LG Electronics IPO: Key Risks and Investor Insights | Stock Market Today

The LG Electronics India IPO has captured investor attention with a strong start. On the very first day of bidding, the IPO was fully subscribed, highlighting robust demand. By Day 2, subscriptions had tripled, reflecting heightened market interest. The offer, a pure offer-for-sale, does not involve any fresh capital infusion into the company.

Market Performance and IPO Subscription

• IPO opened with strong investor response and high subscription numbers.
• First-day subscription: fully subscribed.
• Second-day subscription: three times the shares offered.
• Offer closes today, marking the end of the public subscription period.

Despite this strong appetite, the IPO comes with some significant considerations that investors should be aware of.

Main Risks Highlighted in RHP

Proxy advisory disclosures reveal contingent liabilities and royalty payments as material risks:

• Contingent liabilities: Rs 4,717 crore, representing 73% of LG Electronics India’s net worth.
• Nature of liabilities: Primarily disputed income tax, excise, and service tax demands.
• Legal status: Many claims are under litigation or pending appeals in appellate forums.
• Financial impact: Negative outcomes in these disputes could affect future earnings or require large provisions.

Royalty Payments Under Scrutiny

LG Electronics India pays royalties to its South Korean parent, and the structure warrants attention:

• Standard royalty rates: 2.3% of net sales for most products; 2.4% for LCD TVs and monitors.
• Historical range: Royalty outflow between 1.63% and 1.9% of revenue over FY23–FY25.
• Promoter rights: The promoter has the ability to increase royalty charges up to 5% of annual consolidated turnover for domestically manufactured products, without shareholder approval.
• Implications: Higher royalty rates could impact profit margins, especially without minority investor oversight.

Company Details

LG Electronics India operates in the consumer electronics space, offering products ranging from home appliances to display technologies. Its IPO provides an opportunity for investors to participate in one of India’s well-known electronics companies, though it comes with notable financial and operational risks.

Summary

The LG Electronics India IPO is seeing exceptional market demand, reflecting investor confidence in the brand. However, contingent liabilities and royalty structures pose real risks that could affect financials. Investors participating in the IPO should consider these factors carefully while evaluating their involvement.