Demand to remain strong; premium products to gain traction
We visited the LG Electronics India (LGEL) Pune plant and interacted with the management. Our interaction revolves around demand trends, LPG availability, margins, and growth outlook, along with insights on capacity utilization and summer preparedness. Management indicated that LPG availability remains largely secure, with alternate fuels ensuring minimal disruption, while demand trends remain strong with healthy Jan–Mar’26 growth and a positive summer outlook, supported by a pickup in secondary sales from Apr’26. We reiterate a BUY rating on the stock and value it at 45x FY28E EPS to arrive at our TP of INR1,860. Key takeaways from the management meeting
LPG shortage impact: RAC production is covered till Mar’26, while refrigerator production is covered till early-Apr’26. The company is also shifting to PNG and acetylene, while ~30% of LPG requirements can be shifted to diesel. Washing machine and TV production remain unaffected. No major production disruption is expected, with overall utilization likely to remain at ~80%.
Demand trends: The company reported strong Jan–Feb’26 growth across product categories. RAC sales grew during these two months despite a strong base, and March also remains strong as of now. The summer season was delayed in the Southern region, with recent showers in a few parts of the country. However, management remains optimistic about a strong summer season and expects growth to exceed last year’s level, provided there are no supply chain disruptions.
RAC pricing & margins: Cost pressures are visible and continue to fluctuate frequently. The company implemented ~7%–10% price hike in Jan’26, with scope for further increases depending on RM cost inflation. It is also working to contract directly with resin suppliers, bypassing intermediaries to improve procurement efficiency. Margins are expected to be supported by calibrated pricing actions and a gradual shift toward a more premium product mix.
Target to double exports in FY27E: The company plans to increase its export mix to ~12% of revenues in FY27 vs ~6% in FY26. This growth will be driven by side-by-side refrigerators and front-load washing machines.
Valuation and view
LGEL has established itself as a strong player in various consumer electrical categories, such as TVs, refrigerators, washing machines, RACs, and microwave ovens. The industry outlook remains constructive, led by rising preference for premium, energy-efficient products, while low penetration levels continue to offer volume-led growth opportunities.
We estimate a CAGR of ~10%/22%/23% in revenue/EBITDA/PAT over FY26- 28. OPM should be at 12.0%/12.7% by FY27/FY28 vs. 10.3% in FY26. We estimate a cumulative OCF of INR72b and FCF of INR33b during FY26-28. Lower FCF is due to INR39b capex for the Sri City plant during FY26-28E. The stock trades at 45x/39x FY27/FY28E EPS. We value LGEL at 45x FY28E EPS to arrive at our TP of INR1,860. Reiterate BUY.
