Rajesh Exports – Auditors fail equity shareholders once again

It has happened time and again in the Indian context. There have been flagrant cases of misrepresentation by listed companies and auditors have turned a blind eye to the entire saga. Rajesh exports appears to be the latest in that list.

No smoke without fire

In the last few years, we have come across such flagrant cases of auditors failing to highlight problems well in advance. We saw it in the case of Satyam and then, again, it happened in the case of IL&FS and also in the case of DHFL. In all these cases, the problems did not crop up overnight. They had been silently festering in the books for years, before a negative event in the market forced the truth to come out. In the case of Rajesh Exports, it looks like the company had fudged sales of around ₹15,00,000 crore over a period of 5 years; with the sales numbers being entirely fictitious.

Perpetrated at a more complex level

In the case of IL&FS or Satyam it was a clear case of hiding the numbers behind a maze of domestic companies. Basic textbook checks like verification of bank balance, verification of inventory, reconciliation etc would have highlighted these cases. In the case of Rajesh Exports, the fictitious sales were entirely executed through foreign subsidiaries. If you take the standalone sales of Rajesh exports for FY26, it stands at ₹9,291 crore, while its consolidated sales (including global subsidiaries) stood at a whopping ₹7,78,989 crore. In short, the domestic sales of Rajesh exports were just about 1.2%, with global sales accounting for 98.8%. All these were sales of foreign subsidiaries.

Some classic red flags were missed out

Any auditor with a base minimum level of diligence who sits with the numbers would have smelt something fishy. For a company with sales of ₹7,78,989 crore, its net profits were a paltry ₹112 crore. That is a net profit margin of about 0.01%. No company in their right senses works on these kinds of net margins. The ROE has been consistently around 0.6%, while the ROA has been under 0.3%. These numbers are hard to digest and are a clear indication that sales numbers do not stand the test of pragmatism. There is also a market test that any prudent auditor should subject the company to. It is hard to explain why a company with growing sales has seen market cap deplete 92% in last 5 years.

Skeletons are just emerging from the cupboard

Once the SEBI investigation began, the enormity of the fictitious numbers are starting to emerge. Out of its total sales of ₹7,78,989 crore, the company could provide documents for just 2% of the purchases made and 30% of the sales made. As per Rajesh exports, its sales are largely accounted for by 2 Swiss subsidiaries; Valcambi and Global Gold Refiners. The irony is that the sales of Valcambi (audited by KPMG) was just 0.2% of the sales claimed by Rajesh Exports. But the real catch is that most of the sales come from GGR, a holding company not subjected to audit. That looks more fictitious than originally imagined. For now, we have wait; but clearly auditors are again found wanting.