Venugopal Dhoot Sees Videocon's Future in Offshore Oil

Venugopal Dhoot
Chairman, Videocon Industries
Age: 62
Rank in the Rich List: 30
Net Worth: $1.8 billion
The Big Challenge Faced in the Last Year: Managing high debt and losses arising from the telecom licence cancellation. Plans to start a bank came to naught as Videocon was not among the companies shortlisted by RBI
The Way Forward: Hoping to make hay on big oil finds in Brazil. Also bullish on the insurance, DTH and durable businesses

In oil and gas circles globally, Venugopal Dhoot, chairman of Videocon Industries, is acquiring a reputation quite different from what he has in India. In September this year, Cairn Energy founder and chairman Bill Gammell sought Dhoot out at a big fat Indian wedding in London; that of metal magnate Anil Agarwal’s daughter, Priya. The three-day affair was full of Bollywood bling—Shah Rukh Khan and Katrina Kaif flew in from Mumbai to entertain the guests with some foot-stomping dancing.
 
Amid the larger-than-life festivities, Dhoot was somewhat surprised when the Scottish oilman approached him to say: “We should get into partnership with you again, Mr Dhoot, you are a very lucky man.”

And Gammell knows a thing or three about luck. Much of Cairn’s fortune has been made as a wildcatter, using technology and, sometimes, sheer audacity to find oil in unexpected places. For instance, Rajasthan, when everyone else had given up. But that was in the previous decade. For the last couple of years, Gammell and Cairn have come under criticism for spending over a billion pounds drilling for oil off Greenland, with little to show for it.

Now Gammell’s search for a lucky charm is as much a reflection of Cairn’s poor form as it is of Dhoot’s winning streak during the same period. The past few years have found Videocon sitting pretty on hydrocarbon discoveries of a magnitude that are making the Saudis sit up and take notice. A consortium that Videocon was part of found huge gas reserves in Mozambique’s Rovuma basin in 2012; Dhoot recently sold his 10 percent stake to Indian oil companies, ONGC Videsh and Oil India Limited, for Rs 15,000 crore.

But during the year the sale was being negotiated, a far bigger opportunity was shaping up further afield. Large discoveries were made in Videocon’s blocks in Brazil. The most significant and recent of these, in the SEAL-11 exploration blocks off Brazil’s northeast state of Sergipe, is estimated to hold a billion barrels of oil. Videocon and Indian public sector oil company BPCL jointly have a 40 percent interest here; Brazilian national oil company Petrobras owns the rest. Announcing the find last month, an excited Petrobras CEO Maria das Gracas Foster said that it was a “beautiful discovery that would bring a rush of jobs and activity into the area”.

Dhoot’s windfall with the hydrocarbon finds—by his own assessment, the assets are valued at Rs 1.5 lakh crore (of which the Mozambique block has been sold)—has the potential to transform Videocon in the coming decade.

Changing fortunes
When Forbes India caught up with Dhoot and his nephew Saurabh at the Videocon corporate office at Fort House in Mumbai, India’s colour television doyen was in a bright and breezy mood. Standing on a box to pose cheerfully for pictures on his large terrace overlooking the busy DN Road, he fielded questions with typical Marwari acumen, his answers peppered with trademark quotes from the Bhagavad Gita. He has reason to be buoyant. In the Forbes India Rich List for 2013, he has moved up to 30th (from 38th last year) with a net worth of $1.8 billion (up from $1.5 billion in 2012).

This upswing in fortunes can be attributed to Dhoot’s attempts to de-leverage his balance sheet, the most significant move being the sale of the Mozambique stake. Till early this year, more than half of the promoter’s shares were pledged to banks. Lenders had even joined forces to insist on the sale of Dhoot’s real estate assets and to make his six durable and home appliances companies jointly and separately liable for repayments. The sale, however, provided only a temporary reprieve.

His affairs had reached this state because the early starter in the consumer durables business had lost its way with dozens of diversifications over the years. Consequently, the net debt for Videocon Industries stands close to Rs 25,000 crore. Not surprisingly, markets have consistently snubbed the company and the stock price has moved steadily downwards from Rs 294 in October 2010 to Rs 176 as on October 25, 2013. Analysts Forbes India spoke to said they are wary of the hyped prospects for new businesses. The Dhoot family, promoters of Videocon, holds 69 percent share in the company. Mutual funds have no stake and many fund houses don’t even track the group.

The company ended FY2012-13 (results were clubbed for a 15-month period) with a loss of Rs 72 crore—much of this from telecom investments that went bad. The picture for the first quarter of this fiscal is better, with a profit of Rs 10 crore in April-June 2013. Of the Rs 3,042 crore revenue for this period, the consumer and home appliance business accounted for Rs 2,778 crore, crude oil and gas brought in Rs 259 crore and power Rs 5 crore. The company’s oil revenue comes from production at the Ravva fields in eastern India, which Dhoot bought into in the mid-1990s. Though the output is now declining, oil prices are high and revenues continue to be in the region of Rs 600 crore a year.

Contrasting Stories
Though retailers say white goods sell like commodities these days, the contrast between Videocon’s two revenue streams could not be starker. “Our future is in oil and gas though consumer durables are our present,” says Dhoot. “Electronics is in our blood, we understand it—we have been doing it for over 25 years.”

