Aniket PujariIn Lenskart Solutions Ltd’s first results post-listing, investor focus should be on the comparison of pro forma financials. Merger and acquisition activities have distorted the reported financials, and pro forma figures reflect what the base quarter would have looked like if those deals had been in place earlier.
While Lenskart’s valuation comparison has been made with FSN E-Commerce Ventures Ltd (Nykaa), the crucial factor in its favour is that it enjoys a pretty high gross margin, i.e. the difference between the value of goods sold and the cost of goods sold.
For perspective: Lenskart’s blended gross margin at the company level is 69% in the September quarter (Q2FY26), whereas it is around 45% for Nykaa.
This is not a one-off and is likely to sustain. Lenskart has a gross margin of 63% in the India segment and 76% in its international segment. The management stated in the Q2 call that the gap between the two segments could narrow as India margin has potential to increase.
Gross advantage
How does a higher gross margin help? If Lenskart decides to retain high gross margin, it could expand its Ebitda and net profit at a faster pace in future due to the operating leverage.
Alternatively, it can choose to allocate some of the high margin to growing the business through marketing expenditures or offering discounts for customer acquisition and volume growth. For instance, it is already offering buy-one-get-one-pair-free under its membership-based program.
To be sure, Q2FY26’s 20% year-on-year increase in volume led to an impressive 24% growth in consolidated revenue to ₹2,147 crore. Ebitda increased 35% to ₹426 crore with the margin coming in at 19.8%.
The management is confident of achieving a steady-state Ebitda margin of 25% in the long run. The store-level Ebitda margin (including new stores) in India is already at 33%.
Volume growth prospects seem bright. As per Redseer Market Model, the market size for eyewear in India is estimated to grow from $9 billion in FY25 to $17 billion in FY30.
Lenskart already seems to be at 10% market share in India, as it is likely to sell 25 million eyewear products, against the annual pairs sold, likely to be at 266 million in FY26, based on 10% industry growth.
Even if it does not gain market share from hereon, the opportunity size is big, as the gap between annual industry sales of 266 million and people needing vision correction at 560 million (assuming 40% of India’s population) is substantial.
Risk factor
The main risk for Lenskart emanates from its sourcing of raw materials from China. More than half of its purchases were from China in Q1FY26, as per its draft IPO papers. If India’s relations with China worsen, it could create a problem as diversifying or localising raw materials in a short span is challenging.
While business risk is there, the relative valuation risk is not as high as perceived. Even if Lenskart grows its annualized FY26 revenue at 20% CAGR for the next two years and maintains the current Ebitda margin of 20%, it is quoting at EV/Ebitda of 32x of FY28 versus 52x for Nykaa.
Besides, the management has guided for 25% Ebitda margin versus 20% that this estimate factors in. The guidance is achievable as there is a gap of 50 percentage points between gross margin and Ebitda margin at present. The Street seems to have taken note of the positives, as the stock has risen nearly 4% in the last two days after the announcement of the results.
