Q2 result season has just ended and one must have heard over 100 times in a day, on business channels, of EBITDA (Earnings before Interest, Tax, Depreciation and Appropriations) margins seen high or low of a company, while doing result analysis.
But EBITDA margin is totally irrelevant, or a confusing data to take an investment call on the stock. In many cases, EBITDA given by management or Media does not tally, because of inclusion or exclusion of other income (not other operating income). Inspite of having abbreviately defined it, grey area or confusion exist in calculating it.
HUL, for H1FY21, on a total income of Rs. 22,309 cr. had an EBITDA of Rs. 5,820 cr. translating in a margin of 26.10%. EPS for H1 is at Rs.16.50. So, share rules at PE of 66x. Conversely, Power Grid, for H1FY21, on total income of Rs. 19.648 cr. had an EBITDA of Rs. 17,547 cr. giving margin of 89.30%, with H1 EPS at Rs. 9.83. But share rules at PE of 10.5x.
Media, of their own ignorance or influenced by few global investment bankers, serve you with wrong data, which may lend you picking in laggard, by overlooking quality, based on this EBITDA margin. So, be careful and let's not accept everything with blind eyes.