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A Strategic product of Sylloge Corporation Confidential

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11/02/2007

Videocon Picturing Moves


In the 90s, with its bulwark of world-class consumer durables, and sharp strategising, Videocon thwarted international rivals annexation run through the Indian market. Now, in one triumphant sweep, it has secured a durable place among the most distinguished players on the M&A front. Two bold acquisitions, and a foray into oil & gas business, have invested Videocon with the clarity purpose to set a daringly expansive picture of its future. With its current market capitalisation of more than USD 2 billion, Videocon is Indias No. 1 consumer electronics and home appliances company. It has recorded up to 80 per cent penetration in the domestic market. Now, as one of the worlds fastest growing corporate prodigies, the group visualises itself becoming a USD 10 billion truly Indian multinational by 2010. That aspiration has a specific inbuilt goal: to stand among the Top 5 global players in branded consumer electronics and contract manufacturing sectors. As Videocon turns its sights on the world, it surveys the domestic domain as the indisputable leader, with a 30 per cent market share. Surging ahead with backward integration In 2005, Videocon acquired the colour picture tube (CPT) manufacturing business of Thomson SA, a French multimedia and entertainment conglomerate. The deal, settled for Rs 1,280 crore, made Videocon the worlds third largest manufacturer of CPTs and buttressed its reputation as the leading innovator of products such as slim CPT, extra slim CPT, and high definition 16:9 format CPT. Today, Videocon turn outs an extraordinary 22.1 million colour tubes per annum, and 32 million colour picture tube glass panels per annum in India and Poland. Its spectacular production capacity of consumer durables is just as impressive: 5.6 million colour TVs, 2.5 million refrigerators, 1 million washing machines, and 3 lakh air-conditioners. A further complement of 1 lakh air-conditioners is manufactured in Oman. Videocon has created a highly refined supply chain that is strengthened by its integrated operations. The company mines sand to produce glass, channels its own expertise and resources to manufacture CPTs, electron guns, and masks. The all-encompassing nature of its operations has inspired the Videocon credo: One of the few companies in the world to convert sand into TV. Videocons cost and quality advantage also derives from its full-fledged capacity to manufacture components such as compressors, printed circuit boards, and shells for picture tubes. The group runs an ultra-modern glass shell production facilities in Poland and India. At 91 per cent, the yield at the Indian centre at Bharuch represents the worlds highest per unit of investment. And in absolute terms, Videocon is one of the largest producers of picture tube glass shells in the world. The consummately conceived backward-integration process has empowered Videocons successful challenge to international competitors and fortified its position as a formidable Indian presence against latters corporate raids. In fact, in certain areas Videocon is

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A Strategic product of Sylloge Corporation Confidential

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11/02/2007

seizing turf from some of its adversaries abroad. The Thomson acquisition has provided Videocon with a grip on manufacture of plasma and LCD panels through an Italian facility. It has also accelerated its flat-panel products sale, which is now closing in on CRT (cathode ray tube)-TV sales in Europe. Videocon has plans to make 6 million CPTs for Chinese TV manufacturers, and is contemplating the production of air-conditioners in Italy and Mexico. Dramatic spike in revenues Videcon made its position impregnable against international threats within a month of taking over Thomsons CPT business. In July 2005, it bought out 91.85 stake in Swedish major AB Electroluxs (ABE) Indian subsidiary Electrolux Kelvinator, thus securing the right to license the worlds largest consumer goods brand in India. The deal affords Videocon the leverage to market Kelvinator and Allwyn brands across India and South Asia. The Electrolux agreement is also expected to pave the way for the launch of a highly advanced generation of TVs, refrigerators, washing machines, and other home appliances. The Thomson takeover extended Videocons infrastructure network by granting it ownership of state-of-the-art production facilities in Mexico, Poland, China, and Italy. The cutting-edge R&D units in last three centres, and tie-ups with pioneering development labs in India and Japan, add heft to Videocons innovation muscle. The groups research concentration is on the swiftly proliferating market of display technologies. For the time being, it efforts centre on CRTs (Braun Tubes), and emerging flat-panel system like Liquid Crystal Display (LCD) and Organic Light Emitting Diode Source (OLED). The acquisitions also boosted Videocons revenue threefold, from Rs 6,000 crore to Rs 17,000 crore. In accordance with the provisos of the deal, Thomson invested 225 million euros for a 14 per cent stake in Videocon Industries, and 15 million euros for a stake of the same quantum in Videcon international. ABE, for its part, has pumped in Rs 415 crore for a 5 per cent stake in Videocon Industries. As for financials, Videocons numbers look robust: for year ending on September 2006, the companys net profit was Rs 875 crore, more than double the figure (Rs 431 crore) recorded in the same period in the previous year. The picture of Videocons destiny became clearer than ever, and it looks vigorously heartening. Excavating riches with oil Videocons oil foray began with the Ravva field in Andhra Pradesh, a JV with UK major Cairn Energy, which yielded 35,000 barrels per day when production began in 1996. The reserves at the field are estimated to be 140 million barrels of oil and gas equivalent. The premium light crude is delivered to such key refineries as HPCL and GAIL, the revenues representing up to 12 per cent of Videocons oil & gas income.

