Soralya Cosmetics wants a Rs 200 crore term loan. EBITDA is Rs 90 crore, 30% of it from one product line, 45% of sales come in the festive season, and online sales carry high returns. What should a lender think about on revenue, and how much would you lend?

I would lend about Rs 180 crore over seven years rather than Rs 200 crore over five, with repayments falling after the festive season. Stressing the hero range by 40% and online returns up to 25% takes EBITDA from Rs 90 crore to about Rs 71 crore. The request as made covers debt service 1.33x today but only 0.97x under stress; the smaller, longer loan holds 1.39x.

Three things, and none of them is size. A tailor with one famous design, most of his orders at Diwali, and a habit of accepting returns from online customers has good sales and fragile cash. For a consumer brand, the quality of revenue, meaning how concentrated, how seasonal and how much of it sticks after returns, matters more than the headline number. Soralya has all three: a hero productOne product or range that brings in a large share of profit and often most of the brand recognition. earning Rs 27 crore of EBITDA, 45% of sales in one quarter, and online returns of Rs 52.5 crore a year.

Stress the two risks that hit profit rather than timing. If a copycat launch cuts the hero range's profit by 40%, EBITDA loses Rs 10.8 crore. If online returns rise from 20% to 25% of gross orders, net online sales fall from Rs 210 crore to Rs 196.9 crore, and at a 60% contribution margin EBITDA loses another Rs 7.9 crore. Together they take EBITDA from Rs 90 crore to about Rs 71.3 crore, a fall of about a fifth.

Rs 200 crore over five years at 10% needs about Rs 52.8 crore a year. Cash for debt service is Rs 70 crore today, cover of 1.33x, which works. Under stress cash falls to about Rs 51.3 crore and cover to 0.97x, meaning the company could not meet its payments from operations. A lender does not need the stress to happen to size for it; it needs the stress to be plausible, and a copycat range in a fashion business is plausible.

Seasonality is a timing problem, so solve it with timing. Set the term loan's repayment dates in January and February, after festive cash has been collected, and fund the pre-festive stock build with a separate working capital lineA revolving facility secured on stock and receivables, drawn and repaid as they rise and fall, usually renewed every year. that is fully repaid each March. Add a covenant on the share of EBITDA from any single range, reported quarterly, and on online return rates. The view: Rs 180 crore over seven years, repaid after the season, with the new store plan phased to match.