Mock 5 — Final exam: Kabini Home Appliances¶
Take after: Modules 00–13 and Mocks 1–4. Time: 4 hours. You may use a calculator and a blank spreadsheet; no notes, internet or AI. Marks: 150 in five sections. Pass: 105 (70%). Distinction: 125.
This exam is one company from first read to final decision, the way you will work in the capstone. Every number you need is on this page. Amounts in ₹ crore unless stated; shares in crore. Round to one decimal place.
Mark with the answer key. Mark Section E against the memo rubric as well as the key.
| Section | Topic | Marks | Suggested time |
|---|---|---|---|
| A | Statements and ratios | 30 | 45 min |
| B | Accounting quality and forensics | 30 | 45 min |
| C | Business quality | 20 | 30 min |
| D | Valuation | 40 | 70 min |
| E | Decision: memo, sizing, derivatives | 30 | 50 min |
The company¶
Kabini Home Appliances Ltd (fictional; NSE: KABINI) makes and sells kitchen appliances under the "Kabini" brand. Its products are mixer-grinders, gas stoves, pressure cookers, cookware and, since FY24, small electric appliances. It is headquartered in Mysuru and listed in 2014.
Market position:
- Mixer-grinders: #3 nationally, with a ~14% share.
- Gas stoves: #2 in South India.
- Sales mix by region: 44% of revenue from South India, 26% West, 18% North, 12% East.
Distribution:
- ~18,000 retail touchpoints served through ~420 distributors.
- E-commerce and quick commerce are 18% of sales, up from 9% in FY22.
- Modern trade is 7% of sales.
Operations:
- Cookware and stoves are made in two plants in Karnataka.
- Mixer-grinder motors come from two sources. One is its own motor plant, commissioned in FY25 and running at 40% utilisation. The other is Kabini Motors Pvt Ltd, owned by the managing director's family.
- Small electric appliances are outsourced to contract manufacturers in China and India.
Shareholding: the promoters (the founding family) own 56.0% with no pledge; FIIs 12.4%, DIIs 14.1%, public 17.5%. The chief financial officer resigned in January 2026 "to pursue other opportunities"; the deputy CFO was promoted.
Market data (26 September 2026):
- Price ₹360; 12.0 Cr shares; market capitalisation ₹4,320 Cr; 52-week range ₹290–₹455.
- Average daily traded value ₹14 Cr.
Statement of profit and loss (₹ Cr)¶
| FY22 | FY23 | FY24 | FY25 | FY26 | |
|---|---|---|---|---|---|
| Revenue from operations | 1,450 | 1,610 | 1,760 | 1,980 | 2,210 |
| Cost of materials and traded goods | 921 | 1,034 | 1,109 | 1,224 | 1,359 |
| Employee costs | 140 | 152 | 163 | 176 | 189 |
| Advertisement and sales promotion (A&P) | 70 | 80 | 88 | 142 | 166 |
| Other expenses | 163 | 190 | 207 | 213 | 240 |
| EBITDA | 156 | 154 | 193 | 225 | 256 |
| Depreciation and amortisation | 32 | 36 | 40 | 48 | 55 |
| EBIT | 124 | 118 | 153 | 177 | 201 |
| Other income (interest on deposits) | 8 | 9 | 10 | 9 | 8 |
| Finance costs | 10 | 12 | 14 | 19 | 24 |
| Profit before tax | 122 | 115 | 149 | 167 | 185 |
| Tax (25.17%) | 30.7 | 28.9 | 37.5 | 42.0 | 46.6 |
| Profit after tax | 91.3 | 86.1 | 111.5 | 125.0 | 138.4 |
| Dividend paid | 36 | 36 | 42 | 48 | 48 |
Balance sheet at 31 March (₹ Cr)¶
| FY23 | FY24 | FY25 | FY26 | |
|---|---|---|---|---|
| Property, plant and equipment incl. CWIP (net) | 324.0 | 394.0 | 466.0 | 506.0 |
| Inventories | 204.0 | 228.0 | 248.0 | 290.0 |
| Trade receivables | 198.0 | 241.0 | 315.0 | 400.0 |
| Cash and bank balances | 158.4 | 162.9 | 160.9 | 145.3 |
| Total assets | 884.4 | 1,025.9 | 1,189.9 | 1,341.3 |
| Share capital (₹2 face value) | 24.0 | 24.0 | 24.0 | 24.0 |
| Other equity | 511.4 | 580.9 | 657.9 | 748.3 |
| Borrowings | 95.0 | 150.0 | 215.0 | 265.0 |
| Trade payables | 164.0 | 173.0 | 184.0 | 201.0 |
| Provision for warranty | 24.0 | 26.0 | 29.0 | 17.0 |
| Other current liabilities (dealer deposits, accruals) | 66.0 | 72.0 | 80.0 | 86.0 |
| Total equity and liabilities | 884.4 | 1,025.9 | 1,189.9 | 1,341.3 |
FY22 closing figures: total assets ₹798.3 Cr; net worth ₹485.3 Cr; borrowings ₹80 Cr; cash ₹154.3 Cr; receivables ₹167 Cr; inventories ₹177 Cr; payables ₹151 Cr.