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In April 2006, Videocon joined a consortium comprising GAIL, BPCL, HPCL, and Oilex of Australia, to explore and develop resources in an Oman block estimated to hold over 4 billion barrels of oil. The group has also tied up with Oilex, securing a 20 per cent participating interest, for exploratory initiatives in and around Australia. Fuelling Indias self-sufficiency As of now, Videocon produces some 50,000 barrels per day, which accounts for almost 8 per cent of Indias total output. The companys energetic endeavour to expand its oil business across the world is calibrated by its awareness that 70 per cent of the crude used in India is imported. As a truly Indian multinational, Videocon not only aspires to drill its authority in international markets, but also to offset the import burden placed on a critical resource. The mission envisages Videocon widening its reach to Egypt, Yemen, and Malaysia. The group also intends to intensify exploration in the Indian Ocean rim. Deploying a considered strategy of well-phased growth in the oil & gas sector, Videocon is poised to realise its goal of assuming the operators role in the near future. Professionalism with family values That Videocon has not been unsettled by its remarkable growth is a reflection of its exceptional ethos that values both stability of thought and flexibility of approach. The owners of the group CMD Vengugopal Dhoot; Rajkumar Dhoot, in charge of Delhi operations; and Pradeepkumar Dhoot, who handles international affairs attach a high premium to contrarian creative opinions. That implies the willingness to expand the horizon of inspiration beyond propriety vistas. As a professionally run organisation Videocon benefits from the experience and expertise of some of the most feted experts in various corporate roles. Vengugopal Dhoot has said, The Dhoots dont run the company, our people do. The autonomy enjoyed by Videocon top brass perhaps explains the swathes of influence the group has cut for itself in the international arena. The CMD leads from the front in conceptualising the deft manoeuvres meant to negotiate the challenges on the way to Goal 2010. Believing as he does that bar has be raised each time a new peak is conquered, Dhoot does not shirk from charging down unknown terrains. But Videocon always has an astute contingency plan for such explorations. Embracing corporate responsibility Videocon is uncompromising in fulfilling its role as a responsible corporate citizen. Proud of its Indian roots, the group is driven by the belief that the country can stand honourably among the worlds superpowers only if its society is enlivened by wholesomeness and self-assurance. Videocon has launched a series of scrupulously well-planned initiatives to give back to Indian people some measure of the consideration they have been showing to the group. Videocons community outreach programmes designed enhance quality of life span such critical aspects of societal wellbeing as education, healthcare, sports, and environment.

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The group runs a school in Gangapur for underprivileged girls, which has facilities that many illustrious international institutions would consider a model for emulation. The school is committed to providing education and life skills that will enable students to build an exemplary future for themselves, and to contribute to Indias growing confidence. Videocon also operates a state-of-the-art, and completely charitable, hospital for those who need specialised healthcare but cannot afford it. Doctors at the hospital include renowned oncologists and cardiologists; renowned that is, for their world-class capability as much for their commitment to social uplift. Millions of the groups TVs beam live telecasts of Indias most secular religion: cricket. The Videocon School of Cricket, launched in Kolkata for budding cricketers in the 10 to 17 age group, is an attempt to spread the good word and the indescribable bliss that the game of glorious uncertainties always delivers! Reliable and responsive Videocons people-first approach has been consistently rewarded. It is consumers unstinting acceptance of the brand that has put the group in a position that many brash rivals will now envy. Videocons extraordinary achievement of operational synergy has shored up its know-how that now straddles such disciplines as industrial design, rendering, procurement of raw materials, and component manufacturing. The group has 17 factories in India, supported by a logistic matrix that covers East Asia, Europe, and the Middle East. Videocon safeguarded the consumers interest by creating a reliable and responsive distribution and dealership network. By entering into alliances with brands such as Akai, Sansui, and Kenwood the group kept its own dominance intact. Indeed, with the multibrand strategy, Videocon held its own (with 29 per cent market share) in the face of onslaught by Korean giants LG (which garnered 26 per cent) and Samsung (24 per cent) In the end, Videocons intricate corporate game-plan involving a ten-brand presence in the domestic market assured the fulfilment of varied needs of disparate consumer sections. The brand basket is also a rich repository of a wide range of products, from high-end Plasmas to the modest microwave oven. Besides, the Thomson acquisition has brought Videocon thousands of patents. Moreover, the group has undertaken the implementation of mySAP across all its Indian facilities, and is launched a campaign to benefit from the Six Sigma efficiency. The Indian multinational looks set to enrich your entertainment, and everyday, experience in every way!

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