Buy Lenskart Solutions Ltd for the Target Rs 725 by Emkay Global Financial Services Ltd
We retain BUY on Lenskart, while increasing our TP by ~8% to Rs725 (56x Jun28E EBITDA) from Rs675, as earnings see a ~9% raise on an all-round EBITDA beat of ~20% in 1Q vs our estimates. Lenskart delivered a best-in-class 1Q performance, with 34%/95%/182% growth in revenue/EBITDA/PAT. The India business delivered best-in-class topline growth of ~31% in 1Q, led by ~18% SSG, while international business growth stood even better at ~38%. Initiatives around premiumization (Owndays/Rodenstock/progressives) and TAM expansion with Meller (sunglasses) are yielding better-than-expected results. It has also profitably cracked the Rs500 price point for eyewear, which should help it penetrate deeper in Tier 2+ towns, in our view. We believe growth longevity is top-notch, as Lenskart sees 4x expansion potential in India (10k store potential vs ~2.7k currently). Despite adverse FX movement and accelerated expansion, India/International EBITDA margin expanded by ~210/610bps to 15/11%, respectively, in 1Q, largely helped by operating leverage. With AI at the core, Lenskart continues to target a long-term steadystate margin of ~25%. Notably, Lenskart delivered FCF of Rs1.2bn in 1Q, after funding its entire expansion and manufacturing investments of ~Rs2.8bn through internal accruals.
Another strong quarter; margins continue to inch up
Lenskart delivered another strong performance, with consolidated revenue rising ~34% yoy, helped by robust volume growth (~26%) and the remainder from better realizations. India business grew ~31% yoy, supported by strong ~18% SSG, while international business grew even better at ~38%. Lenskart added 132 net new stores in 1Q (India: 116; International: 16), with >70% of store additions in Tier 2+ cities in India. The company outlined strong potential for ~10,000 stores in India (vs 2,725 stores currently), of which ~6,000 stores are expected to come in unserved pincodes and the rest through densification in existing pincodes. Consolidated EBITDA grew ~95% yoy, with margin expanding 420bps yoy to 13.3%; India pre-IndAS margin reached 15.4% (up 210bps yoy), while International pre-IndAS margin crossed double-digit EBITDA margin in 1Q (10.4%; up 610bps yoy). Consolidated margin expansion of ~420bps was led by improvement in product margin (up ~160bps) and the rest through operating leverage.
Premiumization initiatives yielding results; profitably cracked Rs500 price point
Premiumization remains a key growth opportunity, with >Rs10,000 products contributing ~20% of the mix, up from ~18% earlier. Lenskart also sees significant headroom in the Rs3,500-10,000 single-vision lens segment. The company is leveraging R&D/AI to develop differentiated capabilities for progressive lenses. B by Lenskart is being scaled up, with >80,000 sign-ups, and the company expects faster scale-up as manufacturing ramps up. At the value end, the company has profitably cracked the Rs500 price point through Hustlr Club, including lenses and warranty, enabled by manufacturing scale, logistics optimization, and an omnichannel customer-acquisition model.
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