Cash-flow statement (₹ Cr)¶
| FY24 | FY25 | FY26 | |
|---|---|---|---|
| Profit before tax | 149.0 | 167.0 | 185.0 |
| Depreciation and amortisation | 40.0 | 48.0 | 55.0 |
| Finance costs (shown in financing) | 14.0 | 19.0 | 24.0 |
| Interest income (shown in investing) | (10.0) | (9.0) | (8.0) |
| (Increase) in trade receivables | (43.0) | (74.0) | (85.0) |
| (Increase) in inventories | (24.0) | (20.0) | (42.0) |
| Increase in trade payables | 9.0 | 11.0 | 17.0 |
| Increase / (decrease) in warranty provision | 2.0 | 3.0 | (12.0) |
| Increase in other current liabilities | 6.0 | 8.0 | 6.0 |
| Income tax paid | (37.5) | (42.0) | (46.6) |
| Cash from operations | 105.5 | 111.0 | 93.4 |
| Capital expenditure | (110.0) | (120.0) | (95.0) |
| Interest received | 10.0 | 9.0 | 8.0 |
| Cash from investing | (100.0) | (111.0) | (87.0) |
| Net proceeds from borrowings | 55.0 | 65.0 | 50.0 |
| Interest paid | (14.0) | (19.0) | (24.0) |
| Dividends paid | (42.0) | (48.0) | (48.0) |
| Cash from financing | (1.0) | (2.0) | (22.0) |
| Net change in cash | 4.5 | (2.0) | (15.6) |
Extracts from the FY26 annual report¶
- Note 2.4 (revenue). "Consequent to a review of the contractual terms of certain trade schemes with channel partners, the Company has, with effect from 1 April 2024, presented such schemes as advertisement and sales promotion expenses. The amounts were ₹48 Cr in FY25 and ₹62 Cr in FY26. Previously these were netted from revenue. Comparatives for FY24 have not been restated as the amounts are not material."
- Note 19 (warranty provision).
| FY25 | FY26 | |
|---|---|---|
| Opening | 26 | 29 |
| Charge for the year | 28 | 27 |
| Released on change in estimate | — | (15) |
| Utilised | (25) | (24) |
| Closing | 29 | 17 |
The FY26 release reflects "lower claim experience following design improvements; the warranty period for mixer-grinders remains five years on the motor". 3. MD&A. "To support channel partners amid heightened competitive intensity, the Company extended credit terms selectively." The fourth quarter was 32% of FY26 revenue, against 29% in FY25 and 27% in FY24. 4. Note 38 (related parties). Purchases of motors from Kabini Motors Pvt Ltd were ₹89 Cr in FY24, ₹142 Cr in FY25 and ₹190 Cr in FY26. The note says: "Transactions are at arm's length and approved by the audit committee." 5. Independent auditor's report. The opinion is unmodified. The key audit matter is "Revenue recognition — trade schemes and discounts", described as an area of significant estimation. 6. Chairman's letter. "Our gross margin expanded 150 basis points over two years, reflecting premiumisation and the benefits of backward integration."
