Chaupalik Mart opens 40 stores a year at Rs 12 crore each, and a new store reaches Rs 3 crore of EBITDA after two years. At a 12% cost of capital, what does a new store earn, and what is the opening programme worth on top of the existing estate?

A new store earns an IRR of about 18% and has a net present value of Rs 9.37 crore on its Rs 12 crore of capex; the existing estate is worth about Rs 5,200 crore and the five-year programme adds about Rs 1,514 crore, roughly 29% on top. A mature store keeps Rs 2.00 crore of cash a year after tax and maintenance, a 16.7% cash yield plus 4% growth against a 12% cost of capital. The programme is worth that spread on 200 stores, not the Rs 2,400 crore spent, and most of it rests on the growth assumption.

Think of buying an auto-rickshaw for Rs 2 lakh that clears Rs 40,000 a year after fuel and repairs: the question is not whether it makes money but whether 20% a year beats what the money would earn elsewhere, and how long the first slow months last. A Chaupalik store costs Rs 12 crore and, once mature, keeps Rs 2.00 crore a year: Rs 3 crore of EBITDA less 25% tax is Rs 2.25 crore, less Rs 0.25 crore of maintenance capex. The headline 25% EBITDA yield on capex becomes a 16.7% cash yield, and the store grows 4% a year on top, which is roughly a 21% total return once mature, against a 12% cost of capital. The ramp costs something: Rs 0.50 crore of cash in year 1 and Rs 1.25 crore in year 2.

Put a value on it. From year 3 the store is a growing perpetuity: Rs 2.00 crore divided by 12% less 4% is Rs 25.00 crore at the end of year 2. Discount that and the two ramp years back to opening: Rs 0.50 crore over 1.12 plus Rs 1.25 crore over 1.12 squared plus Rs 25.00 crore over 1.12 squared is Rs 21.37 crore. Less the Rs 12 crore of capex, the NPV is Rs 9.37 crore and the IRR about 18%. Take the growth away and the mature store is worth Rs 16.67 crore at year 2, the NPV drops to Rs 2.73 crore and the IRR to 14%: still above 12%, but the growth is where most of the value lives.

The 200 existing stores throw off Rs 400 crore of cash a year, growing 4%. As a growing perpetuity at 12% that is Rs 400 crore times 1.04 over 0.08, about Rs 5,200 crore, which is 8.7x the estate's Rs 600 crore of EBITDA. The opening programme is worth the NPV of its stores: 40 stores a year at Rs 9.37 crore each is Rs 375 crore per cohort, and five cohorts starting one year apart are worth about Rs 1,514 crore today, roughly 29% on top of the estate. That is the number a buyer should pay for growth, and it is far below the Rs 2,400 crore of capex the programme consumes, because the capex is the price of the stores, not their value.

Three things. Whether new stores really reach Rs 3 crore: the break-even is Rs 1.75 crore, so a programme whose fortieth store in a new city earns Rs 2 crore is dilutive. Whether the capex holds at Rs 12 crore: at Rs 15 crore the NPV falls to Rs 6.37 crore. And whether 4% same-store growth survives 200 more stores, some of which will take sales from existing ones. Store growth adds value only while each store earns more than it costs to fund, and the first stores a chain opens are the best sites; the two hundredth rarely is. The limit of the analysis is that it values each cohort the same; a real model would fade the mature EBITDA and raise the capex as the chain moves to weaker locations.