Rs 15,000 crore in vain? LG Electronics IPO has investors worried about a Korean red flag

LG Electronics is reported to launch its IPO in the month of October as the market conditions have stabilised from a few months ago, when the company deferred the plans for a brief period. The issue will entirely be an offer for sale (OFS), where the parent, LG Electronics Inc., will sell 10.18 crore equity shares, seeking around Rs 15,000 crore.

Since the IPO is completely an OFS, all the funds raised will go to the selling shareholder, which is the Korean parent in this case. However, the Street might not like the entire OFS offering, which was evident in the case of Hyundai India.

Despite being the largest ever issue, the Korean automaker's India arm debuted with a loss, a massive disappointment against the buzz it generated.

Usually, companies go for IPOs to raise funds that will be put to use for expanding businesses and growth plans. However, an OFS will just mean the parent might pocket the gains from the public offer, but there is no additional gain for the company from a business perspective. However, the parent can still choose to reinvest those funds, but the initial expectations are subdued.

Having said that, LG Electronics has a strong brand recall going for it in India, where it is a market leader in major home appliances and consumer electronics (excluding mobile phones) in terms of volume

Additionally, the company has been the number one player in this industry for 13 consecutive years (CY2011 to CY2023) as per the value market share in the offline channel in India, according to a Redseer Report. When compared to listed industry peers like Havells India, Voltas, Whirlpool of India, and Blue Star, LG Electronics India achieved the highest revenue from operations and earnings per share (EPS) in fiscal 2024.

LG sells products to B2C and B2B consumers in India and outside India. We also offer installation services, repairs and maintenance services for all our products.

The total market for India's appliances and electronics brands was estimated at Rs 3.23 lakh crore in H1 2024 (annualised) and is projected to reach Rs 5.69 lakh crore by CY2028, growing at a CAGR of 15%.

Given the sheer size of the IPO, investors will likely lap up the offering from a long-term perspective. This was seen in the case of Hyundai, where it delivered a robust 40% return since the listing. However, whether the IPO will impress geeks looking for short-term returns depends on the pricing and the value it leaves.

For FY24, the company reported a revenue of Rs 21,352 crore, marking an increase from Rs 19,868.24 crore in fiscal 2023. Profit after tax rose 12% to Rs 1,511 during the same period.

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Morgan Stanley India, JP Morgan India, Axis Capital, BofA Securities, and Citigroup Global Markets are the book-running lead managers, and KFin Technologies is the registrar to the issue.

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