Sector multiples
A "multiple" is shorthand for any valuation ratio - P/E, EV/EBITDA, P/B, Price-to-Sales. "Sector multiples" means the typical range of these ratios for companies in a particular sector.
Why sectors have different ranges
A sector's multiple range reflects two things:
1. Growth expectations. Consumer brands grow predictably, year after year - markets pay 40-50x P/E. Steel grows cyclically - markets pay 5-10x P/E at peak earnings. Same company shouldn't be valued the same in either situation.
2. Capital intensity and returns. A software business that needs no factories and earns 30% return on capital is worth more per unit of profit than a chemicals plant that earns 15% return on capital. The market prices the quality of the earnings.
Typical sector multiples (Indian listed, approximate medians)
| Sector | P/E | EV/EBITDA | P/B |
|---|---|---|---|
| FMCG | 50-70x | 35-50x | 8-15x |
| Consumer durables | 35-50x | 25-35x | 5-10x |
| Paints & chemicals (specialty) | 40-60x | 25-40x | 6-12x |
| IT services (large cap) | 25-35x | 18-25x | 5-9x |
| IT services (mid cap) | 30-45x | 20-30x | 4-7x |
| Pharma (formulations) | 25-35x | 15-22x | 4-7x |
| Banks (private, large) | 18-22x | n/a | 2.5-4x |
| Banks (PSU) | 6-12x | n/a | 0.7-1.5x |
| Cement | 15-22x | 12-18x | 3-5x |
| Auto OEMs | 15-25x | 10-18x | 3-6x |
| Auto components | 18-28x | 12-20x | 3-7x |
| Steel | 6-12x | 5-9x | 0.8-2x |
| Real estate | varies | varies | 1-3x (NAV-based) |
| Power utilities | 12-18x | 7-11x | 1.5-3x |
| Telecom (operators) | 25-50x | 6-10x | 3-6x |