Accumulate LG Electronics India For Target Rs.1,750 By Elara Capital
No impact on production; Q4 to deliver on sales
LG Electronics India (LGEL IN) expects FY26 revenue to be flat or grow at a modest pace of 2-3% (9MFY26 revenue down 2% YoY), in-line with its guidance. Thus, expect Q4 revenue to grow by high-single to double digits. LGEL expects low double-digit margin in FY26, implying Q4FY26 margin within 12.5-13.5% range, led by price hikes of 7-9% in room air conditioners (RACs) in January. Regarding raw material, LGEL has sufficient LPG inventory until the first week of April, to be used for RACs and refrigerators. If LPG shortage persists, LGEL would substitute a portion of manufacturing (~30%) to oxy acetylene brazing and PNG brazing. Thus, expect no impact on production. We maintain Accumulate with a TP of INR 1,750 on 45x FY28E P/E as we do not expect the LPG concern to materially impact LGEL, and Q4 may deliver on both sales and margin.
No impact of LPG shortage on production: Production by LGEL may unlikely be hit by LPG shortage. LPG is a key component used in making heat exchangers for RACs and refrigerators. LGEL has sufficient inventory of LPG until the first week of April, post which it would substitute a portion of manufacturing to oxy acetylene and PNG brazing. There is no impact on cost as PNG is cheaper than LPG. The only drawback is longer brazing time and certain carbon and aluminum deposits left in the heat exchanger from acetylene brazing. Also, LPG shortage will not impact washing machines and TV manufacturing at all.
FY26 growth to be muted; Q4 likely to grow close to double-digits: LGEL expects revenue growth to be flat to 2-3% for FY26 due to weather changes impacting RAC demand in 9MFY26 (9M sales down 2%). However, with hot temperatures setting in across India and price hikes of 7-9% taken in January, LGEL expects Q4 revenue to grow by high-single to double-digits. It expects low double-digit margin in FY26, which implies margin of 12.5-13.5% in Q4FY26E, led by a premium mix and good sales of non-RAC categories. LGEL had hiked price by 2% for washing machines and refrigerators in Q3FY26, which no other brand had followed. Price hikes in TV have been deferred due to the launch of new models expected in April.
Retain Accumulate with a TP of INR 1,750: We maintain our FY26E-28E estimates as we had already factored in muted revenue growth for FY26 (as highlighted in our recent initiating coverage,, with recovery expected in FY27. The ongoing LPG concern is also unlikely to impact LGEL in the near term, unlike other industry players.
We maintain Accumulate with a TP of INR 1,750 on 45x FY28 P/E on account of market leadership in most durable categories, industry-leading margins, higher premium contribution versus peers and growth plans of raising exports, B2B and AMC contribution and filling white spaces in product portfolio (such as the foray into the economy segment through the LG Essential series, new product categories such as chest freezers and commencement of the new Sri City facility providing robust revenue visibility). Key risks to our call are weather changes impacting RAC demand, and supply chain constraints.
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SEBI Registration number is INH000000933
