LG Electronics India's ₹11,600cr IPO now open: Should you bid?
What's the story
LG Electronics India Ltd's initial public offering (IPO) has opened for subscription today. The three-day bidding window will close on October 9. The company has set a price band of ₹1,080-₹1,140 per share for the offer. The IPO only includes an offer for sale (OFS) worth ₹11,600 crore, which is a 15% stake divestment by its South Korean parent company LG Electronics Inc.
Market valuation
Valuation pegged at ₹77,400 crore
At the upper end of the price band, LG Electronics India's valuation is pegged at around ₹77,400 crore. In the unlisted market, shares of LG Electronics India are trading at a gray market premium (GMP) of ₹318. This suggests a potential listing gain of some 28% over the upper price band.
Business expansion
About the company
Founded in 1997, LG Electronics India is one of the country's largest manufacturers and distributors of home appliances and consumer electronics. The company has a dominant presence in categories such as washing machines, refrigerators, TVs, air conditioners, and microwaves. It operates two major manufacturing plants in Noida and Pune that contribute to about 85% of its sales.
Market leadership
Brokerages laud IPO for its attractive pricing
LG India boasts a huge retail network of over 35,000 touchpoints. The company was among the first to launch 4K and Smart TVs in India in 2011. It also launched OLED TVs in 2015, further cementing its position as an industry innovator. Brokerages have praised the IPO for its attractive pricing at a price-to-earnings (P/E) ratio of 35x FY25 earnings—about a 50% discount to peers.
Investment advice
Recommendations from brokerages
Brokerages like Elara Capital and Choice Broking have recommended subscribing to the issue. They cite LG's dominant market position, steady growth trajectory, and potential benefits from rising demand as reasons for their recommendation. Anand Rathi also expressed optimism about LG's market share across key categories like washing machines, refrigerators, and televisions.
Financial outlook
Financial performance and growth trajectory
From FY22 to FY25, LG India posted a 13% revenue CAGR despite muted consumer demand. This was mainly driven by strong growth in the room air conditioner segment which grew at a 15% CAGR. The company's EBITDA margin stands at 12.8%, higher than peers such as Havells (9-10%). Elara Capital noted that LG's localization rate has increased from 40% to 54% over five years and is likely to rise by 1-2% annually.
Risk factors
Risks and challenges to consider
Despite the positives, brokerages have flagged some risks. These include a contingent liability of ₹315 crore related to a revised Advance Pricing Agreement with its parent company, requiring an additional royalty payment. Analysts also warned about potential challenges from weak consumer sentiment, supply chain disruptions, and rising competition in categories like air conditioners and smart TVs.