A quick-service restaurant chain spends Rs 2.5 crore to open a store that earns Rs 4 crore of revenue at an 18% store-level margin. What is the payback, and how many stores a year can Rs 150 crore of operating cash flow fund?

A mature store pays back in about 3.5 years, and Rs 150 crore of cash flow funds about 60 new stores a year. Each store earns Rs 0.72 crore a year on Rs 2.5 crore invested, a pre-tax store return of about 29%. Sixty stores on a base of 400 is 15% unit growth a year, which is the pace the chain can sustain on its own cash.

Picture a friend who spends Rs 2.5 lakh to set up a tea stall that brings in Rs 4 lakh a year in sales. What matters to her is not the Rs 4 lakh but what is left after tea leaves, milk, rent and a helper. Payback is measured on the cash a unit keeps, not the revenue it rings up. For Rasoiyana, 18% of Rs 4 crore is Rs 0.72 crore of store EBITDA a year. Rs 2.5 crore divided by Rs 0.72 crore is a payback of about 3.5 years, and the same numbers give a pre-tax return on the store of about 28.8% a year.

The clean figure assumes a store is mature on opening day, and new restaurants rarely are. Assume the first year runs at 75% of mature revenue and a 12% margin while the neighbourhood discovers it. That first year earns Rs 0.36 crore instead of Rs 0.72 crore, and payback stretches to about 4.0 years. Two more caveats belong in the pitch. Store EBITDA is before tax and before head office, so the true cash payback for the company is longer still. And new stores near old ones can take customers from them, a problem called cannibalisationWhen a new store wins sales partly from the company’s own existing stores nearby, so the chain gains less than the new store reports., which store-level numbers hide.

Rs 150 crore of operating cash flow divided by Rs 2.5 crore a store is 60 stores a year. The more useful way to say it: each existing store generates about Rs 0.375 crore of company cash flow after head office, interest and tax. Divide that by the cost of a new store and you get the growth rate the chain can fund on its own, about 15% more stores every year. Because new stores add cash flow once they open, the number of stores the company can afford rises each year even though the percentage stays the same.

Store economics set the speed limit: about 15% unit growth a year is what Rasoiyana can fund itself, and anything faster needs new capital or better stores. If management guides to 25% store growth, ask where the gap is funded from, since it implies debt or dilution. The levers that raise the limit are cheaper fit-outs, faster ramp-up and higher store margins. The test for the pitch is whether new stores are earning what old ones did: if recent openings pay back in five years instead of three and a half, the chain is running out of good locations, and the growth rate the market pays for is at risk.