LG Electronics IPO: How Is India's Second Largest Consumer Electronics Seller Valued

LG Electronics, which derives over 70% revenue from home appliances, saw its first quarter contribution from home appliance reach nearly 78%, on the back of high demand for refrigerators and air conditioners this year.

Across the consumer durable industry, demand for air conditioners peaked due to extreme heat wave conditions that forced people to stay indoors and created demand for the appliance.

While contribution of home and entertainment sales declined, the shift in product mix led to higher operating margin in the first quarter. Televisions had lower margins owing to hyper competition and lower price tags on the back of low cost Chinese imports of displays.

LG Electronics, which derives over 70% revenue from home appliances, saw its first quarter contribution from home appliance reach nearly 78%, on the back of high demand for refrigerators and air conditioners this year.

Across the consumer durable industry, demand for air conditioners peaked due to extreme heat wave conditions that forced people to stay indoors and created demand for the appliance.

While contribution of home and entertainment sales declined, the shift in product mix led to higher operating margin in the first quarter. Televisions had lower margins owing to hyper competition and lower price tags on the back of low cost Chinese imports of displays.

The Korean electronics major which sources little over 50% of supplies domestically posted a revenue of Rs 21,352 crore and a profit after tax of Rs 1,511 crore for the financial year ending March 2024. The company's revenue in the first quarter of fiscal 2025 stood at Rs 6,409 crore and profit after tax of Rs 679 crore.

LG Electronics has industry peers in Havells India Ltd., Blue Star Ltd., Voltas Ltd. and Whirlpool. The revenue and profitability profile of Havells is close to LG Electronics. Though LG Electronics has been able to post an operating margin of 15% in first quarter, it is not clear whether it will be able to sustain such high margin profile for FY25 and FY26.

The company has seen its topline grow at a compounded annual growth rate of 8.25% in the last three years. Given the growth momentum and change in product mix in first quarter, the company is estimated to grow its topline at 11% in FY25 and 10% in FY26. The company is expected to post a revenue of Rs 23,700 crore and Rs 26,071 crore respectively and profit after tax of Rs 2,394 crore and Rs 2,633 crore in FY25 and FY26, respectively.

According to NDTV Profit calculations, the earnings per share of LG Electronics for FY25 and FY26 will stand at Rs 35.3 per share and Rs 38.8 per share. At a conservative Price to Earnings estimate of 44-times FY25 earnings and 40-times in FY26, the company's shares will be priced around Rs 1,551 per share, giving the company a market value of Rs 1.05 lakh crore.

A significantly high Price to Earnings premium will take its market value to above Havell's market cap and could make the company expensive.

At the Rs 1.05 lakh market value LG Electronics will be valued at 4-times FY26 sales.

The Korean parent is enthused by the fact that its India arm will be valued at a significant premium to the parent in Korea. But it also needs to be aware that it doesn't repeat the mistake Hyundai made when it priced the issue in such a manner, that it did not leave much profits on the table for the investors at the time of the listing.

Hyundai is currently trading at 6.5% discount to its issue price on the stock exchanges.