A Veritas View of Indian Companies

Canadian research firm, Vertitas’ devastating report on DLF raises questions about the state of corporate governance in India


In recent times, a Canadian investment research firm named Veritas has injected a measure of excitement in the generally dull world of analysing Indian stocks. Investment researchers rarely say something very different from each other, at least about large and seemingly well-understood companies. I mean, research reports can disagree with each other about whether someone’s EPS will be 15 per cent higher or 20 per cent higher, but generally speaking, if you’ve read one report about a large-cap stock then you’ve read them all.

Into this world of comfortable consensus, Veritas has barged in with research that has a strong emperor-has-no-clothes attitude to it; and the emperors in question are not just the actual target of the reports but also the entire activity of stock research in India. Last week, it released a report on DLF, which was its third one on an Indian company, the previous two being about Reliance Communications and Kingfisher Airlines.

The report is devastating in its conclusions about DLF, India’s largest real estate company. Essentially, it questions everything about the business. This includes not just the business prospects of the company and the competence of its management, but also the legality of its business and accounting practices, specially the accounting connected with the merger of DLF Ltd with DLF Assets Ltd. The report flatly states, "We do not believe the disclosed book equity and asset base of the company." The markets are paying attention--in the days after the report came out, the already beaten-down stock dropped down by another 10 per cent.

Last year, Veritas’ report on Reliance had also questioned a wide range of accounting practices in the group, including the creation of Reliance Communications. The Kingfisher report, which also came out last year had blown the whistle in no uncertain terms well before the dire state of affairs became obvious.



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