Shares of Lenskart are up over 3% on their debut after a weak open below the IPO price. What should investors do?

Eyewear retailer Lenskart Solutions made a volatile market debut on Monday, trading below its IPO price but quickly rebounding above 3% intraday as investors weighed steep valuations against its dominant position in India’s fast-growing eyewear market. The stock opened at Rs 390 on the BSE, a 3% discount to the issue price of Rs 402, and later climbed to Rs 403.80. On the NSE, it was trading at Rs 395, down 1.7%, before rising to Rs 404.90, signaling cautious optimism after a choppy start.Lenskart’s IPO worth Rs 7,278 crore attracted strong interest, with the issue subscribed a total of 28 times, led by qualified institutional buyers (45x), while the quota for retail and non-institutional investors was also fully booked.

However, the debut was far from euphoric. The listing followed a week of volatility in the gray market where the stock’s premium, once as high as Rs 108, collapsed to zero, reflecting growing unease over short-term gains despite heavy subscriptions.Analysts said the disappointing start reflected valuation concerns as Lenskart had priced its IPO at a competitive 10.1x EV/Sales and 68.7x EV/EBITDA for FY25 – much higher than even global eyewear peers. Despite healthy demand, the IPO’s high valuation raised questions about its ability to deliver meaningful listing gains, analysts noted.

High valuation, thin margins

Lenskart’s FY25 financials painted a picture of strong revenue growth but modest profitability. The company reported revenues of Rs 6,652 crore, up 32.5% year-on-year, and net profit of Rs 297 crore, including a one-time gain of Rs 167 crore from the acquisition of Owndays. Adjusted for this, normalized profit was around Rs 130 crore, which translated into a meager net margin of less than 2%.

EBITDA margin improved to 14.7%, helped by operating leverage as the company expanded into Singapore, the Middle East and Southeast Asia.

Real estate agents warn against too high valuations

Brokerage Ambit Capital, in a November 7 report, initiated coverage on Lenskart with a “Sell” rating and a target price of Rs 337, implying a 16% downside to the IPO price.

“The implied 55x FY28 EV/EBITDA multiple for India operations is 15-30% above Trent and Nykaa, despite much lower return ratios,” the broker said, calling the pricing “unjustified”.

Ambit said while revenue is expected to grow at around 20% CAGR in FY25-28, Lenskart’s capex-heavy model, limited free cash flows and low RoCE (~9%) limit upside. “With a capex of around Rs 20 billion in 25-28, free cash flow will turn positive only in 28 years,” the brokerage said.

The brokerage also warned that premium valuations ignore lower capital efficiency, with RoCE/RoIC projected at 9%/13% versus 35-40% of peers.

Also read | Lenskart shares make muted D-St debut, listed at 3% discount to IPO price

Despite the subdued debut, analysts say Lenskart’s fundamentals make it a long-term structural strategy in the Rs 50,000-crore Indian eyewear market, where organized retail penetration remains low. The company’s omnichannel presence, digital-first strategy and centralized production model ensure scalability, although profitability remains the most important control.

(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times)