LG Electronics IPO: A peer-to-peer analysis of key performance indicators as LG gets ready for a mega IPO

Months after Hyundai’s IPO, another South Korean company's domestic arm LG Electronics submitted its draft red herring prospectus (DRHP) with SEBI. It aims to raise ₹15,000 crore via an offer for sale, offloading a 15% stake. If successful, this IPO would rank as India’s fifth-largest IPO ever.

India’s appliances and electronics market, valued at ₹6,360 billion ($ 77 billion) as of H1FY24, is expected to grow to ₹10,060 billion ($120 billion) by FY28 according to the Redseer report. Rising disposable incomes, expanding urbanisation, and increased use of appliances and electronics in both urban and rural regions will be the main drivers of this growth. Industry is likely to benefit both B2C and B2B market segments.

In India, LG Electronics is a well-known household, popular for its home appliances and consumer electronics. Its product portfolio range includes Refrigerators, Washing Machines, Air Conditioners, Water Purifiers, Air Purifiers, Dishwashers, Microwave Ovens, Compressors & Motors. Televisions and Audio Devices, Monitor & Projector. Its offerings are from both B2B and B2C channels. The company is the market leader in India for major appliances by volume and value market share, holding this position for 13 consecutive years (2011-2023).

With an annual capacity of 13.99 million products, LG has two state-of-the-art manufacturing facilities in Noida and Pune. It also has a vast network of 280 long-term suppliers and a distribution network consisting of 25 warehouses, including two central and 23 regional distribution centres.

In the listed space, LG faces competition from Havells, Voltas, Whirlpool, and Blue Star. Its global competitors include Haier, Philips, Samsung, and Sony. Emerging business models, such as brands introduced by consumer electronics retail chains, are imposing stiff competition in the industry.

Peer-to-Peer Comparison for LG Electronics Ltd

Among its listed peers, LG Electronics stands out with the highest revenue in FY24. It has the best return on net worth (RONW), indicating LG’s strong market position allowing it to generate higher profit on shareholder’s capital within the segment. Additionally, LG’s strong earnings are reflected in its highest EPS when compared to its peers.

Comparing Key Financial Indicators for FY24

In FY24, LG Electronics' EBITDA and PAT margins of 10.4% and 7%, respectively, are among the best in the industry. The only peer that is close to LG with marginally lower margins is Havells. LG maintains a Nil debt-to-equity ratio compared to its peers Havells (0.04x), Voltas (0.14x), Whirlpool (0.01x), and Blue Star (0.13x). While LG Electronics' interest coverage ratio of 20.34x is not the industry’s best it is solid and is second only to Havells at 41.9x. On the other hand, Havells (9.93%), Voltas (31.40%), and Blue Star (21.41%) all reported faster revenue growth, while LG reported a slower rate of 7.47%.

Key Operational Indicators Comparison for FY24

During FY24, LG Electronics outperformed its peers in operational efficiency, achieving the highest return on capital employed (ROCE) at 45.31%, followed by Blue Star at 19.88%. Its working capital cycle of 14.54 days is the shortest among peers, compared with Havells (46.89 days), Voltas (10.67 days), Whirlpool (7.44 days), and Blue Star (9.51 days). While LG’s gross margin of ₹6,422 crore (30.08%) is also significant, with only peers like Havells (32.39%) and Whirlpool (33%) surpassing it in percentage terms.

Conclusion

LG Electronics' upcoming IPO reflects its excellent market position in India's expanding consumer electronic sector. Strong financials, highest ROCE and EPS among peers demonstrate its exceptional profitability and effective use of invested capital. However, LG Electronics faces strong competition from both local and international players due to developing technology and emerging business models. Each of them brings distinct strategies and strengths to this dynamic market.