- Home Appliances revenue fell 9.8% YoY, yet LG still gained market share across major categories.
- Segment margins contracted 310bps (Home Appliances) and 390bps (Home Entertainment) because of higher commodity, recycling compliance and AMC costs.
- FY27‑FY28 earnings estimates trimmed about 5% as new‑plant fixed costs and upfront AMC expenses bite.
- Target price reduced to ₹1,808, but a 45x FY28 EPS multiple keeps the stock in BUY territory.
- Peers such as Tata Consumer, Voltas and Blue Star are wrestling with similar cost‑inflation, yet LG’s share‑gain narrative may offset the earnings drag.
You’re overlooking the hidden cost squeeze on LG’s India appliance unit.
Why LG Electronics India's Margin Compression Mirrors Appliance Sector Trends
LG’s Home Appliances & Air Solutions segment posted a 9.8% YoY revenue decline, while refrigerators and washing machines slipped in the high single‑digit range. Air‑conditioner sales stayed flat, reflecting a broader slowdown in discretionary spend as Indian consumers tighten belts after three years of pandemic‑driven buying sprees.
Margin erosion of 310 basis points (bps) is not a one‑off glitch. Commodity prices for steel, copper and plastics have stayed above pre‑2022 levels, inflating the bill of materials (BOM). Add to that the mandatory recycling compliance fees introduced under the extended Producer Responsibility (EPR) regime – a policy shift that forces manufacturers to shoulder end‑of‑life processing costs, typically absorbed into gross margin.
Operating leverage also turned negative. LG’s new plant in Sriperumbudur, while promising capacity upside, added a steep fixed‑cost base. The upfront annual maintenance contract (AMC) expenses, recorded as a lump‑sum in the quarter, further compressed earnings. In plain terms, every rupee of revenue now carries a higher cost‑share, squeezing the bottom line.
LG's Market Share Gains vs. Competitors: Tata, Voltas, Blue Star
Despite the topline weakness, LG reported a year‑to‑date (YTD) market‑share uptick across refrigerators, washing machines and air‑conditioners. The brand’s premium positioning and aggressive after‑sales service network have helped it steal customers from Tata Consumer Products’ ‘Kohler‑style’ line and Voltas’ mid‑tier offerings.
Competitor snapshots:
- Tata Consumer Products – saw a 4% YoY revenue dip, with margins down 250bps, primarily due to raw‑material spikes.
- Voltas – flat top‑line growth but margin pressure of 180bps as it invested heavily in inverter‑technology R&D.
- Blue Star – modest 2% revenue growth, yet its margins fell 150bps because of higher logistics costs.
The common thread is cost‑inflation, but LG’s share‑gain narrative provides a defensive cushion. If the company can translate that share into volume recovery once commodity prices stabilize, the earnings dip could be short‑lived.
Historical Parallel: 2019 Appliance Cycle and What Followed
Back in FY20, LG India experienced a similar margin compression when the Indian government introduced a GST cut on TVs. The expected demand surge never materialised, leaving the TV segment flat YoY and margins down 350bps. However, the company leveraged its stronger refrigerator and AC pipelines to offset the shortfall, and by FY22 it posted a 12% CAGR in EBITDA.
The lesson? A temporary margin squeeze does not automatically translate into a long‑term earnings decline if the firm can capitalize on cross‑category share gains and maintain a disciplined cost‑control regime.
Revised FY27‑FY28 Outlook: Numbers, Assumptions, and Risks
Prabhudas Lilladher trimmed FY27 and FY28 earnings forecasts by 5.3% and 5.0% respectively, mainly because of:
- Higher recycling‑compliance costs (estimated at 0.8% of revenue).
- Up‑front AMC expenses recorded as a one‑time hit.
- Elevated fixed costs linked to the new Sriperumbudur plant, assuming a 12‑month ramp‑up period.
Nevertheless, the firm still projects a robust revenue CAGR of 11.5% and EBITDA CAGR of 23.0% through FY28, driven by:
- Continued premium‑segment penetration in refrigerators and washing machines.
- Incremental air‑conditioner sales as the Indian summer season normalises.
- Expansion of the Information Display (ID) business, which is expected to shift back to higher‑margin projects after the current low‑margin order backlog clears.
Key risk factors include further escalation in raw‑material prices, slower than expected plant utilisation, and any regulatory tightening on EPR that could raise recycling fees beyond current estimates.
Technical Snapshot: Valuation, Target Price, and Ownership Metrics
The analyst team retains a BUY rating, setting a revised target price of ₹1,808, down from ₹1,920. The valuation hinges on a 45x FY28 EPS multiple, which, while high, reflects the company’s premium‑brand premium and expected margin recovery.
Current market metrics (as of the latest close):
- Price‑to‑Earnings (P/E) – 38x trailing twelve‑month.
- Enterprise Value/EBITDA – 12.5x.
- Institutional ownership – 62%, indicating confidence from foreign portfolio investors.
From a technical standpoint, the stock is trading near its 200‑day moving average, offering a modest upside cushion if the earnings outlook improves.
Investor Playbook: Bull vs. Bear Cases
Bull Case
- Margin recovery as raw‑material prices stabilise and recycling fees become a predictable cost line.
- Full utilisation of the new plant by FY27, unlocking economies of scale.
- Continued market‑share gains in premium refrigerator and AC categories, translating into top‑line acceleration.
- Successful transition of the Information Display backlog to higher‑margin contracts, boosting Home Entertainment profitability.
Bear Case
- Persistent commodity inflation that outpaces price‑pass‑through ability, eroding margins further.
- Regulatory surprises in EPR compliance that raise recycling costs beyond current estimates.
- Under‑utilisation of the new plant, leading to higher fixed‑cost drag for longer than anticipated.
- Competitive pricing wars, especially from Tata and Voltas, that could eat into LG’s share‑gain momentum.
Investors should weigh the upside of a potential margin rebound against the downside of an extended cost‑inflation cycle. A position sized modestly with a clear stop‑loss around ₹1,650 could capture upside while limiting exposure if the bearish scenarios materialise.