LG Electronics India faces market test after Oct. 14 listing

LG Electronics India Chief Financial Officer Seo Dong-myung, left, and LG Electronics India Managing Director Hong Ju-jeon pose during a press conference announcing the company's Initial Public Offering (IPO) in Mumbai, India, Wednesday. Reuters-Yonhap

The stock price of LG Electronics’ Indian unit is set to face tests after its listing on the Indian stock market Oct. 14, with both optimism and pessimism coexisting over the much-touted stock’s trajectory.

Market watchers cast a rosy outlook for the fundamentals of LG Electronics India's (LGEI) business, citing its strong market dominance, profitability indicators and margin improvements that outpace rivals. At the same time, however, they point out that the momentum could be limited since the listing is an offer for sale (OFS) of shares previously held by LG Electronics headquarters, meaning none of the proceeds go to LGEI.

According to LG Electronics regulatory filings and LGEI’s prospectus, LG Electronics will unload a 15 percent stake in LGEI at a price band between 1,080 and 1,140 rupees per share, which is expected to raise between 1.74 trillion won ($1.24 billion) and 1.84 trillion won.

While the exact offering price will be set when the subscription finishes Oct. 9, multiple Indian media outlets expect it to be finalized at the upper end of the price band, citing demand from both institutional and retail investors.

If so, the unit’s post-listing market cap will hover over 12 trillion won, which is far higher than that of Whirlpool of India with 2.4 trillion won, Voltas with 7.2 trillion won and other home appliance companies listed on the local market.

The general market outlook on LGEI’s valuation is favorable, given the company’s performance so far.

LGEI posted 2.28 trillion won in sales and 209.7 billion won in net profit in the first half of the year, marking its highest half-year performance. On an annual basis, LGEI posted 3.79 trillion won in sales last year, a 15 percent year-on-year increase.

According to LGEI’s prospectus, the company’s return on equity (ROE) stood at 37.18 percent as of March last year, meaning it generated profit equivalent to nearly 40 percent of its shareholders’ equity. Typically, an ROE above 20 percent is considered a sign of strong profitability — making LGEI’s figure a clear indicator of exceptional financial efficiency and performance.

The company also noted that India’s appliance and electronics market has grown at 7 percent over the past five years and this growth is expected to accelerate to 12 percent over the next five years, driven by rising disposable incomes, growing urbanization and increasing penetration of appliances in India.

“We believe that robust demand for premium appliances, growth in income levels, our strong brand and the breadth of our product portfolio, coupled with our wide nationwide distribution and service network and in-house manufacturing capabilities, position us strongly for growth in the rapidly expanding consumer appliances and electronics market in India,” LGEI said.

An artist's rendering of LG Electronics' upcoming plant in Sri City, Andhra Pradesh / Courtesy of LG Electronics

However, the listing has limitations as well as it is an OFS, meaning only existing shares are being sold and there will be no fresh issue of equity. Since LG Electronics headquarters will take all of the proceeds, the Seoul-based company could use the funds for future investments, stabilizing cash flow and enhancing shareholder value, but there will be no direct cash inflow to LGEI from the listing.

Hyundai Motor India debuted on the Indian stock market on Oct. 22 last year, after drawing a whopping 4.5 trillion won by selling a 17.5 percent stake that Hyundai Motor Company was holding. At that time, the company’s ROE was valued at around 50 percent, but the stock price fell 7.2 percent on the first day of trading, and remained sluggish until June this year. Local media outlets pointed out that the listing will not directly benefit from Hyundai Motor India.

“As seen in Hyundai Motor India’s case, LGEI’s stock price may see increased volatility, as the OFS structure could limit its upside potential,” an industry official said. “It remains to be seen how the funds raised through the listing will flow into the Indian unit and whether that will lead to additional local investments.”