From its heydays as the market leader in the consumer durables industry in the nineties, the fortunes of Videocon Industries have declined dramatically in recent years.
The company was referred to the National Company Law Tribunal (NCLT) on Wednesday for debt resolution — culminating its four-decade journey in the Indian corporate sector.
While the company has blamed the cancellation of its nationwide second-generation wireless telephony licence by the Supreme Court in 2012, falling oil prices in the recent years have added to its misery. “With a new Ordinance in place, we expect to exit the IBC process as soon as 90 per cent of our lenders agree to the withdrawal.
The company’s track record in repaying bank debt worth Rs 210 billion (Rs 44.8 billion consolidated) till March 2017 was good and since then it was just a one-way journey downhill as banks refused to lend to the company after a default to Dena Bank.
The company has paid Rs 188 billion as interest to banks in the last five years, according to data submitted to the stock exchanges even as its sales and profits declined (see chart).
Analysts said the cancellation of 2G licenses affected the company’s financials and it had to sell its assets to repay debt. In January 2014, Videocon concluded the sale of its 10 per cent stake in a Mozambique gas field for $2.45 billion to Oil India and ONGC Videsh.
The company used the proceeds to repay loans to foreign and Indian banks. It also sold its Kenstar brand in 2017 and in the same year sold its headquarters at Fort, Mumbai, to raise another Rs 3 billion.
Analysts said after the company exited the NCLT, the first priority of the management would be to arrest the financial decline as demand for its products had slumped with nimble competitors taking shelf space vacated by the company.
“The Samsungs and LGs of the world have taken a lead in the last 10 years and the Videocon brand is not getting the shelf space in many metro cities,” said an analyst. “What the company requires is a good product line and leadership,” he added.
While Samsung earns a substantial part of its profits and revenue by selling mobile phones, LG has focused on quality, which is driving its sales. Smaller rivals Voltas and Whirlpool also gained market share in the last five years, say industry analysts.
Brazil oil blocks
The company now has pinned its hopes on its Brazilian oil blocks that are housed in its oil subsidiary. “We will sell stakes in these oil blocks to repay loans of Indian banks. Rising oil prices will help us to get a better valuation,” Dhoot said.
The company’s first priority will be to exit the NCLT so that it can focus on re-building its business, which was affected by the Reserve Bank of India’s move to recommend the company to the NCLT under the Insolvency and Bankruptcy Code.
The company was among 40 companies identified by the RBI in its two lists for referral to the NCLT.
Once out of the NCLT and after selling the Brazil assets, the company says it will fight to gain market share in the consumer durables sector. Can it regain the magic of the nineties? That is a billion-dollar question.