LG Electronics India: Muted Q2 Earnings, Rs 5,000 Crore Expansion Signals Future Growth

LG Electronics India Ltd. has released its first earnings report since its listing, revealing a muted performance for the second quarter (Q2). Revenue saw a modest increase of 1 percent year-on-year (YoY), primarily due to persistent softness in demand across the consumer durables sector. This is further compounded by increased investments made during the festive season to support distributors and retailers, impacting operating margins which contracted by 350 basis points YoY. Higher commodity costs also played a role in this decline.

The Home Appliances & Air Solutions segment reported flat revenue growth in Q2, although LG Electronics India managed to maintain its market leadership. It holds a 33.4 percent share in washing machines and expanded its refrigerator share to 29.9 percent year-to-date. The premium refrigerator segment showed strong growth, with market share rising to 43.2 percent. EBIT margins in this segment fell by 400 basis points YoY, attributed to rising commodity prices and compliance costs for recycling. The company has implemented a small price increase (1.5-2 percent) on refrigerators and washing machines to counter these pressures.

The Home Entertainment segment, including televisions and monitors, achieved a 3 percent revenue growth YoY, boosted by festive demand for televisions. The premium TV market, particularly OLED TVs, continues to be a strong point for LG, with its OLED market share increasing to 62.6 percent. However, the information display business faces headwinds from US tariffs and geopolitical issues. EBIT margins here declined by 180 basis points YoY due to commodity costs and marketing investments.

Strategic Expansion:

LG India is undertaking its largest expansion in a decade by investing Rs 5,000 crore in a third manufacturing plant located in Shree City. This facility is slated to begin production of RACs by October 2026, followed by AC compressors in FY27 and later washing machines and refrigerators. The project, funded internally, aims to double LG's manufacturing capacity by FY29. The company also plans to increase the localization of its products from the current 55 percent to 70 percent over the medium term, which is expected to improve margins and operational efficiency. Exports, currently at 6 percent of FY25 revenue, are targeted to reach approximately 10 percent in the next three years, supplying markets in Asia and Africa.

Outlook and Valuations:

Despite a soft first half of the fiscal year (H1), LG India anticipates improved demand dynamics driven by festive momentum, a growing preference for premium products, and normalized channel inventory. The company's significant capital expenditure, focus on deeper localization, and leadership in high-growth categories like ACs, premium TVs, and refrigerators position it for sustained double-digit growth. The stock is currently trading at 43 times its estimated FY27 earnings, suggesting strong future growth visibility and long-term compounding potential for investors.

Impact

This news has a direct impact on LG Electronics India Ltd.'s stock performance and investor sentiment. It also provides insights into the consumer durables sector's performance, demand trends, and the competitive landscape in India. The company's significant investment in manufacturing signals confidence in the Indian market's future growth potential.

Rating: 7/10

Difficult terms used:

• YoY (Year-on-Year): A comparison of a value from one year to the corresponding value in the previous year. For instance, comparing Q2 this year to Q2 last year.
• Basis Points (bps): A unit of measure equal to one-hundredth of one percent (0.01%). So, 350 bps is equivalent to 3.5%.
• EBIT (Earnings Before Interest and Taxes): A measure of a company's operating profit before accounting for interest expenses and income taxes.
• EBIT Margins: EBIT expressed as a percentage of revenue, indicating profitability from core operations.
• Go-to-market initiatives: The strategies and activities a company undertakes to bring its products or services to market and reach its target customers.
• Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plant, or equipment.
• Localization: The process of adapting products, services, or content to a specific local market. In manufacturing, it means producing more components or finished goods within the country.
• FY (Financial Year): A 12-month period used for accounting purposes, which may not coincide with the calendar year. In India, it typically runs from April 1st to March 31st.
• H1 (First Half): The first six months of a company's financial year.
• Channel Inventory: The amount of stock held by intermediaries in the supply chain, such as distributors, wholesalers, and retailers, before it is sold to the final consumer.