Cased Based Assignment

On

Videocon Industries Limited :

Opting a Way of Consolidation

of

Materializing Dreams
 CONTENTS

TOPIC PAGE NO.

INTRODUCTION 1

PROBLEM IDENTIFICATION 4

ANALYSIS OF ISSUE 6

SOLUTIONS/SUGGESTIONS 8

ADDITIONAL READINGS 9

REFERENCES 10
 INTRODUCTION
The Consumer electronics industry is one that is continually growing and evolving.This
industry has seen exciting new developments in recent years and at a rapid pace.Products that
are included under the umbrella of Consumer Electronics are computers, laptops, tablets, cell
phones, T.Vs, cameras etc.Recent statistics show that sales of PCs and laptops is lower than
tablets. Usually smartphones with larger screens are preferred and in the world of T.V, LCD-
LED technology has gradually dominated the market.When looking at CE retailers,the
leaders in the U.S include Walmart,Amazon,Hewelett Packard. Leading tech brands include
Apple, Microsoft, Samsung,Lenovo just to name a few.

Indian appliance and consumer electronics market reached Rs.2.05 trillion (US$31.48
bn)in2017.It is expected to increase 9% CAGR to reach 3.15 trillion(US$48.37bn in
2022.Electronics hardware production in the country reached Rs. 3.88 tn in FY18.Demand
for electronics hardware in India is expected to reach US$400bn by FY24.There is a lot of
scope for growth from rural markets with consumption expected to grow in these areas as
penetration of brand increases. Ovrerall consumer durable exports reached0.78billion in
2017.CE exports from India reached US$362.12mn in FY18 and US$362.25 in FY19.White
goods in India is highly concentrated. In washing machines and refrigerators,top five players
have more than 75% market share while ACs have 55-60%.Large scale demand can be
generated by easing tax structure and encouraging financial institutions to provide easy
finance to the companies.The domestic electronics manufacturing ecosystem does not require
government subsidies. Instead it expects the government to be a catalyst for growth.The
government should reate an environment for the electronics industry to facilitate long-term
sustainable growth in line with the Make In India initiative.

1
Videocon Industries Limited is a conglomerate company headquartered in Mumbai.The
group has 17 manufacturing sites in India and plants in Mexico,Poland, Italy and China. It is
the third largest picture tube manufacturer in world.The company was founded in the year
1979 by Venugopal Dhoot who is the Chairman and MD .

Videocon is a company with operations in diverse areas like consumer electronics, home
appliances and entertainment. Their primary products are T.Vs,A.Cs,refrigerators and
washing machines. They recently got into direct digital broadcasting and cable networks and
also sell mobile phones and tablets.

The company registered an annual revenue of INR 30.72 billion and the CAGR predicted is
around 15% in the d2H segment. The company was setup almost 4 decades ago and started
off with T.V manufacturing. They have registered steep growth primarily because of their
strategy to look at diversified sectors. Currently,Videocon also has business interests in areas
like power,oil exploration and telecom.

Competitors: The main competitors of Videocon are Sony,Whirlpool,Samsung

,Airtel,Tatasky.

It was the first Indian company to adopt the strategy of multi-brands.It holds on ato a
combinedmarket share of around 19.6% with LG at 25.9% and Samsung at around 13.8%.

Its subsidiaries are :Kenstar,Videocon Telecom,Connect Broadband,Videocon Consumer

Electronics & Home Appliances,Kelvinator India,Electrolux India,Hyundai Electronics India.

Its revenue is Rs.12826.6 crore (US$1.95 billion as of 2017)

2
Its Net income is Rs.1915.67 crore (US$291 million as of 2017)

Its total assets is Rs.35738.5 crore (US$5.43 billion as of 2017)

Its total equity is Rs.8391.07 crore (US$1.27 billion as of 2017)

3
 PROBLEM IDENTIFICATION
=>Multi brand Strategy:Videocon group has realized the problems of having a multi –
brand strategy because it has its merits and demerits in its own. It is willing to meet the threat
posed by it through Consolidation strategy.Having several brands unless backed by constant
upgradation in technology and design would prove to be the burden to the company.

