EBITDA Margin – Definition, Formula & Industry Benchmarks

The Economic Times featured seven large-cap companies with EBITDA margins above 50% in October, including Adani Green Energy with 92.5% and Power Grid Corporation of India with 88.9%. But what makes these numbers stand out so much, and what do they really say about a company’s performance?

EBITDA margin, short for Earnings Before Interest, Taxes, Depreciation, and Amortisation, measures a company’s operating profitability as a percentage of its total revenue. It reflects the efficiency of a business’s operations before accounting adjustments.

Understanding EBITDA margin helps investors and analysts to compare companies across industries and ascertain their true earning potential. Read further to know about the EBITDA margin definition, formula, calculation, and more.

What is EBITDA Margin?

The Earnings Before Interest, Taxes, Depreciation, and Amortisation, or EBITDA, margin is a profitability ratio. It measures a company’s operating efficiency by expressing its earnings before interest, taxes, depreciation, and amortisation as a percentage of total revenue.

The EBITDA margin formula defines the relationship of a company’s earnings to its revenue. First, EBITDA is calculated by deducting operating expenses, including cost of goods sold (COGS) and selling, general, and administrative (SG&A) expenses, from total revenue.

EBITDA =  Total Revenue – (COGS + SG&A)

Then, the EBITDA Margin is calculated as,

EBITDA Margin = EBITDA/Total Revenue x 100

It indicates how effectively a company converts its revenue into operating profit, before considering financing, taxes, and non-cash expenses. A higher EBITDA margin generally suggests greater operational efficiency. 

How to Calculate EBITDA Margin

Let’s understand EBITDA margin calculation, with the help of the illustration below:

JRD Financial Advisors Consultancy Ltd. 

Summary of Statement of Profit and Loss

Particulars	2025 (₹ Cr)
Revenue	7,450
Other income	2,550
Total revenue	10,000
Expenses:
Cost of goods sold	3,500
Employee benefits	1,200
Selling and marketing	800
Administrative and other operating expenses	500
EBITDA	4000
EBITDA Margin	40%

Here, EBITDA Margin = EBITDA/Total Revenue x 100 = 4,000/10,000 x 100 = 40%

Interpreting EBITDA Margin

EBITDA margin interpretation is based on companies, the industries they belong to, and their market capitalisation.

• Peer Analysis: The EBITDA margin of a company is used for comparing it to other companies in the same industry to find a competitive edge, but the EBITDA margins vary across sectors and market cap of companies.
• Analyse Performance Trends: The EBITDA margin of a company is compared over several periods to reveal trends, such as a declining margin is a warning sign, while a rising margin indicates continuous improvement.
• Consideration for Industry Benchmarks: The benchmark EBITDA margin is set in accordance with low-margin or high-margin industries. For example, tech or IT companies usually have higher margins than retail businesses.

EBITDA Margin vs. Other Profitability Ratios

Let’s understand EBITDA margin vs. net profit margin from the table below: 

Profitability ratios	Use	Formula
Gross Margins	It is used for evaluating the product pricing and direct production costs.	Gross Profit/Total Revenue x 100
EBITDA Margins	It compares the operating performance of companies within an industry.	EBITDA/Total Revenue x 100
Operating Margins	It assesses a company’s profitability from its business activities, including depreciation on assets	Operating Profit/Total Revenue x 100
Profit after tax (PAT)Margins	It shows an overall view of a company’s financial health after accounting for all the costs.	PAT/Total Revenue x 100

Industry Benchmarks for EBITDA Margin

As of October 2025, the EBITDA margin benchmarks for top industries in India are as follows: 

Industry	EBITDA Margin Benchmark (2025)
Power Generation & Distribution	92.49% (Adani Green),  88.95% (Power Grid)
Telecommunications – Infrastructure	71.09% (Indus Towers)
Port Operations	67.51% (Adani Ports)
Non‑Ferrous Metals	53.90% (Hindustan Zinc)
Pharmaceuticals	29.00% (Sun Pharma), 31.70% (Divi’s Laboratories),  32.30% (Torrent Pharma)
IT Services	24.00% (Infosys), 26.00% (TCS)
Consumer Goods	22.86% (Hindustan Unilever)
Cement	21.00% (Shree Cement)
Aviation	25.50% (IndiGo)
Financial Services – Exchange	65.00% (BSE Limited)

Factors Affecting EBITDA