How Videocon turned from making Rs 800 crore profit to a debt-ridden firm
Videocon Industries was admitted by the National Company Law Tribunal (NCLT) for insolvency proceedings yesterday. The first homegrown consumer durables company in India owes a consortium of banks led by the State Bank of India (SBI) around Rs 20,000 crore. The tribunal reportedly appointed KPMG's Anuj Jain as the interim resolution professional.
To remind you, in early January, the country's largest state-run lender State Bank of India (SBI) had filed separate insolvency proceedings against two Videocon group companies, which were part of the second list of big corporate defaulters put out by the Reserve Bank of India (RBI). However, before it was admitted in NCLT, Videocon approached the Bombay High Court against SBI and RBI, and sought a stay on the move. The litigation drama over, the ball is now finally in NCLT's court.
According to The Times of India, while the bankruptcy court admitted the petition against Videocon Industries, the action will not cover its subsidiary Videocon Oil Ventures that has taken loans of around Rs 12,000 crore and owns assets in Brazil and other countries. Besides, the NCLT is due to hear a petition against Videocon Telecom today, which has a debt of around Rs 2,000-3,000 crore. The daily added that several companies of the Videocon Group, with a consolidated debt of around Rs 44,000 crore, face similar action.
Hard to remember now that Videocon was once a profitable brand. In three consecutive financial years until September 2008, Videocon's India business registered standalone profits of over Rs 800 crore, thanks to the focused approach in the consumer electronics business. Videocon's debt surged because of its failed telecom services business - it lost about Rs 7,000 crore in telecom - and the picture tube plant modernisation in Gujarat that cost Rs 4,000 crore. Meanwhile, the flagship consumer durables business was losing the technological battle against global rivals like LG and Samsung.
Over time, the market value of the fridge-to-phone company tumbled way down to Rs 600 crore. The decline started with Dena Bank classifying its Rs 520 crore loan to Videocon as an NPA in the quarter ending March 2017. The stock lost 42 per cent in the next three trading days.
But the company is still hoping to escape the insolvency process. Venugopal Dhoot, chairman of Videocon Industries told the daily that he is hoping to use a new provision - a part of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, that President Ram Nath Kovind gave his assent to yesterday - which allows a case to be withdrawn after its admission to NCLT provided 90 per cent of the creditors agree. "In our case, 100 per cent lenders had said that they do not want our company to go to NCLT," Dhoot told the daily, adding that they plan to use the Ordinance to acquire the smaller companies on the basis that they are SMEs, where promoters are allowed to bid. "If the process does go through, lenders will recover 75-80 per cent of the value of the loans. Property itself is valued at Rs 8,000 crore, we have 17 manufacturing units, we have a strong brand and a very good network of showrooms," he added.
Reacting to the news, Videocon Industries shares closed 4.7 per cent lower at Rs 9.07 on the BSE yesterday, and opened even lower at Rs 9 apiece today.