Rajesh Exports shares hit lower circuit for second day after Sebi flags alleged ₹15-lakh crore revenue misstatement

Shares of Rajesh Exports Ltd (REL) fell 5% for a second consecutive session on Friday, hitting the lower circuit limit amid investor concerns over allegations by the Securities and Exchange Board of India (Sebi) that the company misrepresented more than ₹15 lakh crore of revenues over a five-year period. 

The stock declined 4.97% to ₹99.45 on the BSE while on the NSE it fell 4.99% to ₹98.73, its lowest permissible trading level for the day. The stock had also hit the 5% lower circuit on Thursday. 

The sharp sell-off follows an interim order issued by Sebi on Wednesday, which alleged that Rajesh Exports inflated its consolidated revenues by attributing massive turnover figures to overseas subsidiaries, particularly Switzerland-based Valcambi SA, despite the subsidiary's audited standalone financial statements reflecting only a fraction of those amounts. 

According to the regulator, Rajesh Exports reported consolidated revenues of approximately ₹15.18 lakh crore between FY21 and FY25. Of this, around ₹15.15 lakh crore, or 99.8% of the revenue attributed to subsidiaries, could not be reconciled with Valcambi SA's audited standalone financial statements. 

Valcambi SA, a precious metals refiner, primarily earns revenue from refining services and the sale of branded bullion products. However, its audited standalone accounts, prepared under Swiss accounting standards and audited by KPMG SA, recorded only processing charges or value addition as revenue. 

Sebi highlighted what it described as a significant mismatch between Valcambi's audited financial statements and the revenues reported by Rajesh Exports and its intermediary holding company, Global Gold Refineries (GGR). 

For example, in calendar year 2023, Valcambi reported standalone revenue of about ₹543 crore, while GGR and Rajesh Exports reported revenues of roughly ₹2.93 lakh crore and ₹2.81 lakh crore, respectively. As a result, Valcambi's standalone revenue accounted for less than 0.5% of the revenue reported at the consolidated level. 

The regulator questioned how a holding company with no independent operating activity could recognise gross transaction values worth several lakh crore rupees when the operating subsidiary itself recorded only processing income as revenue. 

In its response to Sebi, Rajesh Exports argued that Valcambi accounted only for processing charges, whereas GGR recognised the gross value of gold transactions in addition to processing fees. Sebi, however, said the explanation appeared prima facie untenable, noting that Valcambi's audited accounts did not recognise the gross value of gold transactions as revenue. 

The regulator also observed that although 97-99% of Rajesh Exports' consolidated revenue was claimed to originate from overseas subsidiaries, the company had not uploaded the financial statements of any subsidiary or step-down subsidiary on its website. Sebi further alleged that the company failed to provide critical information, including customer and vendor details, despite repeated summons during the investigation. 

Sebi Whole-Time Member Kamlesh Chandra Varshney said the company had prima facie misrepresented revenue worth ₹15,15,385 crore during FY21-FY25, presenting an inflated picture of its operational scale, consolidated financial position and overall financial health to investors. 

Describing the apparent inflation of 97-99% of the company's reported revenue as "egregious and unheard of", Sebi said the seriousness of the findings warranted interim action pending completion of the investigation. 

As part of its interim directions, the regulator barred Rajesh Exports promoter and CEO Rajesh Mehta from dealing in the company's securities, alleging large-scale misrepresentation of financial statements and diversion of funds. Sebi also directed the company to ensure true and fair disclosures relating to financial statements, related-party transactions and other regulatory filings under listing norms. 

Rajesh Exports has denied any wrongdoing. In a filing to the BSE on Thursday, the company said its reported revenues were accurate and attributed the issue to a possible misunderstanding between the company and the regulator. "The revenues declared by the company are correct, and there is no overstatement of revenues. There seems to be some type of communication gap and confusion between Sebi and the company," the company said.