The wealth management arm of Kotak Mahindra Bank misled a customer into investing in its India Growth Fund at a steep premium, based on bogus claims. Kotak officials remain impassive even as the investor struggles to find buyers

It seems that customers everywhere are paying a hefty price for their blind trust in companies with strong brand images. Citibank claims it had no inkling about the Rs400-crore fraud played out by one of its employees on unsuspecting clients. Now, a customer of Kotak Mahindra Bank has learnt a harsh lesson after reposing unquestioning faith in the brand he trusted so much.

In a shocking incident, a high net-worth client of Kotak Mahindra Bank was hustled into buying a dud product for a whopping sum of Rs2.27 crore, with the bank pocketing a cool profit of Rs1 crore in the process. The wealth management arm of the bank allegedly misled the investor into putting the money in its India Growth Fund, based on bogus claims regarding its worth and taking undue advantage of the brand name to influence the buyer. The investor's repeated pleas to rectify the damage have fallen on deaf ears as Kotak officials refuse to budge.

The investor, Rajan Manchanda, had in June 2007, invested large amounts in two of Kotak's funds-Biotech fund and Realty fund. Mr Manchanda was given a detailed presentation for both these funds and he gave his acceptance to make the investments. Mr Manchanda also assisted Kotak in getting equivalent investments from his cousin for these two funds. Kotak zeroed in on him again to sell him another product-India Growth Fund.

Mr Manchanda was allegedly misled into investing in the fund by making bogus claims about its worth. Claiming that the fund was being sold to him by another investor in a distress sale at an attractive discount, the Kotak official made a strong pitch in favour of the fund. Although the investor had some reservations, he was persuaded into buying it, saying there was a rush of investors wanting the product while it was available at a discount. Kotak collected Rs2.27 crore from Mr Manchanda, who was under the impression that he was getting the fund at a discount to its value of Rs2.5 crore.

"I told him I had already made huge commitments in the two funds and would like to avoid further commitment. He insisted that I trust him and would not regret as three to four companies were going public in the next 12 months and that would more than take care of the amounts payable for the two other funds. He wanted a commitment immediately or else I would lose out. Upon his assurances and insistence I agreed to invest," said Mr Manchanda, describing his situation.

Curiously, Mr Manchanda was asked to make out the cheque in favour of Kotak Mahindra Prime Ltd, the car financing division of Kotak, and not the seller of the fund. He was told that this was due to certain 'technicalities' involved in the transfer of the fund and that Kotak was not benefiting in any way but only facilitating the transfer. He was repeatedly told that the premium on the distress sale had been paid to the seller of the fund. Surprisingly, the investor was not issued any agreement letter, despite assurances to that effect. Neither was he given any valuation report. Mr Manchanda lost trust and requested the officials to sell all the three funds. Kotak officials, however, kept on assuring him that the funds would be sold and that he should bear with them as the markets were bad.

Sensing foul play, Mr Manchanda approached the Chennai-based seller of the fund in October 2009 and found that he had been taken for a ride all along. Apparently, the seller was paid only his contribution of Rs1.25 crore, minus Rs6 lakh collected by Kotak. Mr Manchanda realised that Kotak had betrayed the trust he had reposed in them and that Kotak had fraudulently dumped onto him a worthless investment at a steep premium. It is obvious that someone at Kotak has made off with a cool Rs1 crore in the process.

Mr Manchanda also tells us that the Realty fund was sold by Kotak on his behalf at Rs1.01 crore, against his investment of Rs1.47 crore. He had to bear a loss of Rs46 lakh on the investment. Apparently, the fund was valued at 1.2 times the investment but sold at a 35% discount to the actual investment. The Biotech fund, supposedly valued at twice the investment, cannot find a buyer, claim Kotak officials. The India Growth Fund is also failing to attract any buyers.

The investor now finds himself in a deep hole as his repeated attempts to get the attention of the top authorities at Kotak have taken him nowhere. Shockingly, every time he finds himself being redirected to the very people who sold him the fund in the first place!

Only recently did the investor get a reply from the wealth management arm on behalf of Uday Kotak, stating that he was not duped in any way. Even Moneylife's attempts to get answers have not yielded any response yet.

The investor has also lodged a complaint with the Securities and Exchange Board of India (SEBI), but has not made any progress here too.

A risk of shortfall in production targets, the proposed pay revision for Coal India, and increased share of washed coal may put upward pressure on coal prices and put power companies at the losing end

Black gold is about to become dearer. And the ramifications are going to be felt all around.

In a report to its institutional clients today, brokerage house CLSA said that it had met with the chairman and managing director (CMD) of Coal India Ltd (CIL), Partha Bhattacharyya, in Kolkata. "The CMD highlighted the risk of a shortfall in production targets due to a moratorium enforced by the Ministry of Environment and Forests (MoEF) in giving clearances for mining projects in critically-polluted areas. Coal prices are likely to go up in FY12 with the impending pay revision for CIL, which is due in July 2011. With CIL planning to increase the share of washed coal in the overall mix significantly over the course of the next few years, the fuel bill would rise even further for coal companies. The companies in our coverage which are best placed to handle this risk are NTPC (National Thermal Power Corporation), Tata Power and JSPL (Jindal Steel and Power Ltd)."

