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Videocon plans telecom foray

February 12, 2007 16:25 IST
Way back in 1994, when licences for cellular services were being awarded, the Videocon group tried its luck but failed to bag even one.

"Our bids were too conservative," recalls an insider. Now thirteen years later, the group is once again trying to foray into the telecom space. And for this it has tied up with no less a player than international telecom major, Verizon.

Leo Communications, a group company has joined hands with Verizon Business, a division of the US-based $88.1 billion Verizon, for operating in the international long distance (ILD) space.

Videocon Industries chairman and MD, Venugopal Dhoot is not willing to comment, but insiders say a license has been applied for. The rationale: diversify the group's operations into a fast-growing sunrise sector like telecom. Currently, the flagship company Videocon Industries is into consumer electronics, household appliances and oil and gas.

Besides, teaming up with an international major like Verizon, one of  the largest wireless players in the US with 59.1 million wireless customers, senior executives believe, will give the group stature.

"It's useful to be associated in a joint venture with a world player like Verizon, because we can explore opportunities together," points out an insider.

Why Verizon has partnered the Videocon group, which has no expertise whatsoever in the field, is a bit of a mystery. But the group itself  harbours no illusions of being able to contribute very much to the venture. "It is Verizon that will bring everything to the table," concedes a senior executive.

Adds a management consultant, "What Videocon needs to do is to contribute 26 per cent to the equity of the new company. Other than that, it can help Verizon deal with the government and the bureaucracy." The initial investment has been pegged at around Rs 1200 crore, though senior executives say even that much might not be required.

With the Indian telephony sector booming, it's no surprise that Videocon wants a piece of the action. Diversification is not new to the group and has worked well for it in the past.

For instance, the group's entry into oil exploration -a completely unrelated  area--in the early nineties has paid off handsomely. Videocon, much like  Essar and Reliance entered the industry before the New Exploration Licensing Policy regime and over the years the business has grown steadily.

Today, the oil and gas business, housed in Videocon Industries, is the group's cash cow: while it accounted for just 19 per cent of domestic revenues of Rs 7,610 crore (Rs 76.10 billion) for the year ended September 2006, it contributed 47.4 per cent of profit before tax and interest. The oil and gas segment has actually helped the group through the bad times in the consumer electronics business.

Meanwhile, the domestic consumer electronics business is looking up -for the year ended September 2006, it turned in a profit before interest and tax of Rs 577.99 crore (Rs 5.77 billion) on revenues of Rs 6175.78 crore (Rs 61.75 billion). And the overseas units of Thomson too are doing well-net profits stood at around Rs 250 crore (Rs 2.5 billion) for the year ended September 2006 on revenues of Rs 6,600 crore (Rs 66 billion).

Dhoot has made an art of funding overseas acquisitions -the group paid no cash for either the acquisition of the Paris-headquartered Thomson' colour picture tube facility or the Sweden-based Electrolux's business in India.

Instead, Dhoot offered the companies stock and while Thomson picked up a 14 per cent in flagship Videocon Industries, Electrolux picked up a five per cent stake.

It might be difficult to pull off a similar deal for the ailing $3 billion Daewoo Electronics, but Dhoot is trying to convince the bankers who control Daewoo, to continue to fund the company. Once Daewoo is in the bag, he will probably start working on the acquisition of Japanese electronics major Pioneer or even the Philips-LG combine.

Says the 54-year-old Dhoot, who's set the group a $10 billion (Rs 45,000 crore) revenue target, "We plan to grow exponentially by taking the inorganic route since we believe a global shakeout in consumer electronics is imminent." A couple of Daewoos should help Videocon get there.

Shobhana Subramanian in Mumbai