Explained: What does Rajesh Exports do? Why is SEBI alleging a scam?

The Securities and Exchange Board of India (SEBI) on June 3 (Wednesday) issued a 109-page interim order against the Bengaluru-based listed gold jewellery firm Rajesh Exports and its promoter-chairman, Rajesh Mehta. The regulator leveled a staggering allegation of revenue misrepresentation totaling ₹15.15 lakh crore over a five-year period, an amount that constitutes nearly the entirety of the company’s reported international operations.

Citing findings that were described as "egregious and unheard of," SEBI has barred both the firm and Mehta from the securities market, effectively freezing their access to capital markets.

Rajesh Exports, a stock market favourite for many investors, saw its stock price hit ₹103.92 today, around 5 per cent, or ₹5.46, lower than the previous close of ₹109.38.

What does Rajesh Exports do?

Rajesh Exports is a global player in the precious metals sector. The company owns Valcambi SA, the world's largest precious metals refinery, headquartered in Balerna, Switzerland. It runs the Shubh Jewellers retail chain across India, with over 80 outlets.

The company began as a family-owned enterprise. Brothers Rajesh Mehta and Prashanth Mehta joined the family business in 1988, according to the Rajesh Exports website.

They claim to have established the first organised gold jewellery manufacturing facility in India in 1990, and the country's first jewellery R&D facility a year later. In 1994, it "emerged as the largest exporter and wholesaler of gold jewellery in India."

In 1995, it launched an initial public offering (IPO).

What is SEBI alleging?

The current issue was triggered by a deceptively small shareholder complaint in March 2024.

According to media reports, the complaint flagged a critical red flag: massive trade receivables that had remained unpaid for more than two years, a common indicator of fictitious accounting.

This initial spark prompted SEBI to launch a forensic audit conducted by BDO India. The probe indicated a massive mismatch between the company’s claimed global dominance and its verifiable revenues, moving the narrative from simple unpaid bills to a massive "financial dragnet" involving international subsidiaries.

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SEBI says that between FY21 and FY25, the majority of Rajesh Exports' consolidated revenues came from its overseas subsidiaries. This was nearly 99 per cent of total reported sales. Swiss unit Valcambi is seen as the backbone of the company's international operations. However, auditors noted that the records showed a mismatch.

The revenues reported at the consolidated group level were far more than the revenues verified from global subsidiary records, said SEBI. This amounted to a discrepancy of Rs 15.15 lakh crore across five years.

There is also the issue of a reported investment of Rs 1,035 crore in African gold mining assets. SEBI's interim order said Rajesh Exports was unable to furnish documentation "supporting the existence and valuation of these investments".

What is Rajesh Exports saying?

The company today denied any financial irregularities, saying its reported revenues were correct and that there seemed to be a communication gap with SEBI.

"The revenues declared by the company are correct, and there is no over-stating of revenues. There seems to be some type of communication gap and confusion between SEBI and the company," Rajesh Exports said in a BSE filing.

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SEBI's order is interim, and there has been no adverse conclusion on any aspect, it said. The company is in the process of clarifying all aspects to SEBI by submitting all the required and relevant documents, it added.

How does this impact investors?

Ordinary people may pay a big price for this alleged scam. Crores of retail investors have exposure to the company, both directly and indirectly.

The Life Insurance Corporation of India (LIC) holds a 10.8% stake in the firm. Since LIC's investments are backed by policyholders' premiums, the scam impact may percolate down to households that have invested in insurance products. Per SEBI estimates, shareholder wealth erosion linked could go to Rs 12,726 crore.

There is also the issue of banks lending to Rajesh Exports. Per media reports, Canara Bank has classified its exposure to the company as a stressed asset following repayment defaults.