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LG Electronics India IPO: LG Electronics India aims to enhance its public market presence and strengthen its financial position.
The company’s plans for growth include expanding manufacturing capacity with a new plant in Andhra Pradesh
LG Electronics India, a subsidiary of South Korea’s LG Electronics, has filed preliminary papers with SEBI for its Initial Public Offering (IPO). The parent company will sell 15% of its stake, amounting to over 10.18 crore shares. This IPO marks LG Electronics India’s entry into the Indian stock market, following Hyundai Motors India.
The IPO is entirely an offer for sale (OFS), with no fresh issuance of shares. LG Electronics India will not receive any IPO proceeds; all funds raised will go to its parent company, LG Electronics. The price band will be set through the book-building process, based on market demand and other factors. Post-offer, LG Electronics Inc.’s stake will reduce by 15%, leaving it with a 57.69% share in the company.
Key Highlights of the IPO
- Offer Size: 10.18 crore shares of Rs 10 each.
- Proceeds: All proceeds go to LG Electronics Inc.
- Anchor Investors: 60% of the Qualified Institutional Buyers (QIB) portion will be allocated to anchor investors, with one-third reserved for domestic mutual funds.
- Revenue: LG Electronics India earned Rs 64,087.97 crore in FY24.
- Manufacturing: The company operates in Noida and Pune, with an installed capacity of 1.4 crore products.
The company aims to increase visibility, boost brand value, and create liquidity with this IPO.
Strengths of LG Electronics India
Strong Financials: The company operates a capital-efficient business model, showcasing high growth and profitability.
Global Support: Backed by LG Electronics, a global leader in home appliances, the company benefits from brand strength and global expertise.
Wide Network: LG Electronics India boasts a comprehensive distribution and after-sales service network across India, improving accessibility and customer satisfaction.
Operational Efficiency: Localised manufacturing and supply chains help the company achieve cost efficiency.
Market Leadership: The company is a leader in key categories of home appliances and consumer electronics in India.
Weaknesses of LG Electronics India
High Promoter Dependence: The company is heavily reliant on LG Electronics for business support, product design, technology, and exports. Any disruption in this relationship could impact operations and financial health.
Manufacturing Vulnerability: Its reliance on two main manufacturing units (Noida and Pune) exposes it to risks in case of disruptions or inefficiencies.
Intense Competition: The consumer electronics and home appliance markets are highly competitive. LG’s exit from the mobile phone market in FY22 has further reduced its product portfolio.
Supplier Risks: The company relies on a limited number of suppliers, with 31.44% of raw materials coming from its top 10 suppliers. Any disruptions or misconduct could negatively impact its operations.
Key Risks
Export Dependency: LG Electronics India depends on its parent company for export orders. Any delays or issues in accessing export markets could harm its prospects.
Component Imports: Despite efforts to localise, the company still imports significant components from countries like China, South Korea, and Japan, especially in the premium segment.
Royalties: The company pays royalties to its parent company for the use of brand name and technology, which adds to its costs. In FY24, it paid Rs 323.2 crore in royalties.
The company’s plans for growth include expanding manufacturing capacity with a new plant in Andhra Pradesh and focusing on local sourcing to reduce costs. However, its dependence on LG Electronics for key business operations poses ongoing risks.
With the proposed IPO, LG Electronics India aims to enhance its public market presence and strengthen its financial position. Despite strong market leadership and global backing, the company faces challenges related to competition, manufacturing vulnerabilities, and its reliance on LG Electronics for various business operations.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Readers are advised to check with certified experts before making any investment decisions.