Given the two choices I believe TVS capital should invest in the first opportunity.

I would like to break down my analysis into 2 parts, one focusing on why we should invest in the first
opportunity and second as to why should we not invest on the internet kitchen model.

Why invest in the PBCL segment focused restaurant

As per the data already available the company has a RoCE in excess of 18% and currently is present across
6 locations in 3 key metros.

The F&B service market is expected to grow at more than 30% in the next 2 years. Food expenditure
constitutes the majority of our consumption basket and with an increasing young population, eating out
will only grow. The lounge industry catering to the premium segment is on the rise and the youth of today
look forward to newer known names coming up in this segment. Given that the restaurant under
consideration is already present in 3 major metros and has a 18% ROCE it is safe to assume that this is
doing very well and a restaurant of this kind is bound to attract the attention of the young population.

So if the restaurant continues to do what it has been doing in its other 6 outlets and at the same time
look to innovate even more it can attract more young population and thereby act as a good source of
investment for TVS capital.

Why not invest in the internet kitchen model

The company under consideration is just an year old and has a high monthly cash burn and the current
EBITDA margins are at (40%). While high cash burn and negative EBITDA margins are typical for a
company that is just an year old, the main reasons why I think we should not invest in this company is
because I believe that the internet kitchen model inherently faces a lot of constraints as a result of which
they are not able to become profitable. Moreover, there is huge competition in this industry with a very
large number of heavily funded players already present making it even more difficult to capture the
market.

Typical constraints for a food-delivery company are as follows:

Limited delivery time: People typically want their delivery in 30-45 minutes leaving around 20-30
minutes for delivery (assuming 10-15 minutes as preparation time)
Unpredictable demand patterns of consumers
Highly concentrated peaks in ordering food meal-times
External circumstances like traffic, weather and changing demands on a daily basis
Kitchen operations

While an internet kitchen model is definitely more efficient than a standalone food-delivery model as it
leads to better utilization of the delivery executives who can also act as restaurant kitchen helpers
thereby improving efficiency and reducing costs, yet a number of constraints that plague the food
delivery companies also hamper the growth of internet kitchen model based companies.

Because of the reasons mentioned above and the fact that it is very difficult to ensure customer loyalty in
this segment I believe this opportunity is not a good case for an investment as the chances of this model
yielding high returns in a period of 3-4 years is pretty slim.