The Lenskart share price is hovering close to the levels it listed at, close to 1 month after its listing on November 10. What’s the outlook for the stock, given the valuation concerns raised when the IPO was launched? Ambit Institutional Equities has a ‘Sell’ rating on Lenskart Solutions, with a target price of Rs 339, implying a downside of 21%. This is in sharp contrast to a ‘Buy’ rating given by the international brokerage house, Jefferies.
The rationale driving Ambit’s Sel call is the higher valuation compared to peers. Lenskart’s enterprise value is 51x for the overall business, which implies a revenue CAGR of 19% for the next 20 years. This valuation Ambit believes is “steep”, and higher than the peers like Nykaa (46x) and Trent (38x) despite better RoCE (Return on Capital Employed).
“While its higher growth profile justifies a premium vs the retail universe, the implied 60x FY28 enterprise value for India, which is 20-30% above Trent & Nykaa, is unwarranted given lower RoCE of 9% and RoIC of 13% vs peers’ 35-40% with similar revenue growth,” said the brokerage house.
Ambit on Lenskart: Revenue and operating margin to surge in FY25-28
Lenskart is expected to deliver a 20% revenue CAGR over FY25-28, led by India and global expansion. Further, Ambit expects gross margin and operating leverage should drive 630 bps pre-India EBITDA margin gains by 450 bps against pro forma. The EBITDA margin expanded 187 bps to 11.1% led by the international segment, which was 305 bps, as domestic margins expanded 114 bps.
However, with capex of Rs 2,000 crore over FY25-28, free cash flow will turn positive only in FY28, which, along with goodwill, keeps the balance sheet heavy.
As per the report, Lenskart’s 24% pro forma growth in Q2 was driven by 26% growth in international business, aided by 9% currency tailwind as India growth slowed to 22% (27% in Q1); management expects Q3 to improve.
What did Jefferies say on Lenskart?
In a research note on December 01, Jefferies retained its ‘Buy’ call on the stock and reaffirmed the target price of Rs 500 per share, implying an 18.5% upside potential from current levels. The brokerage said the quarter showed that Lenskart is settling into a steadier, multi-vertical growth cycle backed by improving unit economics and stronger margin quality.
The company’s financials, along with the pro forma statements released alongside, give a consistent picture of rising profitability, better channel mix, and continued gains in eye-testing and eyewear volumes, Jefferies said.
