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Weak Q2, demand recovery expected in H2

LG Electronics (LG)’s Q2FY26 results were weak, similar to peers’ due to GSTled demand postponement by both—trade partners and consumers, weak consumer sentiment, and muted B2B revenue in the HE segment due to tariffrelated impact. Despite this, LG has gained market share in both, the HA and HE segments, thus reinforcing its category leadership. The management believes industry demand would pick up in Q3, led by the festive and wedding seasons as well as GST rate realignment. The LG Essential series (launched in Oct-25) is gaining early traction, given first-time buyers in underpenetrated regional markets. Though profitability was under pressure due to elevated costs, LG has taken 1.5-2% price increases in the WM and Ref categories in Oct-25. LG intends to drive long-term profitability led by better operating efficiency, entry in mass premium products, higher AMC, improvement in the B2B business, rising localization, and higher exports. H1 turned out to be significantly weakerthan-expected as the weak summer and GST transition impacted revenue and margin; this has caused a meaningful cut (~17%) in FY26E EPS. However, we expect growth/margin to rebound in FY27E (refer to our initiation note Growth Acceleration Ahead; Valuations Attractive). We broadly maintain our FY27-28 estimates and build in FY26E-28E revenue CAGR of ~14% with EBITDAM of 10.7%/12.5%/12.8% in FY26E/FY27E/FY28E, respectively. We maintain BUY on the stock with unchanged TP of Rs2,050 on 50x Sep-27E PER.

Weak Q2 albeit in line with peers; improved market share across categories

Q2 revenue stood at Rs61.7bn, largely flat YoY (+1% YoY), as growth in HE (+3%) was offset by the flat growth in HA (-0.1%). Demand was slow due to change in GST rates which is in line with the broader weakness across peers. EBITDA was down ~28% YoY at Rs5.5bn, as EBITDAM declined by 351bps YoY to 8.9% with gross margin too declining by 232bps to 29.4% due to rising commodity prices and incremental investments during the festive season. PAT fell ~27% YoY to Rs3.9bn and PATM declined by 245bps to 6.3%.

Earnings call KTAs

1) Q2 was impacted by the temporary deferment of demand ahead of the GST rate cut. LG expects industry demand to regain momentum in Q3, led by GST-rate realignment with enhanced festive demand. 2) Margins were impacted by rising commodity prices and increasing spending for GTM. LG expects margins to improve in the long run, driven by boost in operating efficiency, increased localization, higher-premium products, better AMC, and improvement in the B2B business. 3) Capex guidance remains at Rs50bn for the next 4-5Y. The Sri City plant will help reduce lead time and save on logistics costs. LG will manufacture RAC by Q3FY27, compressor line by Q4FY27, followed by WM and Ref. 4) In HE, the premium segment is faring much better, while the B2B business (6% of revenue) is pressed by US tariff and the geopolitical situation. 5) LG has taken a price increase of 1.5-2% during Oct-25 in WM and Ref. Exports during H1FY26 stood at 7% v 6% in H1FY25. Localization stands at 55.4%, which the and mgmt targets improving by 2-3% pa, thus reaching 70% in a few years. 12) Capex guidance: 2-2.5% of revenue.

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