Videocon Hits Upper Circuit After NCLT Clears Vedanta Group's Bid

Videocon share price jumped in opening trade today to hit an upper circuit of 5% after the National Company Law Tribunal (NCLT) cleared Vedanta Group firm Twin Star's bid for Videocon.

The Mumbai bench of NCLT on 8 June approved Vedanta Group subsidiary Twin Star Technologies' resolution plan for Videocon Industries and twelve other companies of the Videocon Group.

As per the terms of the resolution plan, Videocon Industries will be delisted, the company said in a notification to the stock exchanges.

Videocon Industries, saddled with a massive debt of Rs 350 bn, was sent for debt resolution in December 2017 after it failed to repay bank loans.

Some of the debt of the parent company was due to the guarantees given to other companies. The debt resolution is the first one where a group-level debt has been resolved in a single process.

Twin Star, a part of the Vedanta group, will pay Rs 29.6 bn to the lenders, in addition to Rs 5 bn cash in the books of VIL. The lenders will also get Rs 6 bn worth of equity in Videocon after the takeover by Twin Star.

In total, Twin Star will offer around Rs 40 bn to the lenders. The NCLT Bench also said that few dissenting creditors would have to be paid upfront.

A Videocon official said the debt resolution process of group firms Videocon Oil, Trend Electronics, and KAIL will take place separately and banks will recover dues from these companies also.

Another Rs 270 bn of debt will be resolved once these companies' debt process is over.

Why did Videocon file for bankruptcy?

The Videocon group fell into a financial crisis in 2012 after the Supreme Court cancelled its wireless telephone licence and the group's flagship company Videocon Industries' investment in the telecom arm turned bad.

At the same time, the loans taken by the telecom arm from Indian banks had also become non-performing assets (NPA).

Soon after the company was sent to the bankruptcy court, a cash-for-loans scandal involving former MD and CEO of ICICI Bank Chanda Kochhar further impacted the company's fortunes.

The promoters of Videocon Industries, the Dhoot family, had submitted an application to the committee of creditors (CoC) under Section 12A of the Insolvency and Bankruptcy Code (IBC) last year but failed to get the mandatory 90% votes from the lenders.

The lenders finally cleared Twin Star's offer in December 2020.

Vedanta to use Videocon's resources to enter semi-conductor industry

For metal and mining giant Vedanta, the acquisition of Videocon will be the second big acquisition under the IBC.

The group had earlier taken over Electrosteel Steels and entered the steel industry.

Vedanta Chairman Anil Agarwal had tweeted in February that India had tremendous potential to become an electronics hub with display and semiconductor fabrication catering to global markets.

Analysts said Agarwal would use Videocon's acquisition to make a foray into the semiconductor industry.

How the stock markets reacted to the news

Shares of Videocon opened higher at Rs 6.4 on the BSE and Rs 6.5 on the NSE today.

The stock of the company hit an upper circuit of 5% after the NCLT cleared Vedanta's RS 29 bn bid for the company.

The scrip touched its 52-week high of Rs 9.2 on 17 December 2020. It had touched its 52-week low of Rs 1.4 on 9 June 2020.

In the past month, the stock price of the company has rallied 54.8%, as compared to a 6% gain in the S&P BSE Sensex.

However, in the last five years, the stock price has fallen more than 90%.

Videocon Industries is an Indian multinational conglomerate, headquartered in Mumbai.

The group has 17 manufacturing sites in India and many other plants in China, Poland, Italy, and Mexico.

The Videocon group's core areas of business are consumer electronics and home appliances. It has also diversified into areas such as DTH, power and oil exploration.

In India, the group sells consumer products like colour televisions, washing machines, air conditioners, refrigerators, microwave ovens and many other home appliances, through a multi-brand strategy with the largest sales and service network in India.

Since the entry of Korean electronics companies and their rising popularity in the Indian market, Videocon has seen a slow decline in sales from the stand-point of a market leader.

However, the company continues to do well in the washing machine and refrigerator segment. It is also the third largest picture tube manufacturer in the world.

For more details about the company, you can have a look at Videocon's factsheet and Videocon's quarterly results on our website.

You can also compare Videocon with its peers.

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