Videocon, A Consumer Electronics Maker Buried Under Oil And Telecom Debt  

After three decades and two mega bets on telecom and oil, Videocon Industries Ltd. still largely remains a maker of televisions and home appliances.

Its wireless operations have failed and Rs 22,000-crore oil assets are yet to bring in any significant revenue, leaving the group buried under debt. While Videocon hasn’t disclosed its consolidated earnings for nearly two years, a Care Ratings report released in June last year pegged its debt burden at over Rs 43,000 crore. More than half of it is dollar- denominated, borrowed from Standard Chartered, Bank of America Merrill Lynch and Deutsche Bank, Venugopal Dhoot, chairman and managing director of Videocon Industries, said in a phone interview with BloombergQuint.

The group is finding it difficult to repay loans. Public sector lender Dena Bank Ltd. classified it as a non-performing asset in May, which means it had delayed payments for more than 90 days. Its shares have since plunged more than 72 percent.

“There is stress on the balance sheet. We have asked domestic lenders to restructure loans without haircuts. We want the tenure and interest rates to be adjusted,” Dhoot said. “Except for the default to Dena Bank, we haven't delayed payments to any bank beyond 90 days,” he said.

Videocon, which traces its origins to 1950s, started making televisions and appliances in late 1980s. As India opened up its economy, it diversified into oil and gas in 1994 by signing a production sharing contract for the RAVVA oil and gas field off Andhra Pradesh along India’s east coast. Dhoot later acquired interests in oilfields in countries like Oman, Indonesia and Brazil, Mozambique and East Timor, running overseas operations through a Cayman Islands subsidiary, Videocon Hydrocarbon Holdings Ltd.

In 2008, he made his second big bet. Videocon was granted unified access services licences for 21 circles and won spectrum in 20 circles. And like many other companies that acquired permits along with it, troubles began four years later. The Supreme Court quashed all licences in the 2G spectrum allotment scam in 2012. Videocon was left with liberalised airwaves in six circles, which it sold to Bharti Airtel Ltd. for Rs 4,428 crore in May last year. The telecom arm had a total debt and bank guarantees of Rs 3,207 crore as of April, Care Ratings said in another report.

The company delayed repayments as it battled losses after cancelled permits forced it to shut operations in eight circles, the agency said.

What compounded the group’s woes was the end of the last oil boom. Videocon had acquired oil interests globally as Brent crude prices kept surging for more than a decade, barring a blip after the collapse of investment bank Lehman’s Brothers in 2008. The rally fizzled three years ago as demand fell and output remained high. Since its last peak in 2014, Brent has declined by more than half to trade at $48.

Oil and gas was Videocon’s biggest investment and it transformed from a consumer durables maker to an energy company, a spokesperson for Care Ratings told BloombergQuint. Yet, production has been delayed due to falling crude prices, the spokesperson said.

It’s no longer viable to start producing crude at lower prices. At the end of December 2015, Videocon’s energy unit had a debt worth Rs 19,073 crore. According to Dhoot, the segment’s debt is equivalent to Rs 22,000-crore investments.

“The company continues to remain exposed to high project execution risk and large investments necessary for commercialising oil and gas discoveries, translating into a leveraged capital structure,” said Care Ratings, while suspending its coverage on the company.

Dhoot doesn't completely agree with it. While oil prices have fallen, the cost of exploration and production too has come down, he said. The oil assets will start pumping crude shorty, he said. The group chairman, however, refused to give any time frame.

Six-Fold Jump In Debt In A Decade

Videocon’s debt rose six-fold since its telecom foray in 2008 to over Rs 45,000 crore till December 2014, according to a Credit Suisse report. The company sold its 10 percent interest in the Mozambique gas project to Oil and Natural Gas Corporation Ltd. in 2013 for $2.4 billion to pare the burden. It also sold majority stake in its direct-to-home business to Dish TV last November in a merger that will create one of India's largest pay TV services provider. Still, the debt burden has fallen only marginally.

Videocon extended its last 12-month reporting cycle till March 31 this year, making it a 15-month financial year. It posted a standalone net loss of Rs 1,916 crore during the period, while standalone debt stood at Rs 19,506 crore. Dhoot pegs the number at Rs 21,000 crore. The company hasn’t released consolidated financials since December 2015.

Consumer Electronics

More than 90 percent of the company’s standalone revenue comes from consumer durables, according to its last consolidated filings two years ago. Other businesses contribute less than a tenth to the group’s sales. While Dhoot said it’s not under stress, the standalone operating profit of the mainstay business fell 85 percent to Rs 192 crore for the 15-month period ended March, according to its filings.

Indian players in consumer durables have not been able to shore up market share. The Care Rating spokesperson said Korean behemoths like Samsung and LG have taken over due to superior technology.

And even as the company’s businesses struggle, Dhoot is banking on Videocon’s real estate assets to bail out the group. “We have real estate assets worth Rs 10,000 crore that we can monetise to reduce leverage,” he said, without giving details.