The Commeuppance Of The Upstart

 

The Comeuppance Of The Upstart

 SEBI has just dropped its second high profile quarry with its accurate elephant gun. DLF shares, under pressure for some time, both from the flow of bad news and court strictures applied, tanked  27%  on 14^th October. It wiped out $1.3 billion in shareholder value, and a big chunk of DLF’s reputation.

Rewind to about 2008, its IPO was in 2007, and we suddenly find DLF, owned and run by thick-accented mofussil  types in expensive suits, pushing its way into the same league as tried and tested stars of the private sector, such as the TATAs, BIRLAs, by then gentrified and professionalised RELIANCE, and  likewise Ludhiana/Jullunder/Delhi-bred BHARTI.

It made one wonder then just how DLF managed such high valuations for its land banks when it paid the Gurgaon district farmers an absolute pittance for the very self-same in the eighties?  And how did DLF, with nothing to show for itself, beyond about  3,000 acres of largely sold off ‘DLF City’  land in Gurgaon,  still pull off one of the largest IPOs of all Indian time?

Was it just the exaggerated effect of the last bull market? Or was it also the entire IPO barrage, they did have two false starts before they went through with it- money lavishly spread about in the right places via a raft of investment bankers, underwriters, rating agencies, Ad and PR men, bureaucrats and politicians?

After all, the stock market can, on occasion, be a very rigged thing; and this was before SEBI had been given biting teeth, and the desire to put people like Subrata Roy Sahara in jail. And now it bans the equally high profile DLF, KP Singh, family, and friends, from accessing it for three whole years.

This has come at an inconvenient time, as such things have a knack of doing, when DLF is nursing nearly 20,000 crores in debt. And who knows what the story is on its true asset valuations, its delayed projects, or its unsold residential/commercial stock-in-trade. Perhaps it will try to  raise money abroad now. How does this affect its hidden associates?

The DLF story began when the refugee company  was put to work by Prime Minister Nehru, soon after independence, to build new colonies in the wilderness that grew into South Delhi. South Extension, Hauz Khas, Greater Kailash 1 and 2, etc. all came up, in their narrow-laned glory, during this first avatar of DLF.  Then, they were put out of business in 1957, in favour of the truly horrendous Government-owned DDA, which nevertheless was given a monopoly for residential development etc. in Delhi.

The second coming was in Gurgaon, thanks to grandson Rajiv Gandhi, just after he became PM. The sharp tactics of DLF, this time around, are both legendary and legion, and has been for decades, particularly amongst their ordinary customers, too weak in themselves to do anything about it.

That is, until they banded together, sued, and won, with DLF being fined some Rs. 630 crores recently - for hostile leveraging of its dominant market position, taking unfair advantage of its ordinary customers, delaying projects, indulging in additional construction not agreed to at first, and so on.

DLF is also both blatant and blasé about its exploitation of political connections. The various linkages with both Chief Minister Hooda of Haryana and damaadshri  Robert Vadra, in recent times, are illustrative. The crony capitalism and ‘private sales’ to the rich and influential also always ran hand in hand. Those who count have benefited from DLF’s developments. But the DLF writ, for all its savvy, does not seem to run much beyond Mohali, and certainly not in Mumbai or the South where DLF forays have not taken hold.

Sadly, DLF’s muscular ways have inspired many other smaller developers to behave likewise, with an abundance of advertising to push the home owner’s dream, and a paucity of integrity and trustworthiness on the ground once the money changes hands. After all, if the oldest and biggest developer in the North can show scant respect for its customers, then why not the arrivestes? 

Ansal, another family owned enterprise, which also started fanning out at around the same time, both in round one and two, came unstuck after the Uphaar fire tragedy- a blow to their reputation that they have never recovered from since. But then again, the callousness seems par for the course.

DLF may have been luckier till now, but certainly no better when it comes to integrity and corporate governance. It may have been caught for misstatements during the IPO by SEBI, ironically a relatively minor dodge amongst the many unproven, but with a big consequence as it turns out.  But the more important thing from the customer’s point of view is that in its manners and mores, despite its billions in market cap as a public company, DLF has a culture that has more in common with rough and ready brokers in tents, rather than those others  in India Inc.’s top ten.

(824 words)

October 14^th, 2014
Gautam Mukherjee