Lenskart IPO: Ambit Gives Sell Rating, Cites Valuation Concerns
Lenskart, the popular eyewear retailer, is set to list on the Indian stock markets on Monday, but has already received its first sell rating from Ambit, a leading brokerage firm. The rating comes as a surprise, given Lenskart’s strong brand and growth prospects. However, Ambit believes that the company’s capital-intensive business model, muted return ratios, and stretched valuations make the risk-reward unattractive at current levels.
According to Ambit, Lenskart’s made-to-order eyewear model demands significant capital investment, keeping returns muted despite healthy growth. The firm expects free cash flow to turn positive only by fiscal 2028, weighed down by a planned Rs 2,000 crore capex over fiscal 2025–2028. This is a significant concern for investors, as it indicates that the company may not be able to generate sufficient cash to meet its investment requirements.
Utilisation Levels and Capacity Expansion
With utilisation levels at around 65%, well below peers’ 80%, scaling up operations will require steady investment in capacity and infrastructure. This, coupled with goodwill from acquisitions such as Owndays and Stellio, leaves the balance sheet asset-heavy and restricts capital efficiency. To learn more about the importance of capacity expansion strategy in business, read our in-depth analysis.
Lenskart is expected to deliver around 20% revenue CAGR over financial year 2025–2028, led by continued expansion in India and growing global presence through brands like Meller and Owndays. The company’s store count is projected to rise at a 17% CAGR, supported by higher productivity from organised market share gains. However, despite these gains, return ratios remain subdued, with RoCE at around 9% and RoIC at 13% — far below peers such as Trent and Nykaa, which deliver 35–40%.
Valuation Concerns
At the current price, Lenskart trades at an implied ~55× FY28E EV/Ebitda for its India business — about 20–30% higher than Trent and Nykaa’s BPC divisions. Ambit argues that such rich valuations are unwarranted, given Lenskart’s lower profitability and capital returns. The report also highlights that the current valuation already discounts an aggressive 18% two-decade revenue CAGR, assuming Lenskart achieves around 60% of EssilorLuxottica’s retail market share, which the brokerage calls overly optimistic.
To understand the concept of valuation concerns in stock market, and how it affects investment decisions, read our detailed guide. Additionally, learn how to analyze financial statements of a company to make informed investment choices.
Investment Advice
Given the valuation concerns and business model sustainability issues, Ambit has initiated coverage with a target price of Rs 337, implying a 16% downside from the current market price of Rs 402. This is a clear indication that investors should exercise caution when considering investing in Lenskart. However, it’s essential to remember that every investment decision should be based on individual financial goals and risk tolerance. For more information on investment strategies for beginners, and how to create a diversified investment portfolio, read our expert advice.
In conclusion, while Lenskart’s strong brand and growth prospects are undeniable, the company’s capital-intensive business model and valuation concerns make it a risky investment at current levels. Investors should carefully consider these factors before making any investment decisions. Stay updated with the latest Indian stock market news and trends to make informed investment choices.