Lenskart shares rebound 16% from day's low; is it time to buy or should you exit?

Shares of Lenskart Solutions were listed at 3 per cent discount at Rs 390 on Monday, defying the expectations of flat to positive listing. Interestingly, the stock found a strong buying action at the lower levels as it dropped to 355.70 during the day, falling over 11.5 per cent from IPO price.

However, the stock rebounded more than 16 per cent from its intraday low to Rs 413.80 during its maiden trading session, rising nearly 3 per cent from its IPO price. However, the stock turned flat during the fag end of the session and more than 12.28 crore shares worth over Rs 4,855 crore of Lenskart exchange hands during the day.

However, the analysts continue to remain worried over the valuations of Lenskart Solutions. The issue was highly criticized for its lofty valuations but brokerage firms during the issue see it as a long-term preposition. Analysts believe that one should avoid Lenskart Solutions shares at current valuations and fresh entry should be made only on corrections with long-term view.

Speaking exclusively to BTTV, Sudip Bandyopadhyay, Group Chairman of Inditrade Capital said that there is a question about the business model of Lenskart and 30-40 per cent of their business is coming from international markets. The company has a significant growth potential but the valuations continue to remain the only and the biggest challenge for Lenskart.

"We are not comfortable buying or recommending any stock at this valuation multiple and once the stock sees a significant correction, it will be prudent to enter the counter. One should exit at the opportune levels and current fundamentals do not justify the valuations. An investor should enter in the stock at the lower prices with a long-term vision only, due to this caution."

The IPO of Lenskart Solutions was open for subscription between October 31-November 04. It had offered its shares in the price band of Rs 382-402 per share with a lot size of 37 shares. The new-age tech-enable player raised a total of Rs 7,278.02 crore from its IPO, which was overall booked 28.26 times, with over 32.56 lakh applications, attracting bids over Rs 1.13 lakh crore.

Echoing the similar tone, Shivani Nyati, Head of Wealth at Swastika Investmart said, "While concerns around high valuation, recent losses, and competitive intensity weighed on short-term sentiment, the IPO received solid institutional interest backed by expectations of strong growth in international markets and improving margins."

Investors allotted shares may consider holding for the medium to long term, supported by earnings visibility and expanding store footprint, with a stop loss around Rs 350 and short-term traders may exit the position and look for better opportunities elsewhere, she adds.

The valuation premium seems to be running well ahead of fundamentals, and unless Lenskart delivers consistent Ebitda improvement and sustainable free-cash-flow generation, the stock could remain under pressure, said Sourav Choudhary, MD at Raghunath Capital.

"For now, investors should stay cautious and consider partial or full exit until the company aligns its financial delivery with its market expectations. The story is promising, but at these levels, it looks overvalued relative to its near-term cash potential," he said.

Even before its listing, Ambit imitated coverage on Lenskart Solutions with a 'sell' rating with a target price of Rs 337, still suggesting nearly 15 per cent fall from its listing price. It believes that the company has a high-capital heavy business model shall keep the returns muted.

Established in 2008, Lenskart Solutions is a technology-focused eyewear company involved in the design, manufacturing, branding, and retail of prescription eyeglasses, sunglasses, contact lenses, and accessories. Operating under a direct-to-consumer model, it offers a broad range of eyewear under its own brands and sub-brands, catering to all age groups and price segments