But haven’t the Koreans and the Japanese already established their hold in this space? LG, Samsung and Sony are household names in the appliance business and are expanding their presence rapidly. “We are still the largest on a consolidated basis--with all our brands together,” Dhoot says. Apart from its own brand, Videocon also manufactures and sells products under the Philips, Sansui, Kelvinator, Electrolux and Kenstar brands. “Put together, we sell more TVs, washing machines and refrigerators than anyone else. We also manufacture for several foreign brands,’’ says Saurabh, son of Venugopal’s youngest brother Pradip, who is now part of the next generation that is slowly being eased into management roles in the company. When Videocon founder Nandlal died in 1993, the three brothers, Venugopal, Rajkumar and Pradipkumar, took over. As the oldest, Venugopal has always been the face of the group. The youngest, Dubai-based Pradip, manages the international operations, while Rajkumar, a Rajya Sabha MP representing the Shiv Sena, is managing director and looks after telecom.

Market share numbers in the durables business are always hotly contested, and there is no independent data available for sales nationwide. But Dhoot says only 25 percent of Videocon’s sales are in urban areas, with the bulk concentrated in small towns. “We provide excellent service. Even in the smallest place in Kashmir, you will find a Videocon service centre. It is not easy for others to reach there,” he says. The promoters plan to keep fighting to retain their place. Consider the potential. Even now, only 60 percent of households in India own a television, 25 percent own a fridge and only 10 percent own a washing machine, Dhoot says. “It will still take five to 10 years for Bharat to catch up with India,” he adds.

Foreign brands rode into India offering consumers the latest LCDs and flat screens but Videocon is still remembered as the company that bet big on CRTs (cathode ray tubes). In 2005, Dhoot made his largest international acquisition when he bought French firm Thompson SA’s global picture tube manufacturing business for Rs 1,250 crore. This was followed by the acquisition of three manufacturing facilities of Electrolux.

But flat screens are replacing glass tubes everywhere —or so we thought till Saurabh pointed out: “Did you know that 60 percent of the screens still sold in India are CRTs?” Not just Videocon, even the biggest foreign brands still sell these in rural areas. Flat screens are obviously more expensive and have better margins, Saurabh says, but the volumes on CRT sales continue to be large.

Discounted Conglomerate
One of the biggest setbacks for Videocon in recent years was the winding up of its telecom operations.

Sitting on cash surplus in 2008, the group had entered three futuristic businesses—DTH, telecom and mobile handsets. The tryst with telecom began on a rocky note when their company Datacom acquired 2G licences for 21 circles in partnership with the Nahata family of Himachal Futuristic. The Dhoots soon got embroiled in a dispute with Mahendra Nahata and could not launch the services. The wrangling continued for three years till the Nahatas exited the business, reportedly for a payout of Rs 1,400 crore. Datacom was subsequently rebranded Videocon Telecommunications. The second entry was tougher; the group had to buy their way in by signing infrastructure sharing deals with Tata Teleservices and Aircel.

In February 2012, Videocon’s licences were revoked when the Supreme Court cancelled 122 licences awarded by former telecom minister A Raja. Not to be daunted, Dhoot lined up for the third time—bidding and winning spectrum in seven circles in November in the same year. “We are risk-takers by nature, and I don’t blame anyone,” he says. Saurabh claims the company is the market leader in DTH and has many plans for telecom. The plan is to leverage its reach in rural markets, he says.

But investors are wary. On Videocon’s record, technical analyst and market advisor SP Tulsian says, “The company has been a value destroyer over the years. It has never rewarded shareholders and gone into too many different businesses. No one trusts them anymore.’’ Dhoot, too, acknowledges that his company is no longer the darling of the bourses that it used to be in the 1990s. But he believes that will change as more people learn about the oil and gas. Saurabh is more forceful in his response to this line of questioning. “The Indian market does not understand how to value our oil assets yet,’’ he says. “Till the fields start producing, no one will understand it.” Petrobras expects the first production from Sergipe to start in 2018.

The New World
But while the market is taking time to respond, experts are clear that the Brazilian oil blocks are a winner. The former chairman of BPCL, Ashok Sinha, was on the team that negotiated for the blocks. “The beauty is that the Indian combine has a toe-hold in Brazil’s massive oil provinces,” he says. Exploration activity is still at an early stage in the other blocks: Apart from the Sergipe discoveries, the team has hit pay dirt in Campos and Espirito Santo basins.

The opportunity cannot be overstated. Global oil biggies like Shell, BP and Exxon as well as the Chinese would give an arm and a leg to have what the Indians have. But the Brazilian upstream oil-goldmine has been largely closed to the world after massive reserves were discovered in the Tupi field in 2008. Resource nationalism held sway and the government slammed the doors on foreign oil companies, ruling that Petrobras and other Brazilian companies would develop the fields. Fortunately for India, the Videocon-BPCL duo had signed up agreements for the 10 blocks only months before the door was shut. The fields will require billions of dollars in investments by the partners. Finding lenders for asset-backed funding is not difficult and Videocon is likely to take this route.

Dhoot is clear he will not sell the Brazilian assets and will stay on as a producer. “We are building our own geological capability in Dubai and Houston and want to continue to be in this game. We are constantly looking for new opportunities,” he says. If all goes well, the oil revenues will overtake that of other businesses. But Dhoot knows this time is still a few years away.

Clearly, for all his luck, Dhoot has led the group on a roller-coaster ride since the 1990s. He has won some and lost some and is quite sanguine about his prospects. Just this July, the RBI put paid to his ambition to get into the banking business. Asked about this, he reaches out for the Gita to read the shloka that says the success of our karma (actions) depends on many factors—but the biggest of them all is daivam or fortune.