Motilal Oswal Financial Services has initiated coverage on Lenskart Solutions with a BUY recommendation and a target price of Rs600, citing structural growth drivers, margin expansion potential, and a long runway in India’s underpenetrated eyewear market. The brokerage expects Lenskart to deliver a 25% revenue CAGR and 53% pre-IND AS EBITDA CAGR over FY25–28, driven by strong store expansion, operating leverage, and backward integration. With India’s eyewear market significantly underpenetrated and organized retail share still modest, Lenskart’s vertically integrated, technology-led model positions it for sustained margin expansion and free cash flow improvement beyond FY28.

Investment Thesis: A Scaled, Technology-Led Retail Disruptor

Lenskart is India’s largest vertically integrated, omnichannel eyewear platform, operating across 2,439 domestic stores in 435+ cities and 705 international outlets. The company combines centralized manufacturing, in-house lens and frame production, and a technology-enabled supply chain to drive superior economics.

India’s eyewear category remains structurally underpenetrated, with only ~35% prescription penetration despite 53% of the population requiring vision correction. Organized retail share stands at roughly 24%, highlighting ample headroom for formal players.

Lenskart’s competitive moat is built on:

Automated centralized manufacturing replacing fragmented store-level lens cutting

35–40% cost advantage from backward integration

33% store-level pre-IND AS EBITDA margins with ~10-month payback

House-of-brands architecture spanning mass to premium segments

This architecture allows Lenskart to behave more like a consumer-tech platform than a traditional optical retailer.

Financial Trajectory: Accelerating Growth with Margin Expansion

Motilal Oswal expects consolidated pro forma revenue to grow at ~25% CAGR over FY25–28, while pre-IND AS EBITDA is projected to compound at ~53% CAGR.

The brokerage models:

~625 basis points EBITDA margin expansion over FY25–28

~70%+ operating cash flow conversion from pre-IND AS EBITDA over the period

Below is the projected financial snapshot:

The margin trajectory is driven by product margin expansion and operating leverage, particularly on technology and corporate overheads.

India Business: Volume-Led Growth with Operating Leverage

The domestic segment is expected to deliver ~27% revenue CAGR over FY25–28, primarily volume-driven (~24% CAGR), supported by aggressive store expansion.

Key expectations include:

Market share rising from ~5% in FY25 toward ~8.3% by FY30

~95bp gross margin expansion over FY25–28

~700bp pre-IND AS EBITDA margin expansion in India

The brokerage builds in 1,480+ net store additions in India over FY25–28, translating to ~20% CAGR in store count.

International Expansion: Throughput-Led Profitability

International operations are projected to grow revenue at ~22% CAGR over FY25–28, largely volume-driven with calibrated store additions.

The brokerage anticipates:

Market share rising from ~1.8% to ~3.5% by FY30

~550bp pre-IND AS EBITDA margin expansion over FY25–28

~65% CAGR in pre-IND AS EBITDA internationally

International growth remains more throughput-focused versus store-heavy domestic expansion.

Free Cash Flow Outlook: Capex Today, Payoff Tomorrow

Near-term free cash flow will remain moderated due to capex for the Hyderabad manufacturing facility and store expansion. However, beyond FY28:

Annual capex expected to taper to ~Rs5.5 billion

FCF conversion projected at 65–70% of pre-IND AS EBITDA

This transition could meaningfully improve equity value compounding in the outer years.

Valuation Framework: Premium Multiple, Justified by Growth

Motilal Oswal assigns a target price of Rs600 based on a DCF-implied ~55x FY28E pre-IND AS EBITDA multiple.

Valuation summary:

At current levels, the stock trades at ~42x FY28E EV/pre-IND AS EBITDA.

The bull case target stands at Rs735, while the bear case is Rs395.

Risks to Monitor

Key downside risks include:

Dependence on China for raw material imports

Manufacturing concentration in North India

Loss-making overseas subsidiaries

Shortage of trained optometrists

Execution on store productivity and sustained margin expansion in India remain critical to sustaining premium valuations.

Bottomline: Clear Vision, Long Runway

Motilal Oswal’s initiation underscores a structural transformation story. Lenskart is not merely a retailer—it is a manufacturing-scaled, technology-integrated consumer platform operating in a deeply underpenetrated category.

With strong unit economics, rising share in an expanding category, and improving operating leverage, the brokerage believes the premium valuation is justified. At Rs474, the stock offers a projected 27% upside to Rs600, with longer-term compounding potential contingent on sustained margin expansion and disciplined execution.

Disclaimer: Investors should conduct their own due diligence and consider their risk profile before making investment decisions.