LG Electronics India IPO Risks, Royalty Issues & Investor Warning

LG Electronics India’s initial public offering (IPO) has drawn huge investor interest, fully subscribed on the first day and three times over on the second. However, proxy advisory firm InGovern Research Services has flagged significant risks that investors should consider before betting on the stock.

The company has disclosed contingent liabilities totaling Rs 4,717 crore, about 73% of its net worth, mainly from disputed tax claims under litigation. InGovern warns that negative outcomes in these cases could significantly impact earnings or require hefty provisions, posing material risk for shareholders.

Royalty payments to the South Korean parent company are also under scrutiny. LG India currently pays 2.3% of net sales as royalties for most products and 2.4% for LCD TVs and monitors. The promoter has the authority to raise royalty charges up to 5% of annual turnover without shareholder approval, a factor that could affect profit margins.

Additionally, LG Electronics India’s promoter will retain 85% ownership post-listing, limiting minority shareholder influence. Related-party transactions and potential cross-border tax scrutiny could further pose challenges to investors.

Despite these warnings, LG Electronics India has reported strong financial performance. FY25 revenue reached Rs 24,367 crore, with a net profit of Rs 2,203 crore and healthy EBITDA margins of 12.8%. The company operates debt-free and shows solid returns on capital and net worth.

InGovern advises investors to carefully weigh these structural risks against the company’s strong operating metrics. While the IPO presents a rare opportunity to invest in a leading electronics player, the contingent liabilities, promoter control, and royalty escalation could impact future growth and capital efficiency.