Tea-time chats in our team have, for many years now, focused on the latest annual reports of India’s most corrupt companies. In that regard the annual reports of Cox & Kings provided us with plenty to talk long about long before the company went bust in 2019. In our latest bestseller “Diamonds in the Dust: Consistent Compounding for Extraordinary Wealth” we have provided detailed forensic analysis of companies like Cox & Kings, Amtek Auto, Yes Bank and DHFL amongst other companies. Ironically, even as pirated copies of our book sell by the tens of thousands in India, a team from the Financial Times has taken the ‘Diamonds in the Dust’ analysis of Cox & Kings (C&K) combined it with their own investigative research and produced a riveting account of the downfall of C&K. This FT story reads like a Netflix series and we would recommend that you read it in full not least because it will help you stay clear of some dodgier IPOs hitting the Indian market at present. We have provided some excerpts here from the fascinating FT piece on C&K.
Whilst C&K’s origins date back to the time the British began colonising India, the modern C&K was really born when Ajit Kerkar – the man who built the Taj Hotels empire for Tata Sons – acquired it in controversial circumstances in 1980: “Ajit Baburao Kerkar, a London-trained hotelier who ran the hospitality division of India’s largest conglomerate, the Tata Group, saw an opportunity. Together with Anthony Good, a British PR executive who brought brands such as Marks & Spencer to India, and other investors, he acquired Cox & Kings around 1980, according to Courtney’s manuscript. Ajit was a leading figure of India’s hospitality industry, having opened Tata hotels on Goan beaches and in desert palaces. The Taj Mahal Palace, part of Tata’s holdings, was decorated with valuable artwork picked out by his Swiss interior designer wife, Elizabeth. Kerkar was “adept at finding fantastic locations across the country,” says Pavan Lall, an author who writes about Indian tycoons.
Ajit’s relations with Tata patriarch Ratan ultimately soured. The transaction with Cox & Kings in particular was dogged by controversy, with concerns aired over whether it enabled the Kerkars to profit from business dealings with the Tata hotel chain that Ajit ran. A lawyer for the family rejected the allegations as “baseless” and “malicious”. In 1986, the elder Kerkar installed his 23-year-old son Peter to manage the company. It was Peter who would transform Cox & Kings.”
Buoyed by the economic liberalisation of India, Peter Kerkar then grew Cox & Kings through the 1990s and the first decade of the current century. By the time the company listed in the Indian stockmarket in 2009, things seemed to be going swimmingly well (unless, of course, like us you read the listing documents and saw through the published numbers): “Revenues surged and, in a 2009 listing on India’s stock exchange, the company raised Rs6.1bn ($130m), financing an overseas acquisition spree. Peter bought companies from the US to Australia, including a deal of about £300m for British educational tour group Holidaybreak in 2011 that multiplied Cox & Kings’ debt about fivefold. In 2018, the company was valued at $1.2bn with 6,000 employees. A third of its revenues came from India, the rest from its international education and other businesses.”
And then C&K and Peter Kerkar came unstuck: “In June 2019, a 20-year Cox & Kings veteran named Kailas Date received a midnight call. “‘Tomorrow, some news is going to come that Cox & Kings has not paid some commercial paper. Do not get hassled,’” Date recalls being told. “‘You hold your fort, you hold your customers. Tell them things will be all right.’”
Earlier that year Date, an executive in the company’s corporate events department, had been treated to a trip to Amritsar, the northern Indian city home of the Sikh Golden Temple, after winning an internal award….
But Date never received the bonus he said he was promised. There was little transparency in the group’s finances and executives had begun to suspect something was amiss. Like many travel companies, Cox & Kings operated on thin margins, running its business on cash from customer deposits for future holidays and paying off suppliers from hotels to guides when full payments came in. Its default on debt worth Rs1.5bn came less than a year after Cox & Kings sold off a chunk of Holidaybreak, the 2011 acquisition, for about Rs44bn. The inability to repay despite showing ample cash on its balance sheets sparked internal panic that this was more than a short-term funding squeeze…Their salaries went unpaid for three months. “By mid-September, it was a little different story. We were told ‘We’re facing a problem, we’re trying to recover,’” he says. “We came to know that this is getting out of hand.””
Whilst C&K’s accounts painted a grim story long before the company went bust in 2019, what remains a mystery even for us is who exactly masterminded what is a multibillion dollar fraud. In “Diamonds in the Dust” we have listed key transactions which should have been able to save C&K but the monies from these went missing. To this day, the Indian investigative agencies haven’t been able to get to the bottom of this: “As investigators probed Cox & Kings, it appeared the 260-year-old company’s rapid collapse was the culmination of a years-long fraud. Police in India began summoning employees for questioning, including Cox & Kings’ finance manager, Sagar Deshpande.
One day in October 2020, they questioned him for three hours. He promised to return with more documents. “Then he vanished,” one officer says.
Days later, Deshpande’s body was found run over by a train on the tracks near his parked car in a Mumbai suburb. His uncle told local press at the time that his family suspected foul play. A three-month investigation by the railway police determined it an accidental death, probably suicide. Deshpande’s father declined to comment.
The police never got the documents they were promised but Deshpande’s death only darkened the mystery surrounding the company’s finances.”
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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
