When LG Electronics India’s INR 11,607 crore IPO hit the market in late 2025, it was hailed as a homegrown success story. A leading Indian consumer appliances company going public – how could that be anything but great for Indian investors? The answer, buried in fine print and financial footnotes, is a lot murkier. A close reading of the prospectus and market commentary shows that much of the gleam of this IPO is borrowed polish.
Behind the scenes lie hefty cross-border royalty streams, unresolved tax disputes, and control clauses that tilt the tables sharply in favour of the Korean parent company. In other words, while retail investors saw a “war chest” of growth stories, LG Korea quietly built a license to milk (pardon the pun) lucrative fees from India, potentially at investors’ expense.
In LG India’s own filings, these hidden traps are flagged in bold type. The Red Herring Prospectus discloses that as of June 2024 the company had a gigantic ₹4,717 crore of contingent liabilities, which is roughly 73% of its entire net worth. These are not theoretical numbers. They stem mainly from disputed income-tax, excise and service tax claims by revenue authorities.
InGovern, a proxy advisory, points out that no provisions have been made against these pending lawsuits, and “a negative outcome in those proceedings could significantly erode future earnings or require provisions.” By contrast, the whole company’s equity book was barely ₹6,500–7,000 crore. In plain language, one bad tax ruling could wipe out three-quarters of LG India’s shareholder equity, which is an opaque solvency trap hiding in plain sight.
Royalty Streams and Cross-Border Games
The sleight-of-hand starts with royalty and technical-fee payments to LG Electronics Inc. (the Korean parent). Per the RHP, LG India pays a fixed royalty of 2.3% of net sales on almost all products (and 2.4% on LCD TVs and monitors) to use the LG brand, patents and know-how. Historically, this outflow was only 1.6–1.9% of revenue in FY23–25, but the point is that the fee is far from trivial.
Even more worrisome, the terms give the parent company a literal royalty ratchet that it can unilaterally raise this fee up to 5% of turnover without needing a shareholder vote, which is a loophole that could gut future profits with no minority oversight. This wasn’t just theoretical.
The RHP reveals that LG India quietly amended its license deal in late 2024 to “align its royalty obligation to the amount accrued and paid” for each period. In practical terms, this flat‐rates the royalty at the highest band (2.3%/2.4%) across the board. In layman terms, the company effectively jacked up its royalty rate from roughly the old range (about 1.9%) to a flat 2.3% (2.4% for TVs). Minority investors had no say in this switch as it was done by license addendum.
Why such devilry? The Korean tax authorities have made that clear. They audited LG India’s past returns and concluded that India had underpaid these royalties. In eye-popping detail, LG’s filings show Seoul demanded additional back-royalties of Rs 3153 million (~₹315 crore) for 2017–2021. Their argument was that, India should have paid higher charges on certain product lines (e.g. “LG Electronics should have received additional royalty… on compressors and water purifiers at 1.9%, monitors at 2.0% and mobile phones at 2.9%”) and even added a new 0.4% “brand royalty” on every item sold. Put another way, the Koreans wanted a bigger slice of the pie, and this was Seoul’s tax department telling them to have it.
LG India responded with diplomacy. It filed a Mutual Agreement Procedure (MAP) under the India-Korea tax treaty to iron this out. Thanks to an addendum signed Nov 18, 2024, LG India agreed to reset its royalty just to what had already been paid each year – which for now lets it escape most of the past claim. The contingent liability suddenly “reduced” from ₹71,594.98 million to ₹3,153.0 million as of June 2024.
Crucially, the company notes: “There is no assurance that such observations will not be raised by Korean tax authorities in respect of future periods”. Analysts warn investors to keep an eye on these claims, saying adverse rulings “could have an adverse impact on results of operations.” In short, LG India has paid the Koreans for now, but the royalty tap can be turned back on at any moment, including a retroactive bill.
What about the Indian side? Oddly, the RHP hints that Indian tax authorities have also questioned the flow of money—albeit from the other direction. In the same breath that Korean officials are demanding more royalties from India, Indian authorities have long eyed LG India’s massive advertising and promotion budgets. After all, those ads mainly boost the LG brand owned by the parent. A tribunal fight over “excessive” ad spends famously broke out years ago. IT officers once claimed LG India’s roughly ₹600 crore campaign budget was a service rendered to the Korean affiliate, and they hit the company with a ₹182.7 crore transfer pricing adjustment (demanding parent compensation of ~₹161 crore).
LG won a partial reprieve at the ITAT, but it’s still under appeal. The RHP quietly notes that recent transfer-pricing appeals “have been decided in favor of our Company”, but these rulings are being challenged in higher courts. The point is, India’s tax officers might yet demand that LG Korea pay LG India for pumping the brand, or conversely tax LG India extra for ‘undercharging’ the parent. In one phrase, the tax twists keep going both ways.
