Strong brand positioning along with market leadership
About the stock: Incorporated in 1997, LG Electronics India (LGEDIA), is a wholly owned subsidiary of S. Korea based LG electronics Inc. which is a leading singlebrand global home appliance player. LGEDIA has strong manufacturing capabilities operated through two facilities at Noida, Pune and upcoming one at Andhra Pradesh. It operates one of the largest distribution networks among leading home appliances players with ~35,640 B2C touchpoints and ~463 B2B trade partners.
Investment Rationale
• Strong leadership hold across categories: LGEDIA is the market leader across multiple product categories – The company commands strong offline market shares, including ~29.9% in refrigerators, 33.5% in washing machines, 27.5% in panel TVs, 20.6% in inverter ACs, 51.4% in convection microwaves and 40.5% in water purifiers. In premium segments, LGEDIA enjoys a dominant position with ~43.2% share in side-by-side refrigerators, 36.9% in front-load washing machines, 27.2% in 5-star ACs and 62.9% in OLED TVs. Similarly, the company has strong presence in mass market i.e. high-volume segment. We expect LGEDIA to sustain its leadership across mass and premium categories, considering its brand trust, parent knowhow and execution abilities.
• Reputed global parentage and its focus on Indian operations: LGEDIA leverages strong brand equity and product innovation of parent, having access to global R&D. Under LG’s global south strategy, India is being positioned as a key pillar for domestic as well as export growth, innovation and manufacturing amid shifting global supply chains and geo-economic realignments. With India emerging as a global manufacturing hub, the company is further investing ~₹5000 crore for upcoming Sri City facility, which shall reduce logistic cost and presents export opportunity which company targets to increase from ~6% to ~10%+ of revenue by FY29.
• Localisation to pick up with expanding manufacturing capabilities: LGEDIA is currently one of the most backward integrated manufacturers with various key components such as compressors, heat exchangers & PCB assembly in-house, leading to strong localization component of ~55.8%. Management aims to increase localization by 2-3% p.a. which shall further aid in expanding margins and profitability.
Rating and Target Price:
• LGEDIA has proven its ability to leverage the strong brand, technical knowhow and execution abilities as reflected in its strong market share across product categories. It has a cash rich balance sheet with superior margin and return-ratios. Further, the company continues to invest growth capital to cater domestic as well as export opportunity. Recent sharp cut in GST rates shall aid demand revival, esp. on premium categories side.
• We initiate coverage on the stock with a BUY rating, assigning target price of Rs 1725, with a target PE multiple of 42x FY28E EPS
