Shares of LG Electronics will be in focus on Friday, March 20, as HSBC has initiated a buy rating over its growth outlook. The brokerage has set a target price of Rs 1,850 on the stock.
In its latest note, HSBC highlighted the electronics maker's capacity expansion, leading position in the premium category, wide range of price points, and exports as key triggers for the rating.
Growth Outlook
LG Electronics stock has the potential to rerate, says HSBC, and estimated that revenue will grow around 15% CAGR over FY26-28e, while net margin is expected to expand 8.9% by FY28e. It further forecasts that the air conditioning segment will grow fastest at around 21% CAGR, driving the growth of the home appliances business. LG Electronics has a strong balance sheet with an EBITDA margin of 13% in FY25.
Additionally, the company plans to expand its manufacturing base, eyes exports as the next growth market, and shift towards mass-premium products aimed targeting lower-tier cities. "The stock is below its listing price, but we think investors should look through the cycle for long-term value," the note read.
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Industry Concerns Easing
Following its listing, the two quarters were challenging for LG Electronics. Revenue grew just 1% in the second quarter and fell 6% in the third quarter. The brokerage believes that this was due to broad-based industry issues, including monsoon-disrupted summers, which impacted air conditioner and other cooling products sales. "We think FY27 should be better, both for the company and the industry, as we expect stronger growth across product categories, supported by premiumisation," HSBC said.
Key factors to consider
The note also highlighted downside risks for the stock. Here are the key concerns for LG Electronics -
1- An increase in raw material cost, especially commodities,
2- Increasing geopolitical risk could hamper export opportunities
3- Cooler-than-expected summers could reduce sales of cooling products
4- Delay in setting up the new plant
5- Parent company control (85%) could hinder prompt decision-making by the Indian entity.
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