=>Reduction in number of branches:Videocon group was fragmented with many brands

and each of them run by separate teams which was not easy to consolidate and generate
efficiencies. It had to reduce in the number of branches from 160 across all the brands to just
46 and it reduced the number of warehouses from 200 to 50.

=>Addressing of various issues:It needs to address various issues such as should the
company be using comparative scaling techniques if it applies the brand shift in its favour as
a result of Consolidation Strategy.

=>Changes in organizational structure and values:It had to change its Organizational

Culture and various business activities for multi-brand concept to cope up with the
environment challenges of both internal and external.

=>Lack of investments:Having too many brands can be a problem as it requires huge

marketing investments and financial institutions should provide easy financing.

Scaling up of operations: Videocon has operations in various domains and there is high
competition in each of them. In order to be profitable, it may be necessary for the company to
scale up their operations which may be difficult for Videocon in its current scenario.

High stakes in consumer electronics: Videocon depends on the consumer electronics

division which sells T.Vs, washing machines, A.Cs etc and it contributes to almost 90% of
their profits. This is a highly competitive sector and thus the margins are lowering day by
day.

Over- dependence on oil and gas: Videocon is a debt –ridden company and is highly
dependent on their oil and gas business to clear off their debts. The company has debts of Rs.
27000 crores and the only profitable business for them is currently oil and gas.

=>Investment in unknown business areas: Videocon diversified into areas like

4
DTH , insurance and mobile phones which are not their core areas of expertise. Some of these
areas involve expensive licenses like telecom or financial services which are proving to be a
costly affair.It needs to meet the challenges in domestic market which has seen near eclipse
of domestic players in the consumer durable segment and strengthening of Korean majors
like LG and Samsung.

=>Increasing awareness of the products among customers:Since the awareness is

increasing among the customers.They prefer to buy those products which are affordable, easy
to use and the brand which has good reputation and the company must keep pace with the
changing technology and innovation.

=>Price Wars :With the increase in price wars due to the entry of new players in the market
and increase in manufacturing capacity by some original manufacturers, the profitability and
margins of the companies are adversely affected.Hence, companies need to increase focus on
product/ store differentiation to address various segmental specific needs.

5
 ANALYSIS OF ISSUE
=>Lack of distribution networks and logistics management: Getting stock into a store is
a massive challenge given the poor city roads and complex intra city transportation
regulations, high cost of moving goods between states, inefficient storage. It require an
efficient network system.

=>Supply chain issues: The existence of too many intermediaries in the supply chain
coupled with issues in logistics, management of data, distribution and inventory mgmt. eats
away the profits of the retailer making it unattractive for entrants.

=>Capital requirements and Economies of Scale: In case of retail stores, there is lack of
good distribution and network and lack of consumer buying patterns which calls for large
investment in distribution channels and research to improve the reach. Economies of scale is
required in as there are large fixed costs associatedwith setting up a manufacturing plant as
there are problems to infrastructure, a high cost of capital and continuous upgradation of
technical and managerial skills.

=>Threat of substitutes: The threat of substitutes for the manufacturers of these electronic
goods is medium to high unlike the case of white goods.As new technology enters the market
at increasing pace the manufacturer needs to understands the customer needs.For example:the
incorporation of camera in the mobile phones is definitely a threat to market of
camera.Hence, product innovatrions in this segment are very high and players in the industry
must keep a pace with it.

=>Intensity of rivalry amongst existing players:Though factors such as high transport and
storage cost, lack of differentiation,large investments and low switching costs tend to
intensify the rivalry.

=>Product differentiation:Though the awareness is increasing among the indian

customers,retailers and manufacturers are unable to increase brand loyalty.The Indian
consumer keeps hoping from one brand to another for good deals.

