LG Electronics India reported a subdued Q3FY26 performance amid softer post-festive demand and margin compression driven by input cost pressures and currency volatility. Revenue declined 6.4 percent year-on-year, while EBITDA margins contracted sharply. However, ICICI Securities believes the weakness is seasonal and temporary. The brokerage highlights premiumisation, export acceleration under the India–EU FTA, and deepening localisation as structural growth levers. Management expects a sharp Q4 rebound and double-digit revenue growth in FY27E, supported by improving operating leverage and calibrated price hikes. The stock is valued at 44x FY28E EPS.

Q3FY26: A Transitional Quarter Marked by Demand Softness

Revenue declined 6.4 percent YoY to Rs 4,114 crore, reflecting weaker post-festive demand and subdued traction in compressor-led categories such as air conditioners and refrigerators. Sequentially, revenues dropped 33.4 percent, underscoring seasonal normalization.

Segmental performance was uneven. The Home Appliance & Air Solutions division de-grew 9.8 percent year-on-year, while Home Entertainment posted marginal 1.7 percent growth, suggesting relative resilience in television demand.

Margin pressures intensified. EBITDA fell 42 percent YoY to Rs 196 crore, with EBITDA margin contracting 290 basis points YoY to 4.8 percent. Operating deleverage, higher copper and aluminium costs, foreign exchange volatility, and compliance-related expenses weighed on profitability.

Profit after tax declined sharply to Rs 90 crore, compared to Rs 233 crore in Q3FY25.

Variance Snapshot: Financial Performance at a Glance

The compression in margins reflects input inflation and operating deleverage rather than structural deterioration in business fundamentals.

Premiumisation and Market Share Gains: Strategic Tailwinds

Despite the weak quarter, LG strengthened its competitive positioning.

Refrigerator market share stands at 30 percent, up 50 basis points year-to-date. Room air conditioner share improved to 17.3 percent, while televisions gained 70 basis points.

Premium dominance remains a critical differentiator. LG commands:

62.4 percent share in OLED TVs

43.3 percent share in side-by-side refrigerators

These high-margin categories underpin long-term profitability expansion.

Export Acceleration: India as a Global Manufacturing Hub

Exports currently contribute 6–7 percent of revenues. Management intends to increase this to the mid-teens by FY27 and beyond.

Key catalysts include:

India–EU Free Trade Agreement

Rationalisation of US tariffs

Capacity expansion at Sri City, Andhra Pradesh

Premium refrigerator exports from Pune facility

The Sri City plant’s first RAC line is expected by Q4CY26, funded through internal accruals. This strategic capacity will support export growth and deeper localisation.

Localisation as a Structural Margin Lever

Localisation has improved meaningfully from 45.1 percent in FY22 to 54.6 percent in Q3FY26. Management aims to increase localisation by 2–3 percent annually.

Higher domestic sourcing reduces import dependency, mitigates FX risk, and enhances gross margin stability. Combined with global procurement scale and backward integration, this strengthens operating resilience.

While FY26 margins face near-term headwinds, management reiterates:

FY26 EBITDA margin guidance remains in double digits

FY27 margins expected in early-teens range

Calibrated price hikes — 7–10 percent in air conditioners and 2–3 percent in refrigerators and washing machines — are partially offsetting input inflation.

FY26 and FY27 Outlook: Recovery Underway

Management commentary indicates Q4 has started strongly with broad-based demand recovery.

For FY26E:

Early single-digit revenue growth expected

Strong Q4 performance to drive recovery

Mid-teen Q4 EBITDA margin anticipated

For FY27E:

Double-digit revenue growth guidance

Early-teen EBITDA margins

Export contribution expansion

Premium product mix improvement

Valuation Framework and Investment Thesis

ICICI Securities values LG Electronics India at 44x FY28E EPS, reflecting confidence in medium-term earnings expansion.

Key projected metrics:

Return ratios remain healthy, with RoCE expected to recover toward 40 percent by FY28E.

Target and Key Levels for Investors

Current Market Price: Rs 1,511

Target Price (12 months): Rs 1,780

Implied Upside: 18 percent

Support levels are seen around Rs 1,400–1,420 based on recent consolidation, while resistance is expected near Rs 1,650 before moving toward the target zone.

Risks to Monitor

Investors should closely track:

Intensifying competitive dynamics

Sustained raw material inflation

Dependence on parent entity for R&D

Currency volatility affecting imports

Conclusion: Temporary Weakness, Structural Strength Intact

Q3FY26 may have disappointed on the surface, but it does not alter the structural thesis. LG Electronics India remains a premium franchise with entrenched distribution, manufacturing scale, and brand equity.

The confluence of export acceleration, premiumisation, localisation gains, and operating leverage recovery positions the company for a multi-year earnings trajectory.

ICICI Securities’ BUY call with a target of Rs 1,780 reflects confidence that FY27E will mark the inflection point in both revenue growth and margin normalisation.