Peers (fictional; trailing multiples at current prices)¶
| Peer | P/E | EV/EBITDA | ROCE | Revenue CAGR FY23–26 | CFO ÷ EBITDA, FY24–26 |
|---|---|---|---|---|---|
| Vaigai Appliances | 42× | 26× | 32% | 14% | 78% |
| Kosi Consumer | 35× | 22× | 24% | 11% | 70% |
| Bhima Kitchen | 28× | 18× | 18% | 9% | 62% |
| Chambal Electricals | 38× | 24× | 27% | 15% | 74% |
Section A — Statements and ratios (30 marks)¶
A1. (8 marks) Compute for FY24, FY25 and FY26: revenue growth; gross margin; EBITDA margin; PAT growth; ROE on average equity; and ROCE (EBIT ÷ average capital employed, where capital employed = net worth + borrowings − cash).
A2. (7 marks) Compute receivable days (on revenue), inventory days and payable days (both on cost of materials), and the cash conversion cycle for FY22 and FY26. How much cash would FY26 release if receivable days returned to the FY22 level?
A3. (8 marks) For FY24–FY26, compute CFO ÷ PAT, CFO ÷ EBITDA and free cash flow (CFO − capex) each year, and cumulatively. Then show how the three years' dividends were funded.
A4. (7 marks) Compute the three-factor DuPont for FY26 on average balances. Compute net debt ÷ EBITDA and interest cover (EBIT ÷ finance costs) for FY26. In three sentences, describe the business these numbers show before you look at the notes.
Section B — Accounting quality and forensics (30 marks)¶
B1. (8 marks) Using extract 1:
- (a) Is the new presentation of trade schemes consistent with Ind AS 115's treatment of consideration payable to a customer? Argue both sides briefly.
- (b) Restate FY25 and FY26 revenue, revenue growth and gross margin on the old basis.
- (c) Evaluate the chairman's claim in extract 6 in one sentence.
B2. (6 marks) Using extract 2, restate FY26 EBITDA and PAT without the warranty release. Compute the warranty provision as a percentage of revenue for FY24, FY25 and FY26. What is the adjusted FY26 PAT growth, and what question would you put to management about the five-year motor warranty?
B3. (6 marks) Extract 3 and the receivables data point to one pattern. Name it, give three pieces of evidence from the data, and name two documents or data points that would confirm or refute it.
B4. (6 marks) Using extract 4:
- Compute related-party motor purchases as a share of cost of materials for each of the three years.
- Explain why the growth is odd given the company's own motor plant.
- Give the three questions you would ask the audit committee.
B5. (4 marks) Give Kabini a forensic and governance rating (Green / Amber / Red), using the checklist in 09.7, and name the three items that decide it.
Section C — Business quality (20 marks)¶
C1. (8 marks) Assess Kabini's competitive position using the evidence on this page:
- brand and share;
- distribution;
- the channel shift to e-commerce and quick commerce;
- the move into outsourced small appliances.
What is the moat, if any, and what is eroding it? Use 05.3.
C2. (6 marks) Compute Kabini's incremental pre-tax ROCE from FY23 to FY26: (EBIT FY26 − EBIT FY23) ÷ (closing capital employed FY26 − closing capital employed FY23). Repeat it with FY26 EBIT excluding the warranty release. Compare both with the FY26 ROCE, and show how much of the capital increase was working capital and how much was fixed assets.
C3. (6 marks) Evaluate management's capital allocation over FY24–FY26: capex, the motor plant, dividends, borrowing and related-party purchasing. Would you trust this team with retained earnings? Give two reasons.
Section D — Valuation (40 marks)¶
D1. WACC (4 marks). Risk-free rate 6.6%; beta 0.9; equity risk premium 6.0%; pre-tax cost of debt 9.0%; tax 25.17%; target debt 5% of capital. Compute kₑ, the after-tax k_d and WACC. Use 11.7% for the rest of the section.
D2. DCF (14 marks). Build a ten-year FCFF DCF from FY26 reported revenue of ₹2,210 Cr with these base-case drivers:
- Revenue growth, FY27–FY36: 15%, 15%, 14%, 13%, 12%, 11%, 10%, 9%, 8%, 8%.