=>The demand for smart electronics continue to rise: Smart devices are great in
demand.However ,the challenge lies in the ability to get secure, scalable connected products
into consumer’s hands when for most manufacturers the connectivity aspect isn’t their core
6
expertise.

=>Uncertain demand: Aggregately, economic volatility and cyclical demand cause

fluctuations in production.On a more granular level,consumer preference can cause spikes in
demand for an individual product/company.Efficient lean capabilities must be in place to
keep inventoryaligned with demand.

=>Shrinking operating margins: Global competition and new innovations are driving
prices down.Companies must continually become more cost- efficient to remain profitable.

=>Service and Warranty Management:Leveraging the global supply chain is putting more
focuson supplier quality management. Having a strong quality and traceability system
directly warranty and post- production service hours.

=>The sharp depreciation of rupee is exerting pressure on cost of inputs:Some problems

related to the industry can be tackled but those related to the govt. policies and other external
environment are difficult to handle.

7
 SOLUTIONS
=>Ease of manufacturing: can be achieved through providing easy access to skilled
manpower,providing better connectivity through roads and railways to reduce transit time and
logistics costs in industrial corridors and by creating a strong intellectual property rights
framework for IoT, among others.

=>Huge potential to expand owing to low market penetration in India: Some untapped
parts/places are still a huge potential in India.

=>Strategic partnerships will help electronics manufacturers control costs:Many

electronic manufacturing companies are expanding into new services. The more services
EMS providers offer, the more they move into new models of joint design manufacturing and
outsourced design manufacturing.

=>There’s a push for energy efficient electronics to produce devices that consumes less
energy:Environmental concerns are paramount not only during the manufacturing process
but also throughout the lifespan of devices.Reducing energy consumption is an effective way
to cut costs leading both businesses and consumers to adopt much greener ways and
affordable products.

=>Electronic manufacturers needs to put more emphasis on logistics for rapid

delivery:Manufacturers need to continue to invest in logistics efficiency to keep up with
competitors.This requires more factory spaceand time to ensure that it can expedite the
delivery of their products.

=>Manpower shortage needs to be overcome: There is lack of talent in consumer

electronics retailing. Retailers need to spend heavily on training its sales force to match the
expectations of the Indian Consumers both in terms of technical knowledge and soft skills.

8
 ADDITIONAL READINGS
The financial express states that “the consumer durables major Videocon would face post its
$ 730 mn acquisition of South Korea’s ailing Daewoo Electronics is that of integration as
happens with all global mergers and acquisitions”.According to research Videocon would be
facing major challenges in domestic market because of its Korean competitors like Samsung
and LG.

According to some articles in Zeebusiness , Videocon met huge losses in Telecom Venture
due to 2G scam in 2012 that revoked Videocon Telecom’s 21 licences.Videocon Industries’
television manufacturing business had to face challenges because of competition presented by
cheaper Korean brands as well as the swift and technological changes in the TV industry
from glass shell to LED.

According to articles in Business Today, Diversification into Oil and Gas worked well for
Videocon Group.In 2000s, they ventured globally acquiring stake in Oil blocks in Brazil,
Oman,Australia and some other parts of the world. In 2013, they made loan repayments by
selling gas assets for $2.5bn. Videocon Oil fields in Indonesia and Brazil are valued at $12bn.

According to article in Business Standard, it states that “debt-ridden Videocon Industries

reported a net loss of Rs.1023.08 crore for the third quarter of the current fiscal”.Due to this
its total income fell sharply to Rs.223.73crore during the October-December of 2018-19 from
Rs. 864.34crore in the previous year.It is also seeking NCLT to consolidate all the 14 group
subsidiaries under one financial entity.Since it will help in maximising the value of assets and
all stakeholders will benefit from it.

9
 REFERENCES
https://www.pannam.com

https://www.manufacturing.com

https://blog.lnsresearch.com

10