CLSA points out that the frequency of coal-price hikes by CIL has increased, of late. After a hike in FY01, it had gone in for a hike only in FY05 and subsequently in FY08. However, it hiked prices in FY10 by 11%-another price hike is expected in FY12.

Due to the MoEF moratorium till 31st March on the consideration of environmental clearances for projects which are in critically-polluted areas, CIL expects its FY11 and FY12 production to fall short by 16 million tonnes (MT) and 39MT, respectively.

Again, CIL is increasing the proportion of its washed coal output-it will hike 40% of its total output by FY17. "Washing leads to a 20% volume loss-which would result in a $2/tonne additional cost, an approximately15% increase in CV, 6% reduction in ash and around 100% increase in realisations. CIL plans to price its washed coal at 15% discount to imported coal-adjusted for the quality of coal," Mr Bhattacharyya said.

Another factor that will put pressure on coal prices is the availability of rakes-according to the brokerage, CIL had asked for 185 rakes per day, but the actual availability of rakes varies from 170-190 per day.

To conclude, the report says that with CIL's production likely to be down by 3.5% for FY11 (vis-à-vis its target) the companies dependent on coal linkages will either have to import more coal to meet the shortfall or will have lower utilisation rates. Those power companies that don't have a pass-through of fuel costs in their PPAs (Power Purchase Agreements) would see a hit in their profitability, because a higher proportion of washed coal in the overall coal output would imply higher input costs for power utilities.

The brokerage adds, "The most exposed (companies) are Adani, Jaiprakash Power, Sterlite Energy and CESC (Ltd)."

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife.)  

Fragmented market and rising costs leave entertainment channels facing another year of struggle

2011 is here, and the media is glowing with optimism. Perhaps, it's what also sells. For, the media sector will be hoping that it can do better in the next 12 months, than it has recently. Particularly television channels, which are gearing up to improve their share of advertisement revenues. The advertising pie is expected to grow to a whopping Rs21,000 crores this year. But it's difficult to foresee how the broadcasters' efforts will work out in a sector that continues to be fragmented?

Thus far, TV companies have by and large relied on gorgeous costumes and elaborate sets to hook viewers. But with more options available now-like the internet-the shimmer and sequins may not be enough to hold their attention. Television has had many gala launches and glamour events. And as new launches (of programmes and even more channels) gave rise to new hopes, broadcast companies have seen their revenues shrink. However, producers are not deterred and they are making renewed efforts to jazz things up.

Experts believe 2011 will be the year of high definition (HD) TV. It has already caught on in Europe and the US, and now our very own Hindi channels are working along these lines. Producers are banking on premium audiences paying for the HD format, which is available only through DTH services.

The costs of serials, reality shows and other programmes produced to dazzle audiences have skyrocketed. An example is Sony's latest instalment of Jhalak Dikhla Jaa that is on a much grander scale, while Imagine is also polishing its new productions. Serials like Star's Gulaal and Pyaar Ki Yeh Ek Kahaani feature extensive outdoor shoots. Costumes and sets for most programmes are painstakingly detailed. But who's winning the TRP fight? Analysts say, no one in particular. (TRPs, or television rating points, is a measure of the popularity of channels or their programmes that is particularly useful for advertisers.)

"With so many channels and so many programmes, the options have increased," says Atul Nadkarni, a financial analyst. "After the death of the Tulsi-Parvati addiction, it has become very difficult to sustain the viewer's attention. The problem is, the content across the sector is so similar that people hardly find anything of interest. Targeting niche audiences who are willing to pay to see more grandeur may work, but the chances are slim."

Star Plus, is among some of the Hindi general entertainment channels (GECs) that launched the HD format some time ago. The result was a massive loss as most subscribers did not think it worth paying more to watch a channel on HD that they could enjoy pretty much on the existing DTH platform.

BBC Entertainment, which launched in India last year, saying it would provide 'original' entertainment instead of re-runs, managed the incredible feat of not being able to garner even a single advertisement. Warner Brothers declared that it had made a profit, but sank without a trace, and it is left to show bombs like Catwoman. Even some popular GECs like Colours, Zee and Sony, managed to make money intermittently.

So why are these otherwise much-talked about entertainment channels struggling? A lack of consolidation, suggests Mr Nadkarni. "When there are similar channels providing similar entertainment, the audience loses interest. The launch of new channels has only fragmented the sector, which has its effect on advertisement revenues."

The attempt to glam up could result in bigger losses-because as the costs rise, very few people will be ready to pay more. And with all the channels jazzing up, viewers will get similar bling any and everywhere. This age, which has seen people tire of 3-D, is unlikely to go crazy over shinier sets, whether it is for dance or food shows.