In a bid to boost its manufacturing capacity in the country, LG Electronics India has plans to set up a new plant in Andhra Pradesh.
LG Setting New Manufacturing Unit
While doing so, the electronics manufacturing company also fears the competition from its South Korean parent entity.
In the meantime, the company is increasing the sourcing of raw materials from the local market.
As expected, it is not only helping in meeting the consumer demands, but also helps in lowering its inventory and related costs.
Hence, it is allowing the company to offer competitive prices for the products, LG noted in its DRHP filed with markets regulator Sebi.
Despite the localisation efforts, there is a persisting reliance on foreign components and finished products, especially in the premium segment, LG said.
Further the company said, “Key imports are primarily sourced from countries such as China, South Korea, and Japan, reflecting a strategic focus on enhancing product quality and technological advancement.”
Supported By Parent Entity
Further, the electronics manufacturing company said that the dependence on its top-five suppliers and top-10 suppliers that contributed 21.45 per cent and 31.44 per cent to its total purchase of raw materials and components in April-June 2024, may also have an impact in the case of “any interruption in the availability” or “supplier misconduct”.
So far, this company is supported by its parent entity, LG Electronics for various aspects of its business, including product innovations, product design, technologies for manufacturing, brand and related technical know-how and exports.
Moving ahead, LG Electronics India said, “Any adverse change in our relationship with LG Electronics and the companies in the LG Group could have an adverse impact on our business, reputation, financial condition and results of operations,” in its Draft Red Herring Prospectus (DHRP).
When it comes to the royalty, the company is paying royalty of 2.3 percent of net sales for authorised products and 2.4 percent of net sales for LCD televisions and monitors.
For instance, the company paid ₹323.2 crore as cost royalty to South Korean Chaebol for use of technology and brand name during FY24.
Besides this, the company depends on its parent entity for its export business.
As it receives export orders directly from LG Electronics and its affiliates in the export country in coordination with the respective LG regional headquarters.
The company clarified that “We therefore will not be able to expand our exports business without the support of LG Electronics. Any failure or delay by LG Electronics or us in accessing the export markets at the optimal time could have a material adverse effect on our prospects and results of operations.”
