What Risks Does InGovern Highlight in LG Electronics India IPO?
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Synopsis
InGovern Research Services raises alarms for investors in LG Electronics India's IPO, highlighting risks linked to contingent liabilities and royalty structures, while the company's strong financial performance adds complexity. What do these risks mean for potential investors?
Key Takeaways
- Contingent liabilities of Rs 4,717 crore pose risks.
- Royalty payment structure could impact profit margins.
- 85% stake held by parent company limits minority influence.
- Company reported a solid financial performance.
- Investors must weigh risks against strong interest in IPO.
Mumbai, Oct 9 (NationPress) – Governance advisory firm InGovern Research Services has signaled multiple concerns for investors considering the initial public offering (IPO) of LG Electronics India Limited. The organization alerted that the company’s contingent liabilities, royalty payment frameworks, and related-party transactions may present significant risks.
InGovern reported that LG Electronics India has acknowledged contingent liabilities amounting to Rs 4,717 crore, which is approximately 73% of its net worth, primarily due to contentious tax claims that are under litigation.
The advisory firm warned that unfavorable resolutions in these legal matters could adversely affect the company's future earnings or compel it to allocate substantial provisions.
These warnings emerge even as LG’s IPO has garnered substantial interest from investors, with the issue being fully subscribed on the first day and oversubscribed threefold by the second day.
The offer, concluding today, is solely an offer-for-sale, implying that no fresh capital will be generated for the company.
A significant portion of the Rs 4,717 crore in contingent liabilities is linked to disputed income tax, excise, and service tax demands.
Many of these disputes involve adjustments related to transfer pricing concerning royalty and technical service payments made to its South Korean parent entity.
LG has stated that it has not made provisions for these outstanding cases based on legal counsel and ongoing appeals.
The company currently pays a fixed royalty rate of 2.3% of net sales for most products and 2.4% for LCD TVs and monitors.
Over the past three years, royalty payments have represented between 1.63% and 1.9% of revenue.
However, InGovern highlighted that the promoter has the ability to increase royalty charges to as high as 5% of the company’s annual turnover from domestically manufactured goods without requiring shareholder consent.
The proxy advisory firm noted that this flexibility could potentially influence profit margins without adequate oversight from minority investors.
InGovern also emphasized that LG Electronics India faces a contingent liability of Rs 315 crore related to royalty payments to its promoter, cautioning that such issues could draw additional scrutiny from tax authorities in South Korea.
Post-listing, the South Korean parent company will maintain an 85% stake in LG Electronics India.
InGovern cautioned that this high level of promoter ownership could restrict minority shareholders' influence on critical board decisions, including those involving related-party transactions.
Nonetheless, despite these apprehensions, LG Electronics India has reported robust financial performance.
For FY25, the company reported revenue of Rs 24,367 crore and a net profit of Rs 2,203 crore, with EBITDA margins standing at 12.8%.
The company is free of debt and has sustained healthy profitability ratios, with revenue increasing at an annual growth rate of 10.9% in recent years.
Point of View
It is crucial for investors to closely evaluate the highlighted risks associated with LG Electronics India's IPO. While the company's strong financial performance is commendable, the significant contingent liabilities and royalty payment concerns warrant a cautious approach. Transparency and thorough analysis should guide investment decisions.
NationPress
09/10/2025
Frequently Asked Questions
What are the risks highlighted by InGovern regarding LG Electronics India's IPO?
InGovern raised concerns over LG Electronics India's contingent liabilities, which amount to Rs 4,717 crore, and the potential implications of its royalty payment structure and related-party transactions.
How much of LG Electronics India's net worth is attributed to contingent liabilities?
The contingent liabilities constitute approximately 73% of LG Electronics India's net worth.
What is the current royalty payment structure for LG Electronics India?
LG Electronics India pays a fixed royalty rate of 2.3% of net sales for most products and 2.4% for LCD TVs and monitors.
What percentage of shares will the South Korean parent company retain post-listing?
Post-listing, the South Korean parent company will retain an 85% stake in LG Electronics India.
What is the recent financial performance of LG Electronics India?
For FY25, LG Electronics India reported revenue of Rs 24,367 crore and a net profit of Rs 2,203 crore, with EBITDA margins at 12.8%.
