Lenskart IPO price sparks concern over Indian startup valuations

At the top of its price band, Lenskart is valued at about $8 billion, or roughly 10 times last year’s enterprise value to sales

Lenskart Solutions Ltd.’s $821 million initial public offering was sold out in less than five hours last week. Yet, the eyewear retailer’s pricing has sparked concern over whether Indian startups are being valued too richly as they go public.

DSP Asset Managers Pvt. over the weekend publicly defended its anchor investment in Lenskart after facing social media criticism over the IPO’s valuation. The mutual fund said the company’s business is “strong and scalable,” but conceded the deal was “expensive.”

The share sale opened for bidding on Friday and was fully sold across investor categories, including retail buyers. However, the strong demand comes amid rising worries in India’s hot IPO market, where the enthusiasm for consumer tech startups remains strong even as post-listing gains fade. Analysts say the worry is that mutual funds — whose inflows are dominated by household money — may be paying steep valuations for startups yet to establish profitability.

“Lenskart’s IPO offers scale but not necessarily value,” said Gaurav Garg, an analyst with Lemonn Markets Desk, which says the offering is at a significant premium to global peers such as EssilorLuxottica SA. The Paris-listed eyewear maker trades at 45 times its forward earnings, according to data compiled by Bloomberg.

The valuation angst echoes the heated debates that erupted when rapid-commerce giant Eternal Ltd. — formerly Zomato — went public in 2021 as a loss-making startup. That uproar reached a crescendo with the listing of Paytm-operator One 97 Communications Ltd., whose shares plunged 27% on debut — one of the worst openings ever for a major IPO.

Since early 2021, about 32 startups have gone public on Indian bourses. Of these, shares of 14 now trade below their issue prices, with Fino Payments Bank Ltd. and Paytm among the biggest laggards, data compiled by Bloomberg show.

‘Stretched’

At the top of its price band, Lenskart is valued at about $8 billion, or roughly 10 times last year’s enterprise value to sales. Analysts at SBICAP Securities Ltd. called the valuation “stretched,” saying near-term listing gains may be “muted.” Even so, they advised investors to subscribe, citing a strong brand and growth potential in India’s underpenetrated eyewear market.

Choice Equity Broking analyst Rajnath Yadav also called the valuation “significantly high” and noted weak profitability, but pointed to the company’s expanding global presence, with around 40% of revenue coming from overseas.

Founded by ‘Shark Tank’ India judge Peyush Bansal, Lenskart is selling shares at 382 rupees to 402 rupees apiece through Tuesday, valuing the company at up to 700 billion rupees ($8 billion). The stock is set to list on Nov. 10.

The firm counts billionaire Radhakishan Damani among its investors, following his 9 billion-rupee pre-IPO investment. The company’s ability to attract high-profile backers underscores confidence in India’s consumer growth story, some analysts said.

Lenskart’s 4%-6% market share in prescription eyewear leaves room to expand in a segment fragmented by unorganized players, Choice Equity’s Yadav said. SBICAP said it expects profitability to improve as the company scales, though sustained earnings growth will be key.