>DLF alleges INR2.8bn fraud; 4Q write-off likely

Event: According to a news report in the Times of India today, DLF has filed two complaints alleging that it was cheated out of INR2.8bn by Hyderabad based developer GSG Group, with whom it had entered into joint ventures to develop projects. The story states that as per the complaint registered by DLF with the police, the promoter of GSG Group entered into a JV with DLF to develop three projects but failed to keep its commitment on any of them and has also failed to return to DLF advances of INR2.8bn. These transactions took place between October 2006 and August 2008, while the total land area under question is 280 acres, according to the article. The report also states that the promoter of GSG Group at the moment is absconding.


Our view: This alleged fraud could result in DLF writing off INR2.8bn from its balance sheet in 4QFY12, and we estimate that this one-time loss could wipe out its profit for the quarter. While the amount is small in relation to the size of the company, we believe this case could raise questions about DLF’s management capabilities considering that despite the GSG Group failing to meet its commitment on the first project (the complaint alleges that GSG Group “deceitfully” mortgaged an alreadys old property against the advance, according to the Times of India article), DLF entered into two further alliances with the group where, too, the group failed to keep its commitment or return DLF’s advance payment, according to the report. Also, the company filed a complaint 3.5 years following the latest transaction –in our view, a significant and very surprising delay in taking action.


RISH TRADER