Lenskart IPO Grey Market Premium Shrinks Significantly Ahead of Debut

The Initial Public Offering (IPO) of Lenskart, the popular eyewear retailer, is scheduled to make its much-anticipated debut on the stock markets soon. The IPO aimed to raise Rs 7,278 crore, comprising a fresh issue of Rs 2,150 crore and an offer for sale of 12.75 crore shares, with a price band of Rs 382-402 per share, valuing the company at around Rs 70,000 crore.

Despite strong investor interest, evidenced by a subscription rate of over 28 times during its bidding period from October 31 to November 4, the Grey Market Premium (GMP) has seen a significant drop. On October 31, the GMP was reportedly around 24%. By November 7, it had fallen to approximately 2.5% (according to Investorgain) or over 6% (according to IPO Watch), indicating reduced demand for the stock in the unofficial market ahead of its listing.

**Valuation Concerns**: A key reason cited for this decline is the company's high valuation. Analysts point to a Profit to Earnings (P/E) ratio of 230, which is considered very expensive. Even if Lenskart triples its profits in the coming years, its P/E ratio would still be around 70, which is still high by market standards.

**CEO's Stance**: Lenskart CEO Peyush Bansal defended the valuation, highlighting the company's strong EBITDA CAGR and the long-term growth potential of the eyewear market. He stated that the company's focus is on creating value for customers and shareholders, and that valuation is ultimately determined by the market.

**Analyst Views**: Experts have mixed opinions. Shivani Nyati of Swastika Investmart assigned a 'Neutral' rating due to stretched valuations, despite solid business fundamentals. Siddharth Maurya of Vibhavangal Anukulakara emphasized the need to assess the sustainability of unit economics and margins amid rising costs and competition, and whether the company can transition into a sustainable listed business. Shravan Shetty of Primus Partners acknowledged the high market interest due to Lenskart's strong brand and marquee investors.

**Impact**: The declining GMP suggests that investors might experience lower listing gains than initially anticipated. This sentiment could also affect the market's reception of future high-valuation IPOs, particularly in the consumer tech space, leading to increased scrutiny on profitability and sustainable growth. The impact on the Indian stock market is likely to be cautious sentiment towards overvalued IPOs. Rating: 6/10

**Definitions**: * **IPO (Initial Public Offering)**: The process by which a private company offers its shares to the public for the first time, allowing it to be listed on a stock exchange. * **Grey Market Premium (GMP)**: The premium at which shares of a company are traded in an unofficial market before they are listed on the stock exchange. It is an indicator of demand for the IPO. * **EBITDA CAGR (Earnings Before Interest, Taxes, Depreciation, and Amortization Compound Annual Growth Rate)**: A metric that measures the average annual growth rate of a company's operating profit over a specified period. * **P/E Ratio (Price to Earnings Ratio)**: A valuation metric that compares a company's current share price to its earnings per share. A high P/E ratio can indicate that investors expect higher future earnings growth or that the stock is overvalued. * **Unit Economics**: The revenue and costs associated with producing and selling a single unit of a product or service, indicating its profitability. * **Offer for Sale (OFS)**: A provision in an IPO where existing shareholders sell their shares to the public, allowing them to exit their investment.