Standard one-hour LBO test: revenue Rs 600 crore growing 12% at a 15% margin, bought at 10x with 5x debt, exit at 10x in year 5. Give the returns and a two-way sensitivity of entry and exit multiple.

About 2.8x and 23% in the base case. EBITDA grows at 12% to Rs 159 crore, worth Rs 1,586 crore at 10x; five years of cash after 10% interest repay Rs 108 crore, leaving Rs 342 crore of debt, so equity is Rs 1,244 crore on Rs 450 crore. In the two-way table the diagonal, where entry equals exit, shows the return from operations alone, 25% to 21%, and every cell off it is a bet on the market re-pricing the business.

Operating lines, debt schedule, returns, in that order, with every input in one block at the top so the sensitivity table can drive them. Think of a tailor who cuts the pattern before touching the cloth: the inputs block is the pattern. Revenue compounds at 12%, EBITDA is 15% of it, half of EBITDA is cash before interest, interest is 10% of opening debt, and the difference repays debt. Year 1 cash before interest is Rs 50.4 crore against Rs 45.0 crore of interest, so only Rs 5.4 crore is repaid; by year 5 it is Rs 41.0 crore. At 5x leverage the sweep is slow, and you should say so.

Exit equity over entry equity. Rs 1,586 crore less Rs 342 crore is Rs 1,244 crore on Rs 450 crore, 2.76x and 22.6%, of which EBITDA growth at a constant 10x contributes Rs 686 crore and paydown Rs 108 crore. Growth is the engine; the debt is there to make the equity cheque small rather than to be repaid. A cash sweepA loan term that sends all free cash flow to repay the loan rather than letting the company keep it. on a 5x deal with 50% conversion starts slowly because interest alone is Rs 45 crore in year 1.

Nine returns, one of which is the business and eight of which are the market. Along the diagonal, where you sell at the multiple you paid, the return is 25% at 9x, 23% at 10x and 21% at 11x: growth and paydown only, falling as the equity cheque grows. Above the diagonal you are paid for the market re-rating the business; below it you are punished for buying high and selling low, and 11x in with 9x out earns 15%. The investment committee reads the diagonal first, because that is the return the fund controls.

That the base case clears a 20% hurdle on growth alone, and what would break it. The 12% growth is the whole story; at 6% growth the diagonal falls to about 14% even before the slower paydown that lower EBITDA brings. So diligence is about distribution reach and whether general trade growth holds as modern trade takes share, and the structure point is that 5x at 10% leaves little room for a bad year. The limitation: the model holds the margin at 15% and conversion at 50% as revenue doubles, and a snacks business adding capacity usually does neither in the build years.