The Rise and Fall of Videocon: A Detailed Account of Its Success and Decline

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, having been 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 doom.

About Videocon Pvt. Ltd

Videocon Industries was founded in 1979 by Venugopal Dhoot, and its headquarters are in Mumbai. It initially started dealing in consumer electronics and home appliances such as mobile phones, colour TVs, and 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 over a span of 10 years.

Despite becoming a conglomerate, only Videocon's consumer electronics segment could propel the company forward. But even this lifesaver started to deteriorate with time due to increased competition and saturation in this market. 

Hence, the company tried to control its debts by divesting itself of its business. It merged its DTH Services with Dish TV and even sold its gas fields. Airtel acquired its 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 reduced by a massive 300% over the past five years.

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

• The operating cash flows have also been negative since FY 2018.

Continuous Involvement in Scams

Even when the company was at NCLT's doors for insolvency, the FIR registered by CBI just damaged its reputation. This was due to the irregularities in loans sanctioned by ICICI Bank in 2012 when Chanda Kochar was the bank's CEO. She and her husband got a part of the loan as a bribe from the promoter, Venugopal Dhoot.

As mentioned above, the CBI alleged irregularities in Videocon's 2008 acquisition of the 10% stake in the Golfinho-Atum oil and gas field. 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 the Supreme Court revoked its licences in 2012. This 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 ₹ 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 them 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 are 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 Twinstar Holdings Limited, a Vedanta Group Company, 's proposal for ₹ 5000-6000 crore, which is only 16-20% of the lenders' total dues.

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 getting worse, with negative cash flows, extensive sales and profit declines, and never-ending debt. Besides being financially embarrassed, their image has also deteriorated due to their involvement in many scams, the most notorious one being the ICICI Loan Scam.

Videocon filed for bankruptcy under the Insolvency and Bankruptcy Code in 2018. However, several complications concerning loans have delayed 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.