LG Electronics India premium mix and exports support resilient margins and earnings growth

Investment View and Key Thesis

Elara Securities retained its Accumulate rating on LG Electronics India following a healthy Q1 FY27 performance. The broker remains positive on the company because premiumisation, price hikes, export growth and backward-integration capex are supporting revenue growth and margins.

Elara also highlights LG Electronics India’s market leadership across several consumer-durable categories, industry-leading margins, a higher premium-product contribution than peers, the LG Essential series and the commencement of the Sri City facility as sources of revenue visibility. The investment thesis depends on sustained premiumisation, export momentum, successful Sri City ramp-up, increasing localisation and margin benefits from compressor backward integration.

Q1 FY27 Financial Performance

LG Electronics India reported Q1 FY27 net sales of Rs 72,334m, up 15.5 per cent year on year but down 10.2 per cent quarter on quarter. Management said every category grew at a double-digit rate in both volume and value terms. Growth was supported by better realisation from premium products and price increases of 10-14 per cent.

Home appliances and air solutions, which account for 77 per cent of sales, grew 14 per cent year on year. Growth was led by premium French-door and side-by-side refrigerators, 8kg-plus washing machines, room air conditioners and dishwashers. Home entertainment, contributing 23 per cent of sales, grew 22 per cent, supported by demand for large-screen televisions, OLED and QLED products, sporting events and aspirational consumption.

The report cites company data showing LG Electronics India’s television market share at 26 per cent and its OLED-category share at 59 per cent.

Profitability and Margins

Q1 FY27 EBITDA rose 26.2 per cent year on year to Rs 9,043m, exceeding Elara’s estimate by 5 per cent. EBITDA margin expanded by 110 basis points year on year to 12.5 per cent, aided by the premium mix and price hikes.

Home appliances and air solutions EBIT margin increased 10 basis points to 11.6 per cent. Home entertainment EBIT margin expanded by 340 basis points, reflecting a better OLED and QLED mix, cost efficiency and normalised advertising spend. Reported and adjusted Q1 FY27 profit after tax was Rs 6,529m, up 27.2 per cent year on year.

Management expects FY27 EBITDA margin to remain in the early double digits and reiterated its target of late-teens sales growth in FY27.

Premiumisation and Business Momentum

Management said the Essential series sold 500,000 units in H1 CY26 and carries margins comparable with business-to-consumer category products. In televisions, 55-inch-plus sets grew 33 per cent year on year and represented 50 per cent of sales. Channel stocking was underway ahead of Onam, Durga Puja and Diwali.

Institutional and government television orders were healthy, with further QLED and OLED launches planned. The business-to-business portfolio includes heating, ventilation and air conditioning and information-display panels. LG Electronics India is supplying multi-variable refrigerant flow systems and chillers to mid-scale data centres, while the hyperscaler opportunity remains at a preliminary stage.

Exports, Localisation and Capacity Expansion

Exports rose approximately 30 per cent year on year despite the Middle East conflict, driven by premium large-capacity, frost-free and side-by-side refrigerators. The Essential range of refrigerators and washing machines is exported to 22 countries across Asia, the African Union and Europe. Management also stated that the company exports globally to 65 countries.

Management is targeting localisation of 65 per cent over the next three to four years, compared with 55.2 per cent in the past year. Q1 capex was approximately Rs 7,400m, including around Rs 5,100m for Sri City.

Air-pump compressor and room-air-conditioner capacity at Sri City is expected to become operational in H2, while capacity expansion continues at Pune and Greater Noida. Compressor production is expected to begin in Q1 CY27. Room-air-conditioner compressor capacity at Sri City is being increased by 2m units from the existing 1m-unit capacity at Greater Noida.

Earnings Outlook and Valuation

Elara raised its FY27E, FY28E and FY29E revenue estimates by 2.2 per cent, 2.1 per cent and 2.2 per cent, respectively. It increased FY28E and FY29E earnings per share estimates by 5.3 per cent and 5.7 per cent, while the report summary notes a 6 per cent increase in each year.

The estimates imply a 15 per cent FY26-FY29E revenue CAGR and a 25 per cent FY26-FY29E earnings CAGR. Elara forecasts average return on equity and return on capital employed of 27 per cent during FY27-FY29E.

The target price was raised to Rs 1,925 from Rs 1,750, based on an unchanged 45 times June 2028E price-to-earnings multiple and June 2028E earnings per share of Rs 43.

Key Risks and Operating Considerations

• Input-cost inflation could affect margins and profitability.
• Geopolitical disruption, including the impact of the Middle East conflict, remains a consideration for exports.
• The investment thesis requires sustained premiumisation, continued export momentum, successful execution of the Sri City ramp-up, higher localisation and delivery of margin benefits from compressor backward integration.