DOWNFALL OF VIDEOCON

ABOUT COMPANY:
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.

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.

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

Sector Current Status
Consumer It is still the best segment, but revenue has declined significantly.
Electronics
In June 2020, the CBI alleged irregularities in acquisition of stake
Oil and Gas
in the Golfinho-Atum field. The matter is under investigation.
After its 2G licence was cancelled in 2012 by the Supreme Court, it
has been non-operational. But it is providing B2B connectivity
Telecom
under National Long-Distance licence, as per Annual Report of FY
18-19.
DTH Services Merged with Dish TV in 2018.
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.

THE SHARE OF COMPANY @2002 IS RS 800 AT

THE TIME OF @2018 THE SHARE RS IS 3.

Now the share price is 7.25

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%
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.

MISTAKES:
 DIVERSIFICATION
 TOP LEVEL MANAGEMENT
 NOT TO TAKE THE PROPER ACTION AT THE
FIRST.

THANKING YOU