Products/Services off ered by Videocon – Economic perspecti ve

Videocon offers a wide range of products from television to DVD players. The range includes washing machines, Air conditioners
refrigerators, microwave ovens, mobile phones, D2H, and home theaters. The
revenue began to drop considerably in all departments from all the mentioned
sectors in 2017 (Fig 3.1). [1]

The highest market revenue and share were from consumer electronics and home
appliances, which accounted for 167 billion rupees in 2013. [1] A significant amount
of revenue was from multiple sectors, i.e., crude oil & natural gas and
Telecommunications. The revenue from these departments accounted for 25 billion
rupees in 2013.[1]

Fig 3.1
Videocon owned 34% of the market share of the entire refrigerator market in India during 2005-13, and it had a stronghold in
the consumer electronics and telecommunication market.

Revenue/Sales and Elasti city

India owns the 2nd  largest telecommunication market and has the 2nd highest number of cyberspace users in the world. The
revenue from the telecom sector is quite consistent, with over 30 – 40 billion US$ each year from 2016 (Fig 3.2).   [2] The revenue
did not see a downfall in 2021 even though the entire world was undergoing an economic crisis due to Covid-19.   [2] It was stable
at around 35-37 billion US$ in 2020 -21 (Fig 3.2).

The objective of this project is to analyze how a telecom company, i.e., Videocon which had 9748 Cr revenue and 1294 Cr profit in
2008 hit the rock-bottom in 2017 due to poor economic management decisions. Videocon had revenue of 12132 Cr in 2017, and
it fell to 1062 Cr in 2019. However, the company had been facing losses since 2016. The company faced a loss of 60 Cr in 2016,
and it increased to 2080 Cr in 2017, and further escalated to 6760 Cr in 2019. [3]

Even though the market for the telecom industry was stable since 2016 (Fig 3.2). Videocon revenue began to fall during this
period. Its revenue from telecommunication fell from 2028 million US$ to 422.86 million US$ in 2016 i.e., over 75% drop in
revenue in 2016 from 2015 (Fig 3.3).  [4]

Fig 3.2 Fig 3.3

Price elasticity of demand is the measure of percentage change in quantity demanded resulting from 1% increase in price.
According to an investigative report from Kapoor in 2012, TRAI didn’t consider the price elasticity of demand in 2002, and when
the price goes up consumption comes down. [5]  TRAI made an assumption that consumption will remain constant when the prices
go up. It led to the famous scam 2G allegation in 2002.[5]

TRAI proposed a 2 paise assumption in 2002, which was inconsiderate of the price elasticity of demand. The actual price should
have been 30 Paise with the consideration of the elasticity of demand. [5]
Demand and Supply

The telecom industry is facing a robust demand for a decade with a large number of new customers from the rural sector.
According to the data from Indian brand equity foundation of the Telecommunication sector, the tele density of the rural sector
stands at 44% in December 2021.[6]

The annual demand for the DTH service sector had been consistently increasing, and in fact, it had a 400% overall growth in
subscriber base from 2010-18 DTH according to the data from Telecom regulatory authority of India (TRAI). [7]  The demand for
Telecom is going to increase exponentially in subsequent years as per the forecasting done by TRAI.

The demand curve shifts to right due to an increase in demand as large number of rural populations are getting into the telecom
market. People will start demanding more quantity and the price is bound to increase from P1 to P2 (Fig 3.3) as the demand
quantity increase from Q1 to Q2 (Fig 3.4). Since the market had very limited players, it was the perfect opportunity for the limited
players to cash in. However, due to poor economic decisions from, Videocon failed to capture the demand market. [8]

The DTH subscription was constantly increasing and the demand-supply gap was fulfilled by the arrival of competitors such as
Tata Sky, Sun Direct, etc. Videocon couldn’t capture this existing demand-supply gap, and the industry had to undergo a
complete shutdown in 2018 due to the debt trap that the company had undergone.

Fig 3.4

The company’s market share dropped from 11% in 2011 to 0.65 % in 2017-18 (Fig 3.6) during this period. [9] The company was
not able to supply for the demand and eventually succumbed and collapsed.

Fig 3.5 Fig 3.6

The company liabilities were increasing due to its debt and the company was not able to bear the minimum average variable
costs and total costs, the company went below the shutdown point and eventually got shut down in 2018 (Fig 3.5).  [10]   

References
[1] https://indiahousing.com/electronics/videocon.html
[2] https://www.ibef.org/download/1650606071_Telecommunications-March-2022-min.pdf

[3] https://www.moneycontrol.com/financials/videoconindustries/profit-lossVI/VLF/1#VLF

[4] https://www.statista.com/statistics/719400/india-revenue-generated-by-videocon/

[5] https://economictimes.indiatimes.com/industry/telecom/telecom-ceos-warn-mobile-tariffs-may double/articleshow/13051258.cms?

from=mdr

[6] https://www.ibef.org/industry/telecommunications

[7] https://www.trai.gov.in/sites/default/files/Annual_Report_21022019.pdf

[8] https://www.econport.org/content/handbook/Equilibrium/shifts-graph.html

[9] https://www.business-standard.com/article/companies/videocon-s-telecom-gamble-112112300018_1.html

[10] https://courses.lumenlearning.com/suny-microeconomics/chapter/the-shutdown-point/