Chapter 1 — Comparable Cafes
What did similar cafes actually sell for?
To cross-check the DCF, Arjun looks at what real buyers paid for comparable cafes nearby. Two recent transactions: Brew and Bite at 40x earnings, Corner Cup at 36x. Sector average around 38x. Applying 38x to Ravi's Rs.1.4 lakh profit gives an implied business value of Rs.53.2 lakh — meaning a 40% stake at peer pricing would cost Rs.21.3 lakh.
Chapter 2 — Two Methods, Two Answers
DCF says Rs.48L. Peers say Rs.53L. Ravi wants Rs.62.5L.
38x on Rs.1.4 lakh profit implies Rs.53.2 lakh — higher than DCF but still below Ravi's ask. Ravi is pricing at 44.6x, a premium to every comparable transaction. The cafe is in high growth. Perhaps the premium is justified.
Three numbers. One decision. DCF says pay Rs.19.2L for 40%. Peer multiples say pay Rs.21.3L. Ravi wants Rs.25L. The question is not which method is right — both are valid. The question is whether the second location justifies paying a Rs.4-6 lakh premium above what the numbers say.
Your turn
It is Thursday evening. Arjun sees a missed call from Ravi. He knows what it is about.
He looks at his notes. DCF says 40% is worth Rs.19.2L. Peer multiples say Rs.21.3L. Ravi wants Rs.25L for that same 40%. The cafe was full when he walked past this morning. The second location looks real.
He calls back. Ravi picks up on the first ring.
“So Arjun — are you in?”
He looks at his notes. DCF says 40% is worth Rs.19.2L. Peer multiples say Rs.21.3L. Ravi wants Rs.25L for that same 40%. The cafe was full when he walked past this morning. The second location looks real.
He calls back. Ravi picks up on the first ring.
“So Arjun — are you in?”
This is not just about whether the current cafe is fairly priced. It is about whether you believe Ravi can do it again. One success could be luck. Two would be a business. What do you say?
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