LG IPO under lens after InGovern flags Rs 4,717 cr risks

LG Electronics India’s Rs 11,607 crore IPO (Initial Public Offering) is under scrutiny after InGovern Research Services flagged Rs 4,717 crore in disputed tax liabilities, ongoing royalty payments, and related-party transactions. The advisory firm noted that “a negative outcome in these proceedings could significantly erode future earnings or require provisions,” adding that the Korean parent will retain 85% control post-listing.

IPO structure and offer context
The IPO, which closes today, October 9, at 5 pm, is a 100% offer-for-sale by Korean promoter LG Electronics Inc., with all proceeds going directly to the parent company and no fresh capital being raised for expansion.

InGovern noted that “LGEIL has disclosed contingent liabilities aggregating Rs 4,717 crore, constituting 73% of its net worth aggregation calculation.” These liabilities arise largely from disputed income tax, excise, and service tax claims. “The company has not made provisions for these proceedings, citing legal advice and ongoing appeals before appellate forums,” the advisory firm added.

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Royalty payments and license risks
A significant portion of the tax disputes relates to transfer pricing on royalty and technical service payments to the promoter. InGovern highlighted that, “Royalty payments made by them to the Promoter under the License Agreement or otherwise may attract regulatory scrutiny or action.” As of the IPO filing, LG India faces a contingent liability of Rs 315 crore solely from royalty payments, a figure that could rise with regulatory reviews.

The advisory firm also noted that the Korean parent can raise royalty fees up to 5% of annual consolidated turnover from domestic manufacturing without shareholder approval. Historical royalty outflows have ranged from 1.63% to 1.90% of revenue over the past three years, an arrangement that “could affect margins without minority investor oversight.”

“Any termination or alteration of the perpetual License Agreement by LG Electronics Inc, with six months’ notice, would halt the company’s right to manufacture and sell under the LG brand, materially disrupting operations,” InGovern warned.

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Promoter holding and related-party transactions
Post-IPO, LG Electronics will retain 85% of its Indian unit, giving the promoter effective control over board decisions and related-party transactions. InGovern noted that “the promoter may consider the interests of its subsidiaries and affiliates that may not align with minority shareholders.”

Multiple licensing, technical service, and framework agreements exist between LG India, the Korean parent, and other LG Group entities, creating ongoing governance exposure. “No independent benchmarking study or third-party pricing review for royalty payments is presented,” the advisory firm said, raising concerns over transparency and transfer pricing.

Despite reporting Rs 24,367 crore in revenue and Rs 2,203 crore in net profit for FY25 with a debt-free balance sheet, LG India’s IPO is a pure offer-for-sale benefiting only the promoter. “Governance considerations around related-party dealings and contingent liabilities merit close attention,” InGovern concluded.

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