All these royalty and tax angles mean this isn’t a straightforward consumer electronics story; but it’s a cross-border tug-of-war dressed up as an IPO. The risk is that India’s subsidiary has been wired into a mechanism that extracts money to Seoul, rather than vice versa. And the minority shareholders have no veto on it.
Contingent Liabilities: A Colossal Sword
Perhaps the scariest headline number is that ₹4,717 crore of contingent liabilities disclosed in the offer document. This is not guaranteed debt, it’s the potential outflow if legal or tax disputes go against LG India. This sum is 73% of LG’s entire net worth. Compare that to a typical industrial firm that carries maybe a few percent in such exposures, and you’ll see how extraordinary it is.
What comprises this ₹4,717 cr? The RHP and proxy-advisories peel back the onion. Most of it is disputed taxes (income/excise/service) going back several years. A large slice ties back to those royalty and technical fee transfer-pricing cases we just described, which are Korean tax claims on past payments. Another chunk relates to different controversies (for example, the Indian IT/TP claims on advertising). If either the Korean or Indian tax authorities win big, LG India could owe truly massive sums beyond what it’s currently set aside.
It’s worth flagging that the company itself has no provisions for these (meaning it hasn’t reserved cash); it cites ongoing appeals and legal advice instead. Investors should ask: if one day a top court says, “yep, LG India must pay,” where would that money come from? The alarm bells ring even louder when you do the math: a ₹4,717 cr liability on a company with under ₹7,000 cr equity is like planting dynamite under the balance sheet. One big shock – say, a bad verdict on royalties and ads – could theoretically blow away the entire minority stake.
“Capital efficiency and earnings growth could be compromised if adverse outcomes arise from the contingent liabilities, or if royalty escalations are pursued without adequate checks.” In other words, this is a solvency-sized sword of Damocles. It’s odd to see such crucial data almost buried in a prospectus page rather than front and center in IPO marketing; perhaps because on listing day, no one wanted to talk about it.
When the Parent Pulls the Strings
Behind all this is LG Korea’s dominant control. After the IPO, LG Electronics Inc. will still own 85% of LG India. In concrete terms, that means 17 out of every 20 rupees of equity sits with the Korean promoter. No surprise if we flag governance concerns; with such concentrated ownership, minority shareholders have virtually no board sway. Even formal rules allow the promoter to “consider the interests of its subsidiaries and affiliates” as it pleases.
This arrangement permeates the contracts. LG India operates under a perpetual license agreement that, if terminated or renegotiated by LG Korea on six months’ notice, “would halt the company’s right to manufacture and sell products under the LG brand, materially disrupting operations”. The entire business can be turned off by the parent with 180 days’ warning. (Imagine the CEO saying, “Alright, we shut down everything on January 1,” and India has to comply.)
And on top of the primary license there are multiple cross-company service and framework agreements (development, management, spare parts, you name it); almost every support LG India needs comes with an LG Korea counterpart. None of these are third-party audited or independently priced; there is “no independent benchmarking study or third-party pricing review for royalty payments”. Every related-party fee is effectively set internally.
In short, this is not a scenario where minority investors share control. It’s more like being a spectator at an LG family meeting. Want to question a royalty clause or a marketing campaign? Too bad, 85% votes mean the promoter calls every shot. For comparison, good corporate governance advocates often frown on any promoter stake above 50% – at 85%, LG India’s structure is extremely top-heavy.
Valuation, Subscription and the IPO Gush
It helps to see why Indian authorities and even some voters might feel soured by the phrase “milking India.” On the surface, the IPO was a raging success. The issue was 100% an offer-for-sale by LG Korea, which means no new shares were created, so the company raised no fresh capital. That means all ₹11,607 crore went into promoter pockets, not back into factories. Yet investors rushed in. The IPO closed days early, oversubscribed many times. According to a news daily, bids were some 54× the shares on offer, and the issue was closed on Day 3. At the chosen price band, LG India became one of the biggest IPOs of the year.
Once listed, the enthusiasm only grew. On debut, LG India’s stock leaped almost 50% above the IPO price. Suddenly the company’s market cap hit about ₹1.15 lakh crore; nearly on par with the entire LG Korea parent group! It was as if the market treated the subsidiary as if it had outgrown the parent overnight. (In fact, LG India’s FY25 revenue was ₹24,367 crore vs. LG Electronics Korea’s ~$61.5 billion – India is only ~4.4% of global sales.)
Why so bubbly? The answer is partly euphoria, partly fundamentals. Indian consumer demand has been robust, and LG India is No.1 in key segments in washing machines, refrigerators, 4K TVs, air conditioners and more. Its financial performance looked steady as revenue growing at ~11% CAGR, net profits up 46% in FY25, and importantly no debt. The subsidiary boasts a clean balance sheet, strong margins (~12.8% EBITDA in FY25) and a wide distribution network. If you squint, the story checks all boxes of a winning consumer-electronics tale.
