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issue: September 2005 APPLIANCE Magazine

New Delhi Report
Videocon: Homegrown and Still Thriving

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When multinational companies like Sony, Samsung, LG, and Electrolux first started entering the Indian home appliance market, many had felt that homegrown companies such as Videocon might not survive the multinational onslaught. But more than 15 years after the Indian economy was liberalized, Videocon has emerged as a consumer durable group to be reckoned with. Not only has it survived, but it has thrived in the competition and has steadily built a platform for itself from which it expects to launch its global ambitions.

Take for instance the deal it has struck with European appliance maker AB Electrolux. Videocon Industries has acquired a 91.25-percent equity stake in the Swedish company’s Indian subsidiary, Electrolux Kelvinator Ltd (EKL). The deal involves the sale and marketing rights of all three EKL brands-Kelvinator, Allwyn, and Electrolux. Under the agreement, Videocon has acquired the EKL facilities in Shahjahanpur (in Rajasthan) and Warora and Butibori (in Maharashtra). In return, AB Electrolux will receive 5-percent stake in Videocon Industries at U.S. $94 million. AB Electrolux will pick up the stake in Videocon Industries by subscribing to its global depository receipts (GDR) at $10 per GDR, with each GDR representing one equity share of Videocon Industries. According to a statement by Videocon, the deal would lead to an annual trade of more than Rs 60 billion (approx. U.S. $1.4 billion) in the next 3 to 5 years.
The acquisition, along with the proposed merger of Videocon Industries and Videocon International, will help create an entity with sales revenues of Rs 175 billion (approx. $4.0 billion). As much as half of this is expected to come from its global activities. Videocon also plans to upgrade its manufacturing facilities, particularly for the manufacture of electric motors and compressors for refrigerators.

The agreement also involves the sourcing of components by AB Electrolux from Videocon for its global operations and original equipment manufacturing activities. Videocon will continue to get the support of Electrolux’s design and R&D facilities for launching high-end models of washing machines and refrigerators in the Indian market.

According to some media reports, the deal may also involve an arrangement by which the Electrolux brand may be leased to Videocon on payment of a royalty. Videocon could be involved in the manufacture and marketing of Electrolux products in other Asian markets as well.

The arrangement is a win-win situation for both Videocon and AB Electrolux. European companies are no longer interested in the lower-end of the consumer durables market due to shrinking profit margins. Moreover, most of them are focusing on the high-end market by launching futuristic home appliance products. For Videocon, which has been a price-warrior in the Indian market, the business model is completely different-it thrives on volume sales of low-end products and its wide marketing network has helped it to battle the multinational giants in the Indian market. Videocon is hoping to extend this expertise and expand its operations in other markets in Asia and Europe, where there would be a demand for such products. Besides, by becoming a low-cost supplier of components to global companies, it can further expand its operations beyond India.

The Indian manufacturer also recently acquired three divisions of the French Thomson Group in an effort to expand its operations in the television manufacturing business. This acquisition is a major step forward for Videocon’s plans to expand into the European market and has also helped the group to become the world’s largest maker of television picture tubes. Clearly, Videocon is hoping to do in the consumer durables industry what the Indian information technology companies have done in the global arena.

This report is filed by Adite Chatterjee, India correspondent, APPLIANCE magazine.


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