Videocon May Cancel Agreements With Philips, Electrolux

Financially bankrupt Videocon Group may give up India rights for two global brands — Philips in the TV business and Electrolux in appliances after sales decline due to working capital deficiency, three senior industry officials said.

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.

A company executive said, “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.” He said 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.

A Philips spokesperson from Amsterdam said the company has brand licence agreements for TVs with various partners globally, including Funai, TP Vision and PE Electronics. “PE Electronics did not give up the rights of the Philips-branded TV business in India. Beyond this, I cannot provide any further comment,” he said.

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.

The sales of Videocon Group brands such as Videocon, Sansui, Philips, Electrolux and Hyundai faced a huge dip which now 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.