However, the premium in the share price also reflects who is buying. With 85% locked up, the float was tiny; only a 15% stake changed hands. That makes supply scarce and the remaining shares highly coveted. Every anchor investor and retail punter wanted a piece of the action, driving the grey-market premium sky-high. (Brokerage advertisements for the IPO radiated bullish buzz.)
But note; because the parent sold only their existing holding, there are no new funds for CapEx or marketing. The company’s cited “capital efficiency” is entirely internally earned. The listless logic here is, if we trust LG’s local managers enough to invest, why didn’t they just raise money via bonds or minority stake on the books? One answer: the parent clearly wanted an exit at a huge valuation, rather than fund more growth.
In short, the k-pop IPO made wealthy Koreans out of the LG family and short-term speculators in Mumbai rich – but it’s questionable how much it directly benefits India’s consumers or minority shareholders in the long run.
Strategic Goals vs. Hidden Costs
Of course, LG India isn’t just any company; it’s the Indian arm of a global electronics giant staking out a vision. CEO William Cho made waves in press interviews by painting India as LG’s innovation hub for the future. The plan was to tap India’s software talent for global chip design, AI and robotics, not just assemble fridges here. LG is even doubling its R&D workforce in India by 2027, hoping to export more components from India under new trade pacts.
Already LG India has built one mega-factory in Andhra Pradesh (a ₹5,001 crore AC/white goods plant) and plans others, as demand for appliances in India grows. The CEO bragged that India is both “the best cost for hardware and the best capability for software” now.
These are indeed attractive strategic goals. No doubt a successful LG India could make new products and profits in half a dozen countries, or lead the way on semiconductors and smart appliances. Retail investors who believe these dreams might focus on market leadership and synergies. But an objective reader must balance that vision against the governance and financial framework above. Every rupee India spends on R&D or ads to fuel that strategy potentially enriches the Korean parent if it grows the LG brand, because the parent owns the IP that India uses. If Indian R&D yields new patents, LG Korea may still own them. In effect, India is the resource and labour base, and Korea holds the lever.
That’s not inherently wrong as many multinationals operate R&D here with India rights. The twist here is that minority shareholders of the Indian entity carry all the execution risk and all the rising costs (like royalties and taxes), while the parent pocketing much of the upside. LG’s public narrative calls India a “true national corporation” and a testbed for markets in the Global South– which it is.
But the hidden clauses mean the nation’s backyard BBQ may still have the kitchen owned by someone else. As LG’s own SEC advisor noted in a rare optimistic turn, the IPO does let Indian investors “participate in a well-established consumer durables business with steady financial growth”. Just remember where the profits really come home to roost.
Risks and Red Flags (Keep an Eye On…)
Here’s the bottom line that every investor should take to heart. LG India shows solid operating stats and growth, yes, but it is not a stand-alone India story. The Korean promoter has structured the business to skim brand fees and retain control at nearly every turn. Combine that with enormous contingent liabilities and a nearly-empty IPO tap (no cash infusion), and you’ve got a brew that demands caution.
In short, the IPO’s prospectus is littered with warnings. Yet in practice, hype and favourable market trends have overshadowed them. Is it too cynical to note that the very term “invest in LG India” glosses over the fact that 100% of the IPO proceeds were an exit sale for a foreign parent? Perhaps not.
The Bottom Line: Reward or Mirage?
So how should a thoughtful investor or regulator see this? There’s no outright fraud here. LG India’s filings are in order and the company is profitable. But the move feels almost claustrophobic for outsiders. The IPO was a one-time event that enriched the parent far more than the company or its Indian public shareholders. High listing gains aside, post-IPO LG India still owes miles of royalty and pending taxes that could siphon future gains.
For the general public, the “national pride” of a big IPO should come with trade-offs. On paper, LG India’s story is appealing (market leader, strategic growth, local investment). In reality, it’s tethered to a grandfather clause rigged for LG Korea’s benefit (royalties up to 5%, license control, disputed taxes). Our raised eyebrows are understandable: should Indian consumers subsidize a foreign parent’s profits through expensive ads and license fees? The tax authorities certainly think not, given their aggressive assessments.
The math and agreements lay bare that wealth is designed to flow out of India’s arm of the business. Yes, LG India may help make software chips or fridges, but each rupee of profit can be drained back to Seoul via royalty clauses. Meanwhile, Indian investors end up with all the upside and downside risk, and none of the governance control. That’s not a conspiracy theory; it’s what the official documents say.
The unsubtle moral: always read the fine print before being dazzled by an IPO’s spotlight. In this case, the true figures of fees, tax claims, and covenants paint a picture far more complex (and challenging) than the glossy ads. Investors and citizens alike deserve to know that this is less a national celebration and more a carefully orchestrated cross-border deal. If LG India were a cow, India got a sip of milk but the owner keeps the churn, the barn, and the title deed.
