Neeraj Monga: India is an immature market
Veritas' Neeraj Monga tells Forbes India that the only way to stand out in a crowded market like India is through hard-hitting reports.
July 11, 2012 / 13:01 IST
Rohin Dharmakumar/Forbes India
Veritas' Neeraj Monga tells Forbes India that the only way to stand out in a crowded market like India is through hard-hitting reportsNeeraj Monga
Age: 40
Designation: Head of Research, Veritas Investment Research
Education: MBA, Richard Ivey School of Business, Canada
Career: Investment research at Veritas since 2000 after spending one year with Bain & Company as a consultant
Q. Your recent report on RCom was called ‘A House of Cards’, the UB Group’s was called ‘Pie in the Sky’, on RIL and RCom, ‘Brothers in Arms’, and DLF’s, ‘A Crumbling Edifice’. Why these names?We would like our report titles to outline essentially the entire thesis of the report and tell a reader instantly what to expect. We even hold an annual contest for the best research report title to promote this.
Q. In your latest report you say “don’t believe” in either RCom’s book equity or asset base. Why?In our estimate, their book equity includes gains of roughly Rs 22,000 crore made by revaluating assets that have been passed through subsidiary companies controlled by the same management. Another item from their financial statements talks about an advance of Rs 950 crore to a vendor who subsequently failed to deliver and had to be written off as a loss. But if such a large amount being advanced and written off were true, where are the details of the suppliers, the reasons and lawsuits? It also has around Rs 7,000 crore of loans and advances on its books as assets. So, why don’t they deleverage by selling these loans and assets?
Q. Do you see Veritas as a disruptive force in the analyst sector?India is an immature market that is run as a personal fiefdom of a few corporate groups. Financial statements are very unreliable and most private businesses are run on a very thin sliver of equity with financial institutions providing loans without doing enough due diligence. Because most debt covenants are a function of net equity, instead of cash or EBITDA generating capacity, many companies have a holding company structure where they move assets from company A to company B to company C. It’s like you reselling your own house to yourself, saying it’s worth more each year. When we started in India we said we’ll lead a revolution. In a market like India there is no way to stand out except by writing hard hitting reports.
Q. What is the business or revenue model that allows you to do so?Currently, we are marketing our research only in Hong Kong and Singapore, both being places where a lot of India’s foreign capital comes from. For instance with RCom, we had many special requests from international investors because it interests multiple stakeholders - Chinese banks that have lent it money; Barclays and HSBC who have significant exposure; PE funds who are considering buying a stake; equipment vendors.
Q. What are the three most effective ways you’ve spotted companies use to get higher stock market valuations?(1) Hiding losses in subsidiary companies without consolidating.
(2) Not accounting for expenses on the P&L but writing off through reserves and
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