A restaurant chain asks whether one more outlet pays back. Build four-wall EBITDA and payback for a Rasoiyana outlet, then stress it for weaker sales and a higher rent.

Base case: four-wall EBITDA of Rs 75 lakh, a 25% margin, payback 1.6 years. Stressed: Rs 33 lakh, 13.8%, payback 3.6 years. Revenue of Rs 300 lakh less food 96, staff 54, rent 36 and other 39 leaves 75, which recovers the Rs 120 lakh fit-out in 1.6 years. At Rs 240 lakh of sales the variable lines shrink but staff stays at 54 and rent rises to 45, so EBITDA falls by more than half. Outlet payback, not chain margin, is the unit that decides expansion.

A fruit stall owner knows her stall's take after fruit, the helper and the pitch fee, before anything her brother spends running the family's five stalls. Four-wall EBITDAThe profit of one outlet after all the costs inside its walls, before head office, central kitchen and corporate overheads. is that number for one outlet: revenue less food, staff, rent and other outlet costs, before head office. A chain expands by copying outlets, so the question is never whether the company is profitable but whether the next copy pays for itself. Rs 300 lakh less 96, 54, 36 and 39 leaves Rs 75 lakh, a 25% margin.

Payback is the fit-out divided by annual four-wall EBITDA: Rs 120 lakh over Rs 75 lakh is 1.6 years, a cash-on-cash return of 62.5%. That is a strong outlet; most chains want new sites back inside two to three years because leases run five to nine and tastes move. Two honesty notes: the fit-out ignores the deposit and pre-opening losses, and four-wall EBITDA ignores the head office that every outlet must carry a share of. Both make the true payback longer.

That the margin is not 25%; it is 25% at Rs 3 crore. With staff and rent fixed at about Rs 99 lakh in the stressed structure, the outlet breaks even at about Rs 180 lakh of sales, so a site doing Rs 240 lakh is only a third above the floor. The expansion rule that follows is about sites, not menus: do not sign a lease at 15% of plan unless you are confident of the plan, and do not open where the catchment supports Rs 240 lakh. A 3.6 year payback on a lease that may run five is a bet on nothing going wrong.

Close with the judgement. On the record, a new outlet is a good use of Rs 1.2 crore. The decision rests on two things the model cannot tell you: whether the Rs 3 crore record holds in the proposed catchment, and whether the rent can be held near 12%. If either slips, the fit-out is recovered in three and a half years or more, which is a different business.