The LG Electronics India IPO has drawn significant attention from investors, reflecting the market’s enthusiasm for prominent technology and electronics firms. On the very first day of bidding, the IPO was fully subscribed, underscoring a robust appetite. By the second day, the offer had been subscribed three times, signaling strong investor confidence in the company’s prospects.
The public offer, structured entirely as an offer-for-sale (OFS), means that no fresh capital will flow into the company. Instead, the existing shareholders are divesting part of their holdings.
Contingent Liabilities and Tax Disputes
LG Electronics India’s red herring prospectus (RHP) highlights contingent liabilities totaling ₹4,717 crore, which accounts for 73% of the company’s net worth. These liabilities primarily relate to:
- Disputed Income Tax Demands
- Excise and Service Tax Demands
- Transfer Pricing Adjustments connected to royalty and technical service payments to the South Korean parent company
The company has not made provisions for these pending proceedings, citing ongoing legal appeals. The substantial quantum and lack of fixed timelines introduce a level of uncertainty for investors.
Royalty Payments Under Scrutiny
The RHP details a fixed royalty rate of 2.3% of net sales for most products and 2.4% for LCD TVs and monitors. Historically, royalty outflows as a share of revenue have ranged between 1.63% and 1.9% over FY23–FY25.
Significantly, the promoters retain the ability to increase royalty charges up to 5% of annual consolidated turnover of domestically manufactured products without requiring shareholder approval. This means that margins could be affected without minority investor oversight.
Additionally, there is a contingent liability of ₹315 crore regarding royalty payments to the promoter, with potential cross-border scrutiny from South Korean tax authorities for future periods.
Promoter Control
Post-listing, the promoter will continue to hold 85% of the Indian subsidiary, maintaining significant control over board decisions and related-party transactions. While this ensures continuity, it limits minority shareholders’ influence.
Financial Performance
Despite structural risks, LG Electronics India has shown solid financial performance:
- Consolidated Revenue (FY25): ₹24,367 crore
- Net Profit (FY25): ₹2,203 crore
- EBITDA Margin (FY25): 12.8%
- Debt-free Balance Sheet
Revenue has grown at a CAGR of 10.9% over recent years. Returns on capital employed and net worth reflect strong profitability and operational efficiency.
Summary
The LG Electronics IPO demonstrates a compelling mix of strong market demand and solid financial performance. While contingent liabilities and royalty obligations present structural risks, the company’s growth trajectory and debt-free balance sheet provide a stable foundation for investors.
Investors and market participants are closely monitoring developments as the IPO progresses, evaluating both the opportunities and the flagged risks before finalizing their decisions.
