Buy LG Electronics India Ltd For Target Rs.2,100 by Motilal Oswal Financial Services Ltd
In-line performance; expanding B2B and VS opportunities Reiterates FY27 growth guidance; expects stronger 2H performance
* LGEIL’s 2QFY27 performance was in line. Revenue grew ~20% YoY to INR73.8b, fueled by ~21%/17% growth in the Home Appliance (HA)/ Home Entertainment (HE) segments. EBITDA grew ~28% YoY to INR7.0b, with OPM up 60bp YoY to 9.5%. LGEIL’s PAT was up ~26% YoY to INR4.9b.
* LGEIL reiterated its FY27 guidance of mid-teen revenue growth and an early double-digit EBITDA margin. It expects business performance in 2HFY27 to be better than 1HFY27. It indicated that the HA business will remain a core growth driver, while the vehicle solutions (VS) business will serve as an additional growth pillar, supporting the company’s long-term strategy of business diversification and growth. The Sri City expansion is on track, with compressor production to begin in 3QFY27 and AC manufacturing in 4QFY27. Its B2B business currently contributes ~10-12% of total revenue, and the company targets increasing this share to 15%+ over the next three years. It is targeting ~20% growth in B2B over the long term.
* We largely retain our estimates for FY27/FY28. We value LGEIL at 45x Sep’28E EPS to arrive at our TP of INR2,100. Reiterate BUY.
Revenue up ~20% YoY; OPM up 60bp to 9.5% (in line)
* LGEIL’s consol. revenue/EBITDA/adj. PAT stood at INR73.8b/INR7.0b/ INR4.9b (+20%/+28%/+26% YoY; +4%/+3%/in line) in 2QFY27. OPM surged 60bp YoY to 9.5%. Depreciation rose ~31% YoY, and interest remained flat YoY. Other income increased ~7% YoY.
* Segmental highlights:
a) Home Appliances (HA) revenue increased ~21% YoY to INR47.7b (~8% beat), EBIT grew ~28% YoY to INR4.2b (in line), and margin increased 50bp YoY to 8.7% (vs. est. 9.0%).
b) Home Entertainment (HE) revenue grew ~17% YoY to INR26.1b (-4% vs. est.). EBIT grew ~20% YoY to INR3.4b (-5% vs. est.). Margin expanded 30bp YoY to 12.9% (in line).
* In 1HFY27, revenue/EBITDA/PAT grew ~17%/27%/27% YoY to INR146.1b/ INR16.1b/INR11.4b. OPM expanded 80bp YoY to ~11%. OCF stood at INR16.3b vs. INR10.3b in 1HFY26. Capex stood at INR11.6b vs. INR5.9b in 1HFY26. FCF stood at INR4.7b vs. INR4.4b in 1HFY26.
Key highlights from the management commentary
* In HA, growth was broad-based across both volume and value in2QFY27. Washing machines recorded their highest growth in eight quarters, led by fully automatic models, which now contribute 60%+ of sales.
* In HE, the B2B information display business has emerged as a second profit engine alongside television, providing a more stable margin profile and supporting overall segment profitability.
* The Vehicle Solutions (VS) business will be developed in phases, starting with telematics and gradually expanding into other automotive solutions for the Indian market.
Valuation and view
* LGEIL performance was in line. It reported strong revenue growth across HA and HE segment, and healthy margins. It has a diversified product portfolio, strong brand franchise, multiple avenues for sustainable revenue growth and a better margin profile than peers. The company is well-positioned to benefit from structural premiumization across TVs, refrigerators, washing machines and ACs, while the expanding LG Essential portfolio provides an additional growth driver by broadening its addressable market.
* We estimate a CAGR of ~13%/21%/21% in revenue/EBITDA/PAT over FY27-29. We estimate OPM to expand to 12.1%/12.8% by FY28/FY29 vs. 11.2% in FY27E. It has consistently generated healthy operating cash flows over the years. We estimate cumulative OCF of INR82.5b during FY27-29. Estimate cumulative capex of INR43.0b over FY27-29, mainly for the Sri City expansion. Cumulative FCF during FY27-29 is estimated at INR39.5b. Net cash balance is estimated to increase to INR66.4b by FY29E vs. INR50.5b as of Sep’26.
* The stock currently trades at 41x/35x FY28E/FY29E EPS. We value LGEIL at 45x Sep’28E EPS to arrive at our TP of INR2,100. Reiterate BUY.
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