sheet”, it added.

Veritas said it believes that DLF is worth half the current market price, assuming things do work out as planned. “In a best case scenario DLF is worth Rs100 per share—less than half its current stock price of Rs226.35—from its core operations and investments, which approximates 1x Veritas adjusted book value of Rs101per share.” One can imagine what the worse case scenario might be.

The only way out for DLF, according to Veritas, is to restructure loans. This has eerie parallels to what Kingfisher Airlines has done and might end up comatose. The other option is to raise capital vis-a-vis a secondary offering, which will dilute shareholding and halt dividends. Shareholders will probably not take this in good stride. As of 29th February, DLF was quoted at Rs226.35 nearly half of its IPO price, and has fallen roughly 80% from its peak. During the same time period, the Sensex has gone up by 29%.

In a recent press release, DLF said, “…it believes that due to the current macro environment, it may take a few more quarters for the company to regain full momentum.”




5 years ago

Wow, such an eye-opener, and especially correct from the point of view of naming Gurgaon as an over extended speculative property market. Coming up on termite lands which are being reclaimed by said termites, berefit of any reasonable city planning, and devoid of basic amenities like public transport and alloted space for basic utilities like post otfices, police stations and primary healthcare, the best way to describe Gurgaon is that alcohol shops function 24x7 and there is one within 500 metres of everything, but to get a packet of milk you need to head for the malls - or Delhi.

Good luck to those who invested their money in DLF during the IPO, or got ESOPS, too.

Sahara Life Insurance caught for multiple violations; penalised for a mere Rs12 lakh

Sahara Life Insurance has been caught for several violations which resulted in a Rs12 lakh penalty. There were 23 issues raised by IRDA, for which Sahara was let off leniently. Did Sahara Life Insurance get away too easily?

The Insurance Regulatory and Development Authority (IRDA) has slapped Sahara Life Insurance, promoted by Subrata Roy’s Sahara Group, with a Rs12 lakh penalty. While there were 23 issues discussed in the meeting with IRDA officials, the insurance company got away without much dent in its pocket. The violations for which a penalty was awarded are:  

  •   Delay in death claim payments and settling the delayed claims without penal interest. IRDA found that 30 of the 220 outstanding claims are pending beyond six months. The authority imposed a penalty of Rs2 lakh for this violation.
  • Allowing unlicensed entities to solicit business through dummy codes and paying commission to them—penalty of Rs5 lakh.
  •  The insurer is licensing ineligible entities as corporate agents—penalty of Rs5 lakh.

 The violations for which a penalty was not slapped are:  

  • The insurer is not maintaining separate trust for funding Gratuity, PF, Pension, etc, of the employees of Sahara India Life Insurance Co (SLIC)—violation prudent accounting practices.
  •   SILIC is not functioning as an independent accounting and legal entity. Stationery of group companies was used. Officials of group companies authorizing payments of SILIC—violation of prudent accounting norms.
  •   Rent payment to group companies without formal agreements. Other payments such as electricity, courier, and mobile expenses made to group companies—violation of accounting practices.
  •   There was heavy expenditure on publicity in 2008-09. Payments made to vendors through corporate communications department of Sahara group—violation of prudent accounting practices.
  •   Expenses on meetings/conferences went up from Rs20 lakh in 2008-09 to Rs1.04 crore in 2009-10. There were monthly payments to Sahara Care on this account while the agreement is available with Sahara Services for arranging conferences. Expenses were not shown in related party’s accounts—violation of prudent accounting norms.
  •  Short-fall in new business (NB) premium during year end collected from agents—violation of Section 41 of the Insurance Act (IA), 1938.
  •   Issuance of premium receipts based on oral information without actual receipt of premium by the company—violation of Section 64 VB of IA, 1938
  •  Original minutes of board meetings, audit and investment committee meetings were not submitted in the inspection period. They were submitted later—violation of Section 33 (3) of Insurance Act, 1938

In the next article we will give the investment related violations which were not penalised for some reasons.




5 years ago

IRDAI is investigating TNT India P Ltd. which is a transport company, they are collecting insurance amt with out being registered with IRDAI.

This is a Criminal offence, this is a first time case.

