Accumulate LG Electronics India Ltd for Target Rs 1,925 by Elara Capital
Premiumization drives sales; margin sustained
LG Electronics India (LGEL IN) reported healthy sales growth, led by broad-based double-digit growth across categories. The premium portfolio across home appliances and air solutions and home entertainment segments grew faster than the average portfolio, leading to better realization. Exports grew strongly despite the Middle East crisis. Unlike other consumer durables brands, LGEL margin remains resilient despite input cost inflation based on higher premium mix, price hikes, and better sourcing. Hence, we retain Accumulate with a TP of INR 1,925 on 45x June FY28E P/E. The company is a prominent consumer durables brand with market leadership across several categories. We remain positive based on aspirational demand driving its premium portfolio, industry-leading margin, exports potential, and large capex plan of INR 50bn to bolster revenue and deepen backward integration.
Premium mix outperforms:
Q1 sales grew 16% YoY at INR 72bn based on higher realization from the premium portfolio and price hikes undertaken in the range of 10-14%. The home appliances and air solutions (HA) segment (77% of sales) grew 14% YoY on robust sales of premium French door and side-by-side (SBS) refrigerators, 8kg+ washing machines, room air conditioners (RAC), and dishwashers. While the home entertainment (HE) segment (23% of sales) grew 22% YoY, due to strong demand for large screen TV, especially OLED & QLED amid sporting events and aspirational demand. The 55-plus-inch category surged 55% YoY. LGEL commands a 26% market share in TV with a 59% share in the OLED category (Source: company). Management reiterates target of late-teens sales growth in FY27.
Resilient margin on better mix and price hikes:
Q1 EBITDA stood at INR 9bn, 5% above our estimates, with EBITDA margin rising 110bp YoY to 12.5% on higher premium mix and price hikes. Segment-wise, EBIT margin for HA inched up 10bp to 11.6% whereas margin for HE surged 340bp YoY, due to higher OLED & QLED mix, cost efficiency, and normalized ad spend. Management has highlighted FY27 EBITDA margin to remain in the early double-digits.
Strong exports momentum despite geopolitical tensions:
Exports remains strong, up ~30% YoY despite the Middle East war, led by higher sale of large-capacity, frost-free, and SBS refrigerators to Asia, and the African Union (AU). The Essential (entry-level) series, including refrigerators and washing machines, saw an uptick during Q1 and is exported to 22 countries across Asia, the AU, and the EU
Retain Accumulate with a higher TP of INR 1,925:
We increase our EPS by 6% each for FY28E and FY29E, as the premium portfolio share in revenue increases, exports share rises, and compressor capex drive backward integration, supporting margin. We retain Accumulate with a higher TP of INR 1,925 from INR 1,750 on 45x (unchanged) June FY28 P/E, given LGEL’s market leadership in most durable categories, industry-leading margin, higher premium contribution vs peers, growth via the new LG Essential series, and commencement of the new Sri City facility, providing robust revenue visibility. We expect an earnings CAGR of 25% during FY26-29E with an average ROE and ROCE of 27% during FY27-29E.
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SEBI Registration number is INH000000933
