Synopsis: A leading consumer electronics manufacturer reported a sharp Q3 operating margin decline to 5%, driven by weaker sales, rising input costs, currency pressures, and higher working capital, impacting revenue, EBITDA, and PAT.
One of India’s largest consumer electronic manufacturers reported Q3 financial results that have drawn attention as the company reported a notable change in its operating margin. Analysts and investors are closely examining the factors behind this movement, making it a focal point for discussions on the company’s performance and broader market implications.
LG Electronics India Limited, with a market capitalization of Rs. 1,07,789.06 crore, closed at Rs. 1,589 per equity share, up by 1.90 percent from its previous day’s close price of Rs. 1,559.40 per equity share.
LG Electronics India Limited is a leading manufacturer and seller of home appliances and consumer electronics, operating across India and multiple international markets including Asia, Africa, Europe, the Middle East and the Americas. The company functions through two main segments: Home Appliances and Air Solution, and Home Entertainment. Its product portfolio includes air conditioners, refrigerators, washing machines, microwave ovens, dishwashers, air purifiers, televisions, monitors, projectors, audio-visual products and security cameras.
Sharp Decline in EBITDA Margin
The most visible impact in Q3 was the sharp decline in EBITDA margin to 5 percent. The company had reported a margin of 8 percent in Q4 FY25, which improved to 11 percent in Q1 FY26. However, margins moderated to 9 percent in Q2 FY26 and further dropped to 5 percent in Q3 FY26.
A key reason was subdued sales during the quarter, which affected operating leverage. With lower volumes, fixed costs such as employee expenses, plant overheads, and marketing spends were spread over fewer units, reducing profitability per product sold.
Raw material inflation further aggravated the situation. Prices of key inputs like copper and aluminium increased sharply, directly impacting the cost structure of products such as air conditioners, refrigerators, and compressors. Since these commodities form a meaningful portion of manufacturing costs, even moderate price increases can significantly pressure margins.
In addition, currency headwinds raised the cost of imported components, especially in premium product categories where localization is still evolving. The implementation of the new Labour Code also added to operational expenses, increasing compliance and employee-related costs. While pricing actions were undertaken, the cost escalation outpaced immediate price pass-through, resulting in temporary margin compression.
Working Capital Expansion
As of 31st December 2025, the company’s working capital rose to Rs. 11.3 billion, compared to Rs. 8.1 billion a year earlier. This increase was largely strategic but had short-term financial implications. Higher inventory levels were built up in compressor-led products ahead of the summer season and in preparation for new BEE norms. While this positions the company well for peak demand, it temporarily locks capital into stock.
Additionally, the company extended greater credit support to trade partners by offering longer payment terms. This move was aimed at strengthening channel relationships and ensuring smoother secondary sales, but it also increased receivables. The combined rise in inventory and receivables contributed to higher working capital intensity during the quarter.
The combination of weaker operating leverage, rising input costs, currency pressure, and higher working capital impacted both margins and cash flows. Lower EBITDA margins reduced internal accruals, while increased inventory and receivables stretched the cash conversion cycle.
Financials
Revenue in Q3FY26 stood at Rs. 4,114 crore, declining 6.4 percent year-on-year (YoY) from Rs. 4,396 crore in Q3FY25. On a sequential basis, performance was significantly weaker, with revenue falling 33.4 percent quarter-on-quarter (QoQ) from Rs. 6,174 crore in Q2FY26, indicating a sharp slowdown in execution during the quarter.
EBITDA came in at Rs. 196 crore, down 42.4 percent YoY compared to Rs. 340 crore in the year-ago period. On a QoQ basis, EBITDA declined 64.2 percent from Rs. 548 crore, reflecting pressure on operating performance. The steep sequential drop suggests lower operating leverage amid reduced revenue.
Profit after tax (PAT) stood at Rs. 90 crore in Q3FY26, marking a 61.4 percent YoY decline from Rs. 233 crore. Compared to Rs. 389 crore in Q2FY26, PAT fell 76.9 percent QoQ, showing a significant contraction in bottom-line performance in line with weaker revenue and EBITDA trends.
A return on equity (ROE) of about 45.2 percent and a return on capital employed (ROCE) of about 56.8 percent, and debt to equity ratio at 0.07 demonstrate the company’s financial position. The stock is currently trading at a P/E of 52.4x higher as compared to industry P/E of 45x.
FY27 Outlook
Despite the Q3 setback, management has outlined an optimistic outlook for FY27. The company is targeting double-digit revenue growth, supported by premiumization, deeper rural penetration, and product innovation. EBITDA margins are expected to recover to early-teen levels, similar to FY25, as volumes improve and cost pressures stabilize.
Exports are projected to double from approximately $160 million, aided by manufacturing scale-up and improved global competitiveness. A Rs. 5,000 crore expansion at the Sri City plant is expected to strengthen production capacity and support both domestic and export demand.
At the same time, the company is expanding its B2B portfolio, particularly in HVAC solutions and information displays, while scaling up its high-margin Annual Maintenance Contract (AMC) business. These initiatives are aimed at improving revenue diversification and enhancing margin stability over the long term.
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