Oil & gas, telecom add to Videocon's debt overhang

Debt levels are high at Rs 22,669 cr on a standalone and Rs 40,148 cr on a consolidated basis, largely due to diversification into areas such as oil & gas, telecom & power

Best known for consumer durable and electronic products in India, Aurangabad-registered Videocon, whose consolidated net sales according to its last annual report was at Rs 20,462 crore, has significantly high debt on its books.

The group, which has corporate offices in Mumbai and Delhi, was in the news last week for issuing notices to shareholders for seeking their approval to convert some part of its debt into equity in an extra-ordinary general meeting on October 12.

The firm clarified on September 28 it was simply complying with regulatory provisions under Section 62 (3) of the Companies Act, 2013, and that there were no plans to convert debt into equity.

Despite this, it is worth noting here that Videocon's total debt on a standalone basis was Rs 22,669 crore, while on a consolidated basis it was Rs 40,148 crore, according to its December 2014 annual report. Its debt-equity ratio was 2.19 (standalone) and 3.93 (consolidated), according to the annual report, implying Videocon was fairly leveraged as a firm. While these ratios hardly offer any comfort to shareholders, analysts say debt was largely taken by Videocon to fuel its diversification into areas such as oil & gas, telecom and power in the past few years. These businesses, however, are yet to make significant money for the group. Its flagship consumer durables and electronics business is estimated to be giving it 90 per cent of its top line, according to analysts.

Direct-to-home (DTH), which was listed recently on the Nasdaq following a Rs 2,015-crore issue of American Depository Receipts to US-based Silver Eagle Acquisition Corporation, is also stable with a gross subscriber base of 11.8 million and a market share of 16.5 per cent, according to industry estimates. Listed competitors include Dish TV in India.

Videocon's chairman Venugopal Dhoot (pictured), in fact, had said the firm had plans to list its DTH business in India, for which it was seeking a fresh approval from markets regulator Securities and Exchange Board of India. There have been no developments on that front. There has also been no news on its attempts to list its oil & gas business separately on the London Stock Exchange.

"Oil & gas was a bet that Videocon took about 20 years ago. So far, it has largely been about them making investments in lucrative blocks. In telecom, the firm saw its second-generation licenses cancelled by the Supreme Court in 2012. It began afresh in 2013 after winning spectrum in seven circles. So, that business is also not big," head of a domestic brokerage house said.  Videocon has operations in Punjab, Haryana, Madhya Pradesh, Chattisgarh, Gujarat and Uttar Pradesh as a telecom player. It has a permit to operate in Bihar as well, but is yet to start its operations there.

On oil & gas, the firm began as a 25 per cent non-operating partner in a production-sharing contract for the Ravva oil and gas offshore block, off Kakinada in Andhra Pradesh, in 1994.

Today, Videocon has investments in blocks across countries such as Brazil, Indonesia, Australia and East Timor.

While the company sold 10 per cent stake in a giant gas field off Mozambique for $2.475 billion (Rs 15,000 crore) to Oil and Natural Gas Corporation and Oil India Ltd last year, its investments in other blocks could have suffered in terms of valuation due to falling crude oil and natural gas prices.

In an earlier interaction with Business Standard, Dhoot had said proceeds of the stake sale in Mozambique would go in retiring debt. The firm is also "unlocking value" in other businesses such as insurance, where it has a joint venture with Liberty Mutual, in a bid to bring down debt.