- EBITDA margin: rises in equal steps from 11.6% (FY26) to 13.0% in FY31, then stays at 13.0%.
- Depreciation: 2.5% of revenue.
- Capex: 3.5% of revenue.
- Working capital: net working capital investment of 15% of the increase in revenue.
- Tax: 25.17% on EBIT.
- Terminal value: growth 6%. Year-11 FCFF is computed with the same ratios and 6% revenue growth.
- Discounting: end-year.
- Balance sheet: net debt ₹119.7 Cr; 12.0 Cr shares.
Report the PV of the explicit FCFF, the terminal value and its PV, EV, equity value and value per share, and the terminal value's share of EV.
D3. Sensitivity and the terminal value (6 marks).
- (a) Build a 3 × 3 grid of value per share for WACC of 10.7%, 11.7% and 12.7% against terminal growth of 5%, 6% and 7%.
- (b) What reinvestment rate and return on new invested capital (RONIC) does your year-11 cash flow imply (reinvestment rate = 1 − FCFF ÷ NOPAT; RONIC = g ÷ reinvestment rate)? Is that RONIC plausible in perpetuity? Use 06.3.
D4. Reverse DCF (6 marks). Holding everything else at the base case, find:
- (a) the steady-state EBITDA margin (reached in FY31) that justifies ₹360;
- (b) the constant ten-year revenue growth that justifies ₹360 at base-case margins;
- (c) the WACC that justifies ₹360.
Which of the three is the most plausible route to the current price? Use 06.6.
D5. Multiples (6 marks).
- Compute Kabini's trailing P/E and EV/EBITDA on both reported and adjusted FY26 numbers (from B1–B2).
- Compute the value per share implied by the peer median P/E and EV/EBITDA, using the adjusted numbers.
- Reconcile the result with your DCF in three sentences.
D6. Scenarios (4 marks).
| Scenario | Probability | Drivers |
|---|---|---|
| Bull | 25% | Growth 18, 18, 17, 16, 15, 13, 12, 10, 9, 8%; steady-state margin 14.5% |
| Base | 50% | As in D2 |
| Bear | 25% | Growth 9, 9, 9, 8, 8, 8, 7, 7, 6, 6%; steady-state margin 10.5%; working capital 20% of incremental revenue |
Compute each value per share (spreadsheet) and the probability-weighted value, the expected return from ₹360, and the upside-to-downside ratio.
Section E — Decision (30 marks)¶
E1. Memo (18 marks). Write a one-page memo on Kabini in the structure of 11.3. Include:
- the header with your recommendation;
- what the market believes (from D4);
- your variant perception;
- three thesis bullets, each with a number;
- a valuation table;
- three dated thesis-breakers;
- the forensic summary;
- recommendation and sizing.
Maximum 450 words.
E2. Sizing (6 marks). Suppose Kabini fell to 20% below your base-case value (round to the nearest rupee), and your analysis were otherwise unchanged.
- (a) Compute the max-loss position size with a 3% portfolio-loss budget and your bear case as the loss.
- (b) Compute the full Kelly fraction and quarter-Kelly for this tree, which adds a fraud/de-rating tail: −80% (10%), bear (20%), base (45%), bull (25%). Returns are measured from the new price.
- (c) Apply the course's rule and overlays from 11.4 to give a final size for a ₹1 Cr portfolio, in rupees. Check it against liquidity, using 20% of the ₹14 Cr daily value.
E3. Derivatives (6 marks). Assume, for this question only, that Kabini were F&O-eligible. (Most companies of its size are not; say how you would check.) Into Q2 FY27 results, the one-month at-the-money straddle costs ₹25.
Your view of the reaction to results is:
| Outcome | Probability | Move |
|---|---|---|
| In line | 60% | ±3% (split evenly up and down) |
| Miss that exposes channel inventory | 25% | −15% |
| Beat | 15% | +6% |
- (a) Compute the implied mean absolute move and the one-standard-deviation move.
- (b) Compute your expected absolute move and your expected signed move.
- (c) Is there an edge in the event volatility, in the direction, or neither? Give the structure that fits your view and your recommendation from E1 (11.7).
This is an educational exercise, not a recommendation to trade.
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