Rajesh Exports case shows why investors must look beyond profit and revenue growth: IIAS

The interim order issued by market regulator Securities and Exchange Board of India (SEBI) against Rajesh Exports has reinforced the need for investors to assess governance standards, audit quality and financial disclosures rather than relying solely on revenue and profit growth, according to Hetal Dalal, President and COO of Institutional Investor Advisory Services (IIAS).

Dalal said the Rajesh Exports case highlights several warning signs that investors should monitor, including ageing receivables, weak disclosures, audit committee composition and auditor independence. She also suggested that regulators could continue expanding their scrutiny as the investigation progresses.

SEBI has accused Rajesh Exports of alleged financial misrepresentation, disclosure lapses, improper accounting practices and diversion of funds. The regulator said it found prima facie evidence that promoter and Executive Chairman Rajesh Mehta exercised significant operational and financial control over the company and its subsidiaries and was linked to several questioned transactions.

The probe began after a shareholder complaint, and SEBI has directed Rajesh Exports and Mehta to cooperate with the investigation, submit documents and respond to queries within 30 days.

The company has denied overstating revenue and said it will work with SEBI to clarify the issues raised.

Dalal said investors need to focus on governance structures and oversight mechanisms that can help identify risks before regulatory action is taken.

According to her, receivables and payables that remain outstanding for multiple years should prompt investors to ask questions about the company's operations and financial reporting.

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Dalal also pointed to transparency issues in annual reports, noting that limited disclosures can make it difficult for shareholders to understand business performance and revenue drivers.

She further raised concerns about the composition of Rajesh Exports' audit committee, saying it lacked members with accounting or financial expertise while also including the promoter.

The IIAS executive said internal audit functions, audit committees and statutory auditors form the primary checks and balances within a company. In this case, she questioned how several issues highlighted by SEBI were not identified earlier.

Dalal expects SEBI to continue its investigation and eventually issue a final order after reviewing additional information and company submissions. She said the interim order serves an important role by alerting investors to potential concerns and preventing further damage while the probe is underway.

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