HDFC Securities Pick of the Week 28th Dec'25: LG Electronics India Ltd

HDFC Securities has selected LG Electronics India Ltd (NSE: LGEINDIA) – a leading consumer durables and home electronics company — as its Pick of the Week. The brokerage recommends buying the stock in the ₹1,509–1,555 range and adding on declines in the ₹1,400–1,441 band. HDFC Securities has assigned a base case fair value of ₹1,669 and a bull case fair value of ₹1,780 over a 2–3 quarter time horizon, supported by strong brand leadership, premiumisation, expanding manufacturing capacity, and growing high-margin ancillary businesses.

Q2FY26 Result: Resilient Revenue, Margins Under Temporary Pressure

LG Electronics India reported a resilient operating performance in Q2FY26 despite muted industry demand, weather disruptions, GST timing impact, and geopolitical headwinds. While revenue remained stable, profitability softened due to higher commodity prices and increased marketing investments.

Key Q2FY26 highlights:

• Revenue: ₹6,174 crore, up 1.0% YoY, down 1.0% QoQ
• EBITDA: ₹548 crore, down 28% YoY; EBITDA margin at 8.9%
• Net Profit (PAT): ₹389 crore, down 27% YoY
• Price hikes: 1.5%–2.0% implemented on refrigerators and washing machines
• Market share: Improved across key offline categories during the quarter

The company expects margin normalisation in H2FY26 driven by price increases, improving premium mix, localisation, and operational efficiencies.

Strategic Growth Drivers and Key Strengths

1. Market Leadership Across Core Categories
   • LG is the market leader in offline value share across washing machines, refrigerators, TVs, inverter ACs, and microwaves.
   • Q2FY26 offline market share: TVs 27.5%, refrigerators 29.9%, Room ACs 17.3%, washing machines 33.4%.
   • Premium segment leadership includes 62.6% share in OLED TVs.
2. Strong Brand Franchise and Distribution Scale
   • Pan-India presence across 35,640 B2C touchpoints and 463 B2B trade partners.
   • Operates 948 exclusive service centres and 58 LG-owned service centres.
   • Offline channels still account for ~78% of large appliance sales, where LG remains dominant.
3. Premiumisation and “LG Essential Series” to Drive Growth
   • Launch of the LG Essential Series targets mass-market households with India-specific features and affordable pricing (~₹18,000–₹20,000).
   • Simultaneous focus on premium AI-enabled products to improve average selling prices and margins.
4. Capex-led Expansion and Export Opportunity
   • ₹5,000 crore investment planned over 4–5 years for the new Sri City (Andhra Pradesh) facility.
   • Facility will support Room ACs, compressors, refrigerators, and washing machines.
   • Enables logistics savings, higher localisation (target ~70%), and export expansion (currently 5–6% of revenue).
5. Margin Recovery Levers in Place
   • Margin levers include higher premium mix, localisation, efficiency improvements, logistics savings, expansion of AMC and B2B services, and price hikes.
   • High-margin AMC and B2B businesses currently contribute ~6% of revenue with strong growth potential.

Valuation & Recommendation

HDFC Securities’ Estimates:

• Base Case Fair Value: ₹1,669 (36.5x FY28E EPS)
• Bull Case Fair Value: ₹1,780 (39.0x FY28E EPS)
• CMP (22 Dec 2025): ₹1,522
• Time Horizon: 2–3 quarters

Recommendation:

Buy in the ₹1,509–1,555 range and add on dips at ₹1,400–1,441.

The stock currently trades at ~33.3x FY28E EPS, which is reasonable given LGEL’s market leadership, strong cash generation, balance sheet strength, and long-term structural growth tailwinds.

Risks & Considerations

• Competitive Pressure: Aggressive pricing and fast product cycles from global and Chinese competitors.
• Commodity & FX Risk: Volatile input costs and currency movements can pressure margins.
• Regulatory Risk: Changes in energy efficiency norms, e-waste rules, or compliance standards could raise costs.
• Demand Cyclicality: Consumer spending may weaken during macro slowdowns.

HDFC Securities’ View

LG Electronics India combines brand leadership, deep consumer insight, strong manufacturing scale, and an expanding service ecosystem. While near-term margins remain sensitive to commodity costs and promotional intensity, structural drivers such as premiumisation, localisation, rising appliance penetration, and export expansion provide strong earnings visibility. The stock offers a high-quality medium-term opportunity for investors seeking exposure to India’s rising consumption and premiumisation trend