EV / EBITDA

A valuation multiple that fixes the biggest problem with P/E - it ignores how the company is financed (equity vs debt). EV/EBITDA puts every company on the same footing.

How to compute

Enterprise Value (EV) = Market Cap + Total Debt − Cash
EV / EBITDA = EV ÷ trailing 12-month EBITDA

A company with ₹3,000 cr market cap, ₹500 cr debt, ₹200 cr cash has EV = 3,000 + 500 − 200 = ₹3,300 cr. If trailing EBITDA is ₹400 cr, EV/EBITDA = 8.25x.

Why this is fairer than P/E

P/E uses PAT, which has interest expense subtracted. So a company with lots of debt looks cheap on P/E (lower PAT) but is actually riskier. EV/EBITDA includes the debt in the numerator and uses EBITDA (pre-interest) in the denominator - so a leveraged company looks just as expensive as it should.

This makes EV/EBITDA the standard multiple for comparing companies with very different capital structures.

Sector ranges

Rough sector medians for Indian listed companies:

• IT services: 18-25x
• FMCG: 30-50x
• Paints, chemicals: 22-35x
• Cement: 12-18x
• Steel, metals: 5-9x (cyclical, so this widens a lot)
• Auto, auto components: 12-20x
• Telecom infra: 8-12x
• Banks and NBFCs: not used (different metric - Price-to-Book)