Buy LG Electronics India Ltd for the Target Rs 2,100 by Emkay Global Financial Services Ltd
LG Electronics India (LGEIL) delivered a strong 2Q, with revenues up 19.5% yoy (~5% above estimates), driven by a robust double digit (DD) growth across key categories, including washing machines, refrigerators, and Room ACs. EBITDA grew 28% yoy, with EBITDAM at 9.5% (vs 12.5%/8.9% in 1QFY27/2QFY26). Home Appliances and Air Solutions (HA) witnessed broad-based growth across the mass and premium segments, while in Home Entertainment (HE), value growth outpaced volumes in televisions, driven by consumer upgrades to larger screens, with offline market share reaching an all-time high. The management maintains its FY27 revenue growth guidance of mid-teens. Due to ongoing geopolitical situations leading to commodity inflation, memory-chip price pressures, and currency depreciation, LGEIL has taken 2 rounds of price hikes, without any meaningful demand slowdown. Management also retains its FY27 EBITDAM guidance of early-DDs. Exports and B2B remain key medium-term growth levers. The ‘Make for India, Make in India, Make India global’ strategy positioning would be supported by the upcoming Sri City facility, with compressor production to start in 3Q and AC manufacturing planned for 4Q. Also, LGEIL announced its entry into the vehicle solutions business, spanning automotive entertainment and telematics products. We largely retain our estimates. We reiterate BUY; raise our TP by ~2% to Rs2,100 at 50x Sep-28 PER (roll-forward).
Strong 2Q; DD growth across key categories
LGEIL posted a strong 2Q with revenue growing 19.5% yoy, led by strong traction across categories. HA segment grew 21% yoy with EBITM at 8.7% vs 8.2% in 2QFY26. HE saw healthy growth of 17% yoy, with EBITM at 12.9% (vs 12.6% in 2QFY26). Overall EBITDA grew 28% yoy, with margin up by ~60bps yoy to 9.5%. PAT grew ~ 26% yoy to Rs4.9bn.
Earning call highlights
1) Management retains its mid-teens revenue growth and early double-digit margin guidance, while aiming to outperform both guidance and industry estimates.
2) Despite commodity and forex pressures, margins expanded on operating leverage and richer product mix. Management remains confident of healthy long-term profitability, driven by premiumization, localization, efficiencies, and higher share of B2B, exports, and AMC revenues.
3) Management expects 3Q/4QFY27 to outperform 1H, supported by festive demand and premiumization.
4) 55-inch+ TVs contribute ~50% of TV revenue, fully automatic machines account for >60% of washing machine sales, while premium multi-door refrigerators are growing over 50%. RAC momentum is expected to sustain into 4Q.
5) 2 price hikes have been implemented this year without any meaningful demand slowdown. Further hikes will depend on input-cost movements, with efficiency, localization, and supplier negotiations remaining the first line of defense.
6) The Rs50bn investment in Sri City remains on track, with compressor production starting in 3QFY27 and AC manufacturing in 4QFY27. The additional 2mn-unit in-house compressor capacity should reduce external sourcing and forex exposure, providing a structural margin tailwind.
7) Exports now span 68 countries (vs 50 earlier), with 151 partners (vs 112). B2B is currently 10-12% of revenue and is targeted to exceed 15% in 3Y, retaining its 20% long-term growth ambition, led by information displays and system ACs.
8) LGEIL is entering Vehicle Solutions, starting with telematics and automotive entertainment, with manufacturing planned at Sri City. Chest freezers and built-in kitchen solutions are additional planned categories.
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