On Thursday, Lenskart’s stock surged 10% to close at Rs 513 on the BSE, sending its market capitalisation to nearly $10 billion.
Analysts say the results have put the spotlight on a key issue — was the margin surge driven by a one-time spike in operating leverage, or does it signal a more structural shift in the company’s earnings profile?
ETtech dives in:
The headline numbers
- Lenskart reported a 38% year-on-year (YoY) increase in its operating revenue, at Rs 2,308 crore, in the December quarter.
- Its net profit jumped 74 times to Rs 133 crore.
- Its India business grew 40% to Rs 1,385 crore.
- International revenue expanded 33% to Rs 936 crore.
Between the lines
In India, Lenskart’s growth was largely volume-driven. Eyewear sales rose 32%, while the average selling price was up about 6-7%, largely due to the product mix rather than price hikes.
This distinction assumes significance because pricing-led growth can mask underlying weak demand. However, the company’s management pointed out during the analysts’ call that it did not undertake material price hikes.
Same-store sales in India grew 28%, even as the company added 169 net new outlets during the quarter. This suggests that expansion is not cannibalising existing locations.
“Lenskart’s Q3 sales were 5% above our estimate; this was led by better-than-expected growth in India… aided by higher store additions across India and international markets, as well as (product) mix-led growth in India realisations,” brokerage firm Macquarie said in a research note.
Gap between revenue growth and profit growth
In terms of the company’s profitability, gross margins were relatively stable, expanding modestly to 68.9% in Q3FY26 compared to 68.2% in the same quarter last year.
Here, gross profit refers to revenue from operations, less cost of materials, while gross margin is the gross profit as a percentage of the operating revenue.
However, we see sharper improvement subsequently.
Employee costs as a percentage of revenues fell roughly 220 basis points, while other operating expenses declined about 260-270 basis points. In India, the Ebitda margin expanded nearly 480 basis points YoY to 14.9%.
“Marketing costs declined 70 basis points YoY as a percentage of sales despite being maintained steady at absolute levels. The margin expansion was driven by structural efficiencies across marketing, employee productivity, and supply chain integration rather than short-term cost cuts,” analysts at JM Financial wrote.
Moreover, international operations, which had previously dragged down profitability, also turned Ebitda positive, with margins improving by nearly 1,000 basis points YoY.
Systems for scale
While acknowledging the company’s long-term growth prospects even as it scales, analysts also called out a lack of clarity in the near-term.
“Lenskart highlighted that higher growth in progressive lenses and strong consumer demand for Meller sunglasses aided India realisations. While the management did not share any details on near-term trends, it clarified that there were no one-off factors in (its) India performance, making us believe that the growth momentum can be sustained at higher levels,” Macquarie noted.
Jefferies analysts wrote, “Management is prioritising growth without impacting customer experience, intends to grow ahead of the industry (13-14%), and is willing to invest in growth. While the GST rate cut is a long-term positive for demand, it did not impact sales growth in Q3”.
Lenskart’s management underscored the importance of building systems to support long-term execution.
“Execution at scale is often underestimated. The challenge is to keep the customer experience intact — and improving — even as we open more stores and expand internationally. There’s always the risk of stretching too thin. That’s why investing in systems is critical, whether it’s for running stores, opening new ones, or scaling eye tests,” Lenskart founder and CEO Peyush Bansal said during the analysts’ call on Wednesday.
“Progressive eye testing is a good example. The increase in our progressive (market) share has come from focussed training, but that’s in the short-term. We need to build it structurally into the ecosystem. Our centralised supply chain helps preserve customer experience, but systems at scale are the only real solution. In the near term, currency exposure is a risk, though we have a natural hedge from earnings across geographies,” he added.