Vikas Gupta

5 years ago

Sahara name is meant for Unethical Practices Whether it is Sahara Life or Sahara Financial, Whether it is Branch Staff or Higher Management, most of them are the most corrupt persons. I have experienced Mr. Pandey, Branch Manager of Sahara India Financial, Rohtak myself, A corrupt person. Even his Regional Manager & Kartaya Council Members all are in the same Viscious Nexus. All group Companies of Sahara should be heavily penalised & banned for their Anti Customers Attitudes.

Nagesh Kini FCA

5 years ago

The IRDA ought to come out with an explanation for not slapping heavier penalties for the offenses. Those let off are no less serious. Are they running an insurance co. or a family run business? At this rate it is totally risky to place funds at disposal hoping to get them at maturity.
Another Kingfisher or Satyam in the making?
The penalities ought to be stiffer a la US SEC in addition to the Co. those at the helm of affairs also should be penalized. Allowing them to go scot free with mere rap on the knuckles is allowing them to go with blue murder. These white collar crimes are serious as peoples' savings are involved.

Harsh Shah

5 years ago

When will IRDA impose penalties to General Insurance Companies for repudiating the Mediclaim policy claims on flimsy grounds and delay in settlement of claims which is paid with unreasonable deductions . When will IRDA announce TO IMPLEMENT claim settlement time and penalty for late settlement of claim. Come on IRDA. Tiger can still bite with some tooth left .

Deepak R Khemani

5 years ago

Private Insurance companies will always get away with anything, IRDA the toothless tiger can only roar and not take any credible action, recently Reliance General Insurance got away with meager penalty for marketing a mediclaim policy with conditions different than those that were approved by IRDA. Look at the number and type of violations and the amount of penalty imposed.
IRDA approves highest NAV guarantee policies and then says they are not good, single premium policies are approved and then they say they are not good, Variable Insurance policies are approved and then the same thing, Ulips which had high loading were tinkered around with have changed avatar many times, there is no clarity at all on pension policies.

FII inflows into Indian stocks cross $7 billion for 2012

During February, FIIs were gross buyers of shares worth Rs79,898.6 crore, while they sold equities amounting to Rs54,686.6 crore, translating into a net investment of Rs25,212 crore ($5.12 billion), as per data available with market regulator SEBI

New Delhi: The investment by overseas investors into Indian stock market since the beginning of 2012 has crossed the $7 billion level, out of which more than $5 billion were pumped in the month of February, reports PTI.

Foreign Institutional Investors (FIIs) infused a net amount of $5.12 billion (about Rs25,212 crore) during February, taking the total for 2012 so far to $7.16 billion for the Indian stocks.

Market analysts attributed strong FII inflows to signs of a reversal in the Reserve Bank of India’s (RBI) monetary policy and the subsequent impact of improved liquidity position. They expect the positive trend to continue further, given that the liquidity conditions remain strong.

During February, FIIs were gross buyers of shares worth Rs79,898.6 crore, while they sold equities amounting to Rs54,686.6 crore, translating into a net investment of Rs25,212 crore ($5.12 billion), as per data available with market regulator Securities and Exchange Board of India (SEBI).

This is the highest monthly net investment by FIIs in equities since October 2010, where they had infused Rs28,563 crore.

The foreign fund houses also infused Rs1,0016 crore ($2.03 billion) in the debt market last month. This takes the overall net investments by FIIs into debt markets to Rs25,987 crore ($5.08 billion) so far this year.

“FIIs have been infusing money into the Indian market due to change in RBI’s monetary policy that has added liquidity to the system. This liquidity will help in growth of the country,” Wellindia executive director Hemant Mamtani said.

“Indian market will continue to witness inflows in the whole year, if the liquidity conditions remain strong,” he added.

Strong surge in FII inflows in 2012 so far has helped boost the equity markets, as also the rupee.

The stock market barometer Sensex has gained 15% in 2012, despite a fall of about 3.25% last month. The index finished at 17,752.68 on 29th February.

FIIs had mostly stayed away from Indian equities in 2011. They flocked towards the debt market last year with a net investment of Rs20,293 crore, while pulling out Rs2,812 crore from equities.


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