Financially distressed Videocon Group may give up India rights for two global brands — Philips in the TV business and Electrolux in appliances — after being unable to sustain production without working capital, which has caused a steep decline in sales, three senior industry officials said to ET.
While the Videocon promoters have decided to cancel the licensing agreement with Philips, it is also considering withdrawing from the arrangement with Sweden-based Electrolux AB. Electrolux is already unhappy with the India sales and is contemplating setting up direct operations in the country once again.
“If the group gives up Electrolux too, it will lead to further savings on royalty outgo and fixed costs. But a decision on Electrolux is yet to be reached,” an executive said to ET. Electrolux’s annual sales of about Rs 250 crore in India have fallen to Rs 50-60 crore this financial year.
The Philips television business has a fixed cost of Rs 7-8 crore per month, including royalty, employees and service, another executive said. “The business is generating revenue of Rs 18-20 crore per month, whereas it should be doing Rs 80 crore to Rs 100 crore per month to survive. This has made the operation unviable,” the executive said.
The Videocon Group operates the Philips and Electrolux business through PE Electronics. The chief executive officer’s position at PE Electronics has been vacant for almost six months after Neeraj Sethi joined Akai as the director of sales and operations.
Videocon pays 3% royalty to Dutch electronics major Royal Philips for licensing of the brand in India’s television market and also to Electrolux for using the brand for air-conditioners, refrigerators, microwave ovens and washing machines. Videocon Group, which owes over Rs 20,000 crore to banks, used to operate on credit with dealers but now raises payments from them first and then manufactures the products. This has led to a drop-in sales and a shortage of Videocon Group brands — Videocon, Sansui, Philips, Electrolux and Hyundai.