LG Electronics Shares Can Zoom 58% Says Motilal Oswal As It Initiates Coverage

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Motilal Oswal Report

LG Electronics India Ltd. has consistently generated operating cash flows (cumulative OCF of Rs 154 billion over the past 10 years; ~69% of the same was used for dividend payout) and has a high Ebitda-to-OCF conversion ratio (average of ~70% over FY19-25; expected to reach ~74% over FY26-28).

The company’s planned capex of Rs 50 billion for the new plant in Sri City (spread over FY26-29E) is expected to result in lower FCF (cumulative FCF of ~Rs 41 billion) over FY26-28.

Significant investments in the new plant at Sri City are expected to initially reduce the asset turnover ratio. Along with lower dividend payouts (assumed at 35% vs the average payout of ~69% over FY16-25), this will likely moderate return ratios.

RoE is estimated to be ~30% in FY28E vs 45% in FY25 and an average of ~36% over FY16-25.

We also believe that the company could target the mass category segment (~19% of the industry in H1 CY25) through premiumization of mass products as part of its global strategy. This strategy may also help improve the asset turnover of the Sri City plant, which in turn could enhance return ratios.

We initiate coverage on LG Electronics with a Buy rating and a target price of Rs 1,800, premised on 40 times FY28E EPS.

We expect LG to trade at higher multiples, given the strong return ratios, higher OCF conversion, a strategic focus on localization, targeted growth in high-margin B2B and AMC revenues, and a leadership position across key product categories.

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