The Lenskart Case

The sheer magnitude of the proposed pricing in certain IPOs has repeatedly triggered market apprehension. In the context of the Lenskart offering, the core grievance stemmed from the implied diluted Price to Earnings (P/E) multiple, which was widely reported to fall in the range of approximately 217 to 228 times, contrasting sharply with a NIFTY 50 reference average of 22.67 times.  This significant pricing variance has led to observations that the pricing may appear on the higher side.

Beyond the P/E paradox, two other critical points attracted public attention. First, the substantial gap between the company’s pre-issue Net Asset Value (NAV), reported in the mid-30s, and the final Offer Price, which approached INR 400.  Secondly, debates arose over the structure of the fundraising itself, with critics highlighting that over 70% of the IPO proceeds were allocated to existing shareholders through an Offer for Sale (OFS), rather than being raised as fresh equity for capital infusion into the company. 

These points, while often discussed in market analyses, serve here purely as illustrative considerations in examining pricing and IPO structuring. It was disclosed that the founder/promoter acquired a substantial number of shares at approximately INR 52 per share in the months preceding the IPO. At the final offer price of INR 382–INR 402, these holdings reflect a significant unrealized gain. From a corporate governance perspective, such pre-IPO transactions are frequently examined in terms of disclosure practices and the potential for informational asymmetries, illustrating the need for transparency in public offerings.

Through the Lawyer’s Lens

In examining these IPO-related debates, it is important to ground the discussion in the underlying legal framework: India’s securities laws are primarily disclosure-driven rather than merit-based. Once this distinction is overlooked, the focus shifts from commercial judgment to questions of legal compliance.

Since the abolition of the Controller of Capital Issues in 1992, India has embraced a market-based approach to price discovery. Under this framework, the Securities and Exchange Board of India (SEBI) does not evaluate or certify whether an offer price is “fair” or “reasonable” from a commercial perspective. The legal standard is straightforward: the issuer must provide full and accurate disclosure of all material facts. The law’s commitment to investors lies in transparency, while the potential risks and potential rewards rest entirely with the market participants.

While the public may at times urge SEBI to “regulate” offer prices, the regulator’s consistent position of non-intervention reflects a deliberate legal and philosophical commitment to market autonomy. In this framework, investor protection is achieved by ensuring that all material information influencing the offer price is fully and accurately disclosed. This transparency enables investors to make informed decisions, even in cases where a company is priced at high multiples in anticipation of future growth.

The Legal Framework for Pricing and Disclosure

The Lenskart Solutions Ltd. IPO (2025) is a useful case study to understand India’s securities law framework governing pricing and disclosure in public issues. Under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations), issuers are required to disclose the basis for determining the issue price, but SEBI neither comments on nor approves the pricing itself. Legally, therefore, the debate is not about how much the company is worth but whether its disclosures adequately reflect the assumptions, metrics, and risks underlying that pricing valuation. The ICDR Regulations mandate that issuers explain how the price band has been derived, whether through peer comparables, past transactions, or forward-looking financial data; and include cautionary disclosures on the inherent uncertainties of such estimates. If investors subsequently allege that material risks were concealed or assumptions misrepresented, liability may arise under both the Companies Act, 2013 and SEBI’s enforcement regime for misleading or incomplete disclosures.

India’s IPO regime recognises two permissible methods for price determination: the Fixed Price Method and the Book-Building Method, as provided under Regulation 6 of the ICDR Regulations. While the fixed price method involves a pre-decided issue price disclosed in the prospectus, the book-building process enables market-driven price discovery through investor bids within a pre-announced band. The issuer must announce this price band at least two working days before the issue opens, ensuring that the cap does not exceed 120 percent of the floor price. The process also requires public advertisement in specified newspapers and the filing of a Red Herring Prospectus (RHP) with SEBI. Although SEBI supervises procedural integrity, it does not fix or endorse the final price; its focus remains on the completeness, accuracy, and timeliness of disclosures. In Lenskart’s case, the company and its lead managers announced a price band of INR 382 – INR 402 per share, invited bids during the standard window, and ultimately priced the issue at the upper end. This approach reinforced SEBI’s disclosure-based philosophy, ensuring transparency and investor awareness without regulatory interference in valuation.

