Case 094Operating cases and estimationCore
A distributor of maintenance and repair products has Rs 900 crore of revenue at an 8% EBITDA margin in a Rs 30,000 crore market growing 9% a year where the top five hold 12%. Assess the market and the company's position, then value it at 12x to 14x EBITDA and say what earns the top of the range.
1The situation
Sutradhar Industrial Supplies, an invented distributor, sells maintenance, repair and operating products, the bearings, fasteners, safety gear and cutting tools that keep factories running, to about 9,000 plants across western and southern India from 22 branches. Revenue is Rs 900 crore and the EBITDA margin is 8%.
The Indian market for these products is estimated at Rs 30,000 crore, growing about 9% a year. The top five distributors together hold 12%; the rest is thousands of local dealers. A private equity fund asks for your view in two parts: first, is the market attractive and how well placed is Sutradhar; second, what is it worth at 12x to 14x EBITDA, and what would justify the top of that range?
2Your task
Give the qualitative assessment with the numbers that support it, compute the enterprise value range, and name the specific evidence that would move a buyer from 12x to 14x.
Quick check
What is Sutradhar's share of its market, and what is its EBITDA?
Worked solution
Try it on paper, then open one step at a time.
30-second answerThe answer to give first
The market is attractive and Sutradhar is well placed: Rs 30,000 crore growing 9%, 88% held by small dealers, and Sutradhar's Rs 900 crore is a 3% share that already makes it a top five player. EBITDA of Rs 72 crore is worth Rs 864 crore at 12x and Rs 1,008 crore at 14x. The top of the range is earned by proof that scale turns into share and margin: growth above 9%, a margin path to 10%, and bolt-on acquisitions of dealers at single-digit multiples.
Step 1Is the market worth being in?
Answer with the three numbers given, in order. Size says it is large enough to build a big company in; growth of 9% says a player holding share grows without taking anything from anyone; fragmentation says share is there to take. Think of a city where almost every grocery is a corner shop: the first chain to run a warehouse and a delivery fleet does not need to invent demand, it needs to be cheaper and more reliable than the shop next door. Here the top five hold Rs 3,600 crore of a Rs 30,000 crore market, so Rs 26,400 crore sits with dealers who carry thin inventory, no credit lines and no e-commerce. Say the risks in the same breath: industrial demand is cyclical, large customers can squeeze margins, and online marketplaces could take the standard products that distributors earn their margin on.
Step 2How well placed is Sutradhar?
A 3% share sounds small until you set it against the leaders' 12% combined. Sutradhar is already one of the five firms large enough to run multi-branch logistics, hold 20,000 SKUs and offer plants a single supplier, and that is the only position in this market worth paying a premium for. The 8% margin is the open question: it is a distributor's margin, not a brand's, so it depends on route density, purchasing scale and the mix of private label. The qualitative test is whether the margin rises as branches fill: if a branch at Rs 60 crore of sales earns 11% while one at Rs 25 crore earns 5%, growth itself expands the margin, and a buyer will pay for that.
Step 3What is it worth, and what earns 14x rather than 12x?
EBITDA of Rs 72 crore times 12 and 14 gives Rs 864 crore to Rs 1,008 crore, about 0.96x to 1.12x revenue. A multiple is a price for growth, so test it against growth. If Sutradhar only holds its share, revenue in five years is Rs 1,385 crore and EBITDA at 8% is Rs 111 crore, so today's 12x is 7.8x that year five figure. If share rises to 4% of a market that has grown to Rs 46,159 crore, revenue is Rs 1,846 crore, 15% a year, and at a 10% margin EBITDA is Rs 185 crore, so 14x today is only 5.5x year five. The buyer at 14x is paying for the second path; the evidence is branch-level margins, same-customer growth and a list of dealers Sutradhar could buy.
| Five-year view | Hold 3% share | Reach 4% share |
|---|---|---|
| Market in year 5, Rs crore | 46,159 | 46,159 |
| Revenue in year 5 | 1,385 | 1,846 |
| Revenue growth a year | 9% | 15% |
| EBITDA margin | 8% | 10% |
| EBITDA in year 5 | 111 | 185 |
| Today's value as a multiple of year 5 EBITDA | 7.8x at 12x | 5.5x at 14x |
The roll-up argument is the third lever and deserves one number. A dealer with Rs 100 crore of revenue at a 6% margin earns Rs 6 crore and sells for about 7x, Rs 42 crore; inside a platform valued at 13x the same EBITDA is worth Rs 78 crore before any synergy, and Rs 104 crore if its margin rises to Sutradhar's 8%. That multiple arbitrageBuying small businesses at low multiples and having them valued at the higher multiple of the larger acquirer once combined. is real only if integration works: common systems, one warehouse network and the dealer's owner staying on. A buyer paying 14x wants to see one or two completed bolt-ons with their margins a year later, not a list of targets.
Close with the view and its limit. Attractive market, strong position, Rs 864 crore to Rs 1,008 crore, and the top end only with evidence of share gains, margin expansion or a working roll-up. The limit is the market figure itself: Rs 30,000 crore is an estimate for a market with no listed data, so check it from the bottom up, plants times spend per plant, before a multiple is attached to a share of it.
Where candidates lose it
The usual miss in a two-part case is rushing the qualitative half to get to the numbers. The interviewer is listening for whether you can turn size, growth and fragmentation into a view about who wins; a candidate who says attractive market and moves on has answered nothing.
The second is giving the range without earning it. Twelve to fourteen times was handed to you; the question is what separates the two ends, and the answer has to be specific evidence a buyer can check, not confidence.
What the interviewer asks next
- Sutradhar's three largest customers are 25% of revenue. How does that change the position and the multiple?
- An online industrial marketplace is growing 40% a year from a small base. Which of Sutradhar's products are most exposed?
- Build the Rs 30,000 crore market from the bottom up. What would you need?
- How would you structure the fund's price so that 14x is paid only if the share gains arrive?
Asked at Harris Williams, Investment Banking, Richmond, 2025 (Wall Street Oasis): 2 hour long case studies that were qualitative then quantitative
Company names and figures are illustrative.