LG Electronics India: Demand Recovery Underway. Maintain Add

We visited the company’s Pune manufacturing facility and interacted with the management. The plant operates nine production lines, manufacturing refrigerators, washing machines, air conditioners, and televisions. The company expects FY26E revenues to remain largely flat YoY (implying 5% YoY growth in Q4), with EBITDA margin staying in the low double digits. Management highlighted improved demand traction in Q4, with washing machines and televisions delivering double‑digit growth, while RAC segment delivered growth from January to February despite a high base of 30% growth in the previous year. The company asserted that demand momentum continued in March for RAC as summer demand picked up. While elevated freight costs due to the Middle‑East tensions have weighed on export demand (7% of revenue mix), while Middle-East contributes only USD 2–3mn per quarter (<1% of total revenue), which limits the overall impact on revenue. Management indicated that despite ongoing LPG supply disruptions, the Pune facility has adequate LPG inventory to support RAC production until March and refrigerator production until mid‑April, while the Noida facility is stocked through April. The availability of alternative fuels options, along with healthy inventory level for room air conditioners (RACs) at both company and channel level, further mitigates production risks. We like LG for its market leadership in core product categories, strong brand equity, consistent technological innovations and product launches, robust return ratios, and low working capital needs. We expect it to continue to deliver healthy growth across segments in the coming times, though FY26E could remain soft on muted demand. We expect the company to deliver revenue/EBITDA/APAT CAGRs of 8/8/8% over FY25–28E. Factoring in ongoing export disruptions due to the Middle‑East tensions, we have trimmed our revenue and APAT estimates by 1% each for FY26E, while we have maintained our estimates for FY27/28E. We maintain ADD with an unchanged target price of INR 1,545/share, based on 38x Mar’28E EPS.

About the Pune facility: This is the company’s second manufacturing facility in India, commissioned in 2004. The plant operates nine production lines and manufactures refrigerators, washing machines, RACs, commercial air‑conditioning systems, and televisions. It has an installed capacity of ~7mn units, representing around 48% of the company’s total capacity, and operated at about 75% utilization in FY25. The plant accounts for half of RAC production volume.

Demand and guidance: The company expects FY26E revenues to remain largely flat YoY (implying 5% YoY growth in Q4), with EBITDA margin staying in the low double digits. Management highlighted improved demand traction in Q4, with washing machines and televisions delivering double‑digit growth, while the RAC segment has delivered growth from January to February despite a high base of 30% growth in the previous year. It asserted that demand momentum continued in March for RAC as summer demand picked up.

Targeting new export markets, with current demand setbacks: Exports currently account for 7% of the revenue. The US and EU trade agreements are set to accelerate the company’s growth, with management targeting a doubling of exports in FY27. However, the ongoing tensions in the Middle East have led to a sharp increase in freight costs, adversely impacting demand. Management noted, however, that the Middle East contributes only USD 2–3mn of revenue per quarter, accounting for less than 1% of total revenue, thereby limiting the overall impact.

Pricing: The company effected price hikes of 2–3% on washing machines and refrigerators in November‑2025, and 7–9% on room air conditioners in January‑2026, to pass on higher input costs led by rising aluminium and copper prices as well as the implementation of new BEE norms. However, price increases in televisions have not yet been undertaken, as the company plans to launch a new product series in April.

LPG disruptions, no material impact on production: Management highlighted that air conditioner and refrigerator manufacturing requires LPG fuel. Although there have been disruptions in LPG supply, the company has indicated that it is unlikely to pose a material challenge. The Pune facility has sufficient LPG inventory to support RAC production until March and refrigerator production until mid‑April, while the Noida facility is adequately stocked through April. In addition, company has alternative fuel options to explore. Management also highlighted that finished inventory for RACs remains healthy at both company and channel levels, which further mitigates any potential impact on overall production.

Sri City greenfield plant: The company is setting up a third manufacturing facility at Sri City, Andhra Pradesh, to expand capacity, achieve warehousing and logistics cost efficiencies, and strengthen its strategic presence in the southern market, which contributes ~40% of total revenues. The plant will be commissioned in phases, with air conditioner production expected to commence by Q3FY27, followed by compressors in Q4FY27, washing machines in FY28, and refrigerators in FY29.

Outlook and valuation: We like LG for its market leadership in core product categories, strong brand equity, consistent technological innovations and product launches, robust return ratios, and low working capital needs. We expect it to continue to deliver healthy growth across segments in the coming times, though FY26E could remain soft on muted demand. In our view, the company’s margins will decline in FY26E, owing to weak demand and increase promotional expenses as well as raw material costs. However, margins are expected to recover starting FY27E, as demand starts to revive. We expect the company to deliver revenue/EBITDA/APAT CAGRs of 8/8/8%, respectively, over FY25-28E. Factoring in ongoing export disruptions due to the Middle‑East tensions, we have trimmed our revenue and APAT estimates by 1% each for FY26E, while we maintain our estimates for FY27/28E. We maintain our ADD rating with an unchanged target price of INR 1,545/share, based on 38x Mar’28E EPS.