LG Electronics India IPO: Strengths, weaknesses, and key details from DRHP

LG Electronics India IPO: In less than two months after auto giant Hyundai India went public with India's largest-ever IPO, another South Korean company is planning to debut in the India stock market by divesting its stake through an initial public offering (IPO). The consumer durables giant, LG Electronics, has filed the Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (Sebi) for the IPO plans of its subsidiary, LG Electronics India.

 

The IPO, which is entirely an offer for sale (OFS), will see Seoul-based parent LG Electronics divesting up to 101,815,859 equity shares of face value Rs 10 each from its Indian subsidiary.

 

 

As investors await further developments in the process, here are the key strengths and weaknesses of the LG Electronics India IPO, as outlined in its DRHP:

 

LG Electronics India: strengths

 

Market leadership: LG Electronics India holds the top market share in the home appliances and consumer electronics industry across key product categories in India, according to its DRHP.

 

Global backing: Backed by LG Electronics, a global leader in home appliances by revenue in CY 2023, the company benefits significantly from the strong LG brand.

 

Extensive network: LG Electronics India boasts a comprehensive pan-India distribution and after-sales service network, enhancing the consumer experience.

 

Operational efficiency: The company, as outlined in DRHP,  has strong manufacturing capabilities and a localised supply chain, ensuring cost efficiency.

 

Financial strength: LG Electronics India, in its DRHP said that it operates a capital-efficient business model with high growth and profitability.

 

LG Electronics India: weaknesses

Promoter dependency, overseas challenges: The company highlighted its dependence on LG Electronics for business support and exports, noting that any adverse changes in this relationship could harm its operations, financial health, and reputation. “International operations bring risks, including higher costs and resource demands. Delays or issues in accessing export markets, particularly those reliant on LG Electronics, could impact growth and profitability.”

 

Manufacturing dependency: The company heavily relies on its Noida and Pune manufacturing units. Any disruptions or underutilisation could negatively impact business operations. "If we fail to maintain or increase the utilisation levels of our manufacturing units, our business, future prospects, and financial performance could be materially and adversely affected," it said.

 

Competitive markets, business discontinuation: LG Electronics India faces intense competition in the rapidly evolving home appliances and consumer electronics markets. The company also discontinued its Mobile Communication Division in FY22. "We may not be able to compete successfully in the highly competitive and fast-evolving home appliances and consumer electronics markets, which could adversely impact our operations," it stated in the DRHP.

 

Supply chain risks: The company’s heavy reliance on top suppliers (21.45 per cent of purchases from the top five and 31.44 per cent from the top ten in Q1 FY24) poses a risk. "Any interruption in the availability of raw materials or supplier misconduct could adversely impact our business operations," the DRHP highlighted.

 

LG Electronics India IPO details

LG Electronics India IPO comprises an offer for sale of up to 101,815,859 equity shares of face value Rs 10 each. "The price band and the offer price will be determined, in consultation with the book-running lead managers, based on an assessment of market demand for the equity shares of face value Rs 10 each offered through the book-building process and on the basis of quantitative and qualitative factors," said LG Electronics India in its DRHP.

 

KFin Technologies is the registrar for the IPO. The book-running lead managers include Morgan Stanley India, JP Morgan India, Axis Capital, BofA Securities India, and Citigroup Global Markets India. The shares are proposed to be listed on BSE and NSE.

 

Notably, LG Electronics India will not receive any proceeds from the offer. All proceeds will be received by LG Electronics Inc after deducting offer-related expenses and relevant taxes, which will be borne by the selling shareholder.

 

LG Electronics India financial details

LG Electronics India's revenue from operations rose 7.48 per cent to Rs 21,352 crore in FY24 from Rs 19,864.59 crore in FY23, as per its DRHP.

 

The company’s profit for FY24 increased 12.35 per cent to Rs 1,511.06 crore from Rs 1,344.93 crore in FY23. On the other hand, total expenses rose 7.73 per cent to Rs 19,520 crore in FY24 from Rs 18,288.25 crore in FY23.

 

About LG Electronics India

LG Electronics India, a subsidiary of the South Korean chaebol LG Electronics Inc, manufactures and sells products including washing machines, refrigerators, LED TV panels, inverter air conditioners, and microwaves.