The Rise and Fall of Videocon

From BnW to Colour TVs to LCD/LED to Smart TVs- the evolution of the television has been quite a journey! But did you know that Videocon was the first company to launch colour TVs in India in 1982? Without Videocon’s colour TVs, modern-day android TVs would have been a distant dream for us.

Anyway, this company is shutting down soon as it was dragged to the NCLT for insolvency proceedings in 2018. And so, it becomes imperative for us to look at how a pioneer of this amazing invention is approaching its doomsday.

About Videocon Pvt. Ltd

Videocon Industries was founded in 1979 by Venugopal Dhoot with its headquarters in Mumbai. It initially started dealing in consumer electronics and home appliances such as mobile phones, colour TVs, air conditioners. After becoming a popular brand in these sectors, they became a conglomerate and diversified their business in Oil and Gas, Telecom, and DTH Services.

Beginning of the End

The downfall of Videocon derives its traces from a time when there was an immense capital requirement in the television and allied sectors, but the returns were not adequate to control the debt. So, it made business sense for Videocon to diversify into unexplored territories. This diversification led to aggressive borrowings for the company, which led them into a debt trap in a span of 10 years.

Despite becoming a conglomerate, only the consumer electronics segment of Videocon could sail its boat forward. But, even their life-saver started to deteriorate with time due to increased competition and saturation in this market. 

Hence, the company then tried to control their debts by divesting their business. They merged their DTH Services with Dish TV. They even sold their gas fields. Airtel acquired their telecom business. But, it was all too late to have any effect. 

Current Status of Videocon

Videocon’s current financial performance is showing a rather depressing picture:

• The Sales growth has declined 50% over the past 5 years.

• The company stopped being profitable in FY 2014 and its profitability has been reducing at a massive 300% over the past 5 years.

• The promoters (holding around 40.6% of total shares) have pledged 98.8% of their equity.

• The Operating Cash Flows have also become negative since FY 2018.

Continuous Involvement in Scams

Even when the company was at the doors of NCLT for insolvency, the FIR registered by CBI just broke their left-over reputation. It was due to the irregularities in loans sanctioned by ICICI Bank in 2012, when Chanda Kochar was the CEO of the bank. She and her husband got a part of the loan as a bribe by the promoter Venugopal Dhoot.

As mentioned above, the CBI alleged irregularities in the acquisition of the 10% stake in the Golfinho-Atum oil and gas field by Videocon in 2008. The inquiry revealed that a consortium led by SBI sanctioned a loan of $2773.6 Million to Videocon for these bids. CBI alleged that the loan amount was siphoned to other accounts and businesses.

Also, the company lost nearly Rs 21000 Crore in the 2G Spectrum Scam after its licences were revoked by Supreme Court in 2012. It made the telecom business unfeasible and forced it to sell the spectrum to Bharti Airtel, to recover damages to some extent.

The Insolvency of Videocon

Videocon was finally admitted to the NCLT for insolvency proceedings in 2018. The total claims among the different Videocon Group companies totalled a massive Rs 88000 Crore, thus breaking all records of bankruptcy cases seen so far. You might be thinking that if the process commenced in 2018, it should have been finished by now.

But how can we expect anything else when this large group of 13 companies is becoming insolvent. Thirteen insolvency proceedings will take a lot of time. And the Covid-19 pandemic has further added to the delay in these proceedings.

Moreover, some loans were taken jointly by the companies, but they tried to resolve things individually. Imagine the lender’s reaction while giving the loan to this big group and later being approached by individual subsidiaries informing that they have all become insolvent. You will sympathize with them. Further, this entire fiasco led to the double-counting of claims. It created more confusion than the movie Inception!

Meanwhile, the lenders tried to sell overseas oil assets. But the promoter Venugopal Dhoot opposed it by contending that it belonged to foreign subsidiaries, which is not insolvent. The Supreme Court accepted his plea, ensuring that the foreign companies were safeguarded to some extent.

The court decided to consolidate the companies and initiate a combined trial. The creditors have accepted the proposal submitted by Twinstar Holdings Limited, a Vedanta Group Company for Rs 5000-6000 crore, which is around only 16-20% of the total dues of lenders.

Closing Words

The Videocon Group, once a pioneer of colour TVs is now on the verge of getting liquidated. Its downfall started with its decision to diversify its business into various sectors, by taking a lot of debt and not using leverage efficiently. It might not have been the case if they had made their dominant consumer electronic sector better instead of taking a substantial risk and subsequently selling other businesses. But “the biggest risk is not taking any risk.” Right?

Anyway, the current performance is becoming worse with negative cash flows, extensive sales and profit decline, and the never-ending debt. Besides being financially embarrassed, their image has also deteriorated with their involvement in many scams, with ICICI Loan Scam being the most notorious one.

Videocon claimed bankruptcy under the Insolvency and Bankruptcy Code in 2018. But several complications concerning loans have led to delay in the process. As of now, the Vedanta Group is taking over the insolvent Videocon Group. But the legalities have not been finished yet.

Maybe this time, a saviour will bring in a turnaround for Videocon.