Lenskart's Market Debut: Grey Market Premium Plummets Despite Strong IPO Subscription
Lenskart Solutions is preparing for its market debut on Monday following a successful IPO that raised Rs 7,278 crore. The IPO was oversubscribed 28 times overall, with the QIB portion seeing 45 times subscription. However, the grey market premium has dropped to zero from a peak of Rs 108, indicating potential concerns. Valuation is a key issue, with the company priced at over 50 times its FY25 EV/EBITDA. Ambit Capital initiated coverage with a 'Sell' rating and a target price of Rs 337, citing stretched valuations. Lenskart's financials show strong revenue growth but modest profitability when normalized for one-time gains.
*this image is generated using AI for illustrative purposes only.
Lenskart Solutions, the eyewear retailer, is set to make its market debut on Monday amidst mixed signals from the grey market. Despite a robust IPO performance, the company's grey market premium (GMP) has nosedived to zero, raising questions about its potential listing performance.
IPO Performance vs. Grey Market Sentiment
Lenskart's Rs 7,278 crore IPO garnered significant interest from investors:
| Investor Category | Subscription Rate |
|---|---|
| Overall | 28.00 |
| QIB Portion | 45.00 |
However, the enthusiasm seen during the subscription period hasn't translated into a positive grey market premium. The GMP, which had peaked at Rs 108.00, has now crashed to zero, indicating a potential flat listing.
Valuation Concerns
The primary factor weighing on investor sentiment appears to be Lenskart's valuation. At the IPO price of Rs 402.00 per share, the company is valued at over 50 times its FY25 EV/EBITDA, significantly higher than its listed peers. This premium valuation has raised eyebrows among market participants and analysts alike.
Ambit Capital, in its recent coverage initiation, expressed skepticism about Lenskart's valuation:
| Analyst Recommendation | Target Price |
|---|---|
| Sell | 337.00 |
The brokerage cited stretched valuations and lower return ratios compared to peers like Trent and Nykaa as reasons for their cautious stance.
Financial Performance
While Lenskart has shown strong revenue growth, its profitability metrics paint a more nuanced picture:
| Metric | Value |
|---|---|
| FY25 Revenue | 6,653.00 |
| Revenue Growth | 32.50% |
| Reported Profit | 297.00 |
| One-time Gain (Owndays) | 167.00 |
| Normalized Profit | 130.00 |
| Normalized Net Margin | 1.96% |
The company's reported profit includes a substantial one-time gain from the Owndays acquisition, which, when normalized, results in a relatively modest net margin.
Market Implications
The stark contrast between Lenskart's strong IPO subscription and its current grey market premium highlights the complex dynamics at play in the Indian IPO market. While investor interest remains high for new offerings, there's growing scrutiny on valuations, especially for loss-making or low-margin businesses in the consumer space.
As Lenskart prepares for its market debut, all eyes will be on its listing price and subsequent performance. The company's ability to justify its premium valuation through strong financial performance and growth will be crucial in determining its long-term market reception.
Investors and market watchers will be keenly observing how Lenskart navigates these challenges and whether it can buck the trend of recent high-profile IPOs that have seen muted or negative listing gains despite strong grey market premiums initially.
The coming days will be critical for Lenskart as it transitions from a private company to a publicly-traded entity, facing the scrutiny and expectations of public market investors.
15