Legal Consequences in case of violation

Under the Companies Act, 2013, the liability framework for offer documents is anchored in the principle of full and accurate disclosure. A misstatement encompasses any untrue, misleading, or incomplete statement likely to mislead investors, while fraud arises where a false statement is knowingly made or a material fact knowingly omitted. Section 34 imposes criminal liability on promoters, directors, and any person authorising the issue of a misleading prospectus, equating such misconduct to fraud under Section 447. Conviction can result in imprisonment from six months to ten years, and fines up to three times the amount involved, with a mandatory minimum of three years for offences affecting public interest. Separately, Section 35 provides for civil liability, requiring directors, promoters, and experts named in the RHP to compensate investors for losses caused by misstatements, without prejudice to criminal proceedings.

Beyond the Companies Act, the Securities and Exchange Board of India (SEBI) enforces disclosure integrity through the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP), and the SEBI (Prohibition of Insider Trading) Regulations, 2015. Under Regulations 3 and 4 of PFUTP, misleading disclosures, false representations about use of IPO proceeds, or inducement to invest constitute actionable fraud. Penalties may include disgorgement, market access bans, and impounding of gains. Insider trading provisions further prohibit pre-IPO transactions executed while in possession of Unpublished Price Sensitive Information (UPSI). In practice, regulators and courts focus not on valuation differentials but on truthfulness and completeness of disclosure; fraud is established only when the prospectus ceases to serve as an accurate operational roadmap of the issuer.

SEBI’s Continued Shift Toward Stronger Disclosure Norms

India’s experience with ambitious IPO valuations followed by secondary-market volatility led SEBI to initiate structural reforms rather than numerical price controls. The regulator recognized that if it cannot dictate the price, it must aggressively enforce the quality of the information used to justify that price. This policy response, largely centred around the 2022 and 2025 ICDR amendments, represents a deployment of “soft control” measures designed to raise the governance bar for high-growth listings.

• Standardizing KPI disclosure

Prior to 2022, disclosure of Key Performance Indicators (KPIs) – operational metrics critical for evaluating growing companies, lacked uniformity and external rigor. To mitigate the risk of narrative-driven pricing, SEBI standardized KPI disclosure.

The new framework requires that KPIs – such as total transacting customers, units sold, or EBITDA trajectory, must be clearly defined and their significance explained. Crucially, the process now mandates:

1. Audit Committee Oversight: KPIs must be approved by the issuer company’s Audit Committee and Board of Directors before inclusion in the offer document.
2. External Professional Certification: The disclosures must be subject to external professional certification.
3. Ongoing Reporting: Issuers must continue reporting these KPIs for a prescribed period post-listing.

This stringent governance surrounding KPIs ensures that issuers are prevented from using unverifiable or purely promotional claims, forcing them to substantiate aggressive growth narratives with reliable, measurable, and auditable metrics.

• Enhanced Transparency and Oversight of Fund Utilisation

SEBI also elevated the prominence of Weighted Average Cost of Acquisition and recent primary and secondary transaction disclosures to provide immediate clarity on valuation step-ups. This curbs “selective storytelling” by requiring issuers to publicly present the price points accepted by sophisticated investors proximate to the offer.

Furthermore, the integrity of capital deployment has been secured through tighter rules on the use of IPO proceeds. Amended ICDR Regulations now cap the utilization of funds for General Corporate Purposes (GCP) and future unidentified inorganic acquisitions. The aggregate amount raised for these two purposes together cannot exceed 35% of the total issue size, and the amount for unidentified acquisitions is capped at 25%. This ensures that most capital raised is dedicated to specific, disclosed business objects, mitigating the risk of future misuse or diversion of funds under the vague guise of “general corporate expenses”. Additionally, new rules require mandatory disclosure of material agreements that affect management or control, aligning disclosure standards and reducing hidden liabilities.

These structural corrections demonstrate that SEBI is focused on enhancing transparency around the determinants of pricing, equipping investors with sufficient analytical tools to assess valuation assumptions, and ensuring robust corporate governance.

Conclusion

The intent of the legislature, as embodied in the Companies Act, 2013 and reinforced by SEBI’s regulatory framework, is to safeguard investor confidence through transparency, not pricing control. The law demands accuracy, completeness, and integrity in disclosures, placing accountability squarely on those who disclose, authorise and certify the prospectus and subsequent disclosures.

With valuations/pricing being increasingly shaped by data and forward-looking narratives, distinguishing between prudent optimism and materially misleading statements is becoming more challenging. With issuers relying on forward-looking metrics, key performance indicators, and brand-based valuations, the interpretive burden on regulators intensifies. The question that now arises is whether India’s disclosure-based model will continue to effectively balance market innovation with the enduring principle of investor protection in an age where price is increasingly shaped by perception.