LG India's Hidden Royalty Trap Exposed: Huge Tax & Profit Risks Ahead

The News Breaks Before the Market Wakes Up

In a revelation that could rattle Dalal Street, a viral LinkedIn post by finance commentator Jayant Mundhra has pulled back the curtain on a series of financial landmines hidden inside LG India’s IPO documents and regulatory filings.

These details — astonishing in scale and consequence — never surfaced in analyst reports, brokerage notes, or mainstream media coverage. Yet they strike at the core of LG India’s valuation, solvency, and the true balance of power between its Indian entity and its South Korean parent.

For the 28 lakh shareholders who bought into the LG story, Mundhra’s disclosures pose a disquieting question:

Did the market truly understand what it was investing in?

When Two Tax Authorities Think You’re Wrong

South Korea Fires the First Shot

Mundhra highlights that South Korea’s tax authorities ruled that LG India had been underpaying royalties to its parent — the fees that allow LG India to use the globally recognized brand.

The consequences were immediate and costly:

• Mobile phone royalty rates hiked to 2.9%
• Monitors increased to 2.0%
• A new 0.4% brand royalty slapped on every product sold
• A retrospective penalty of ~₹315 crore

LG India settled the dispute — by sending more cash to Korea — which then triggered additional tax liabilities in India. A double drain on the company’s finances.

Then India Bites Back

But the real twist comes from the Indian tax authorities.

According to Mundhra, they argued that LG India’s massive advertising spend — which builds the global LG brand owned by the Korean parent — should entitle the Indian subsidiary to compensation, not the parent.

This triggered a high-stakes dispute worth ~₹1,375 crore. Two countries, two contradictory demands — both claiming LG India owes (or is owed) massive sums.

The Hidden Solvency Trap

Deep in the balance sheet lies an even more alarming number:

• Contingent liabilities: ~₹4,710 crore
• Equivalent to 73% of the company’s total net worth

If these tax disputes break wrong, LG India isn’t just facing a sharp hit to profits. It’s staring at the possibility of three-quarters of its equity being wiped out. This is a solvency threat hiding in plain sight — yet scarcely acknowledged by brokerages or media.

The Royalty ‘Remote Control’ the Parent Holds

Before the IPO, LG India quietly signed a contract giving its Korean parent the power to increase royalty charges up to 5% of annual turnover — without needing shareholder approval.

And the parent has already started exercising this power:

• Royalty increased from ~1.9% to 2.3%
• TVs moved to 2.4%

This is not just a fee. It’s a profit-draining mechanism that the parent can tighten at will. For public investors, this means earnings visibility is not in India’s hands — it sits in Seoul.

The Questions That Must Be Asked Now

Mundhra’s post has effectively lit a flare in a dark room. What it reveals demands immediate scrutiny:

• Why did no brokerage report highlight this 5% royalty hike clause?
• How did contingent liabilities equal to 73% of net worth escape mainstream commentary?
• Why was the cross-border tax tug-of-war not part of risk disclosures emphasized to retail investors?
• How should shareholders evaluate an Indian listed entity whose profits and cash flows can be curtailed remotely by a foreign parent?

Indian Stock Markets hate uncertainty. But what investors face here isn’t uncertainty — it’s unspoken structural risk.

As LG India prepares for life as a listed company, its shareholders must push for transparency and accountability. The story is no longer just about appliances, air conditioners, or electronics. It is about governance, control, and the true cost of global branding. And thanks to a viral LinkedIn post, the questions can no longer be ignored.

Disclaimer: This article is based on information highlighted in a public LinkedIn post authored by Jayant Mundhra. The findings, interpretations, and concerns raised in the original post belong solely to the author and are presented here for public interest and discussion. TICE Newshas not independently verified all claims, and the views expressed do not necessarily represent those of TICE or its editorial team. If you identify any factual inaccuracies or believe certain details require clarification, please write to us at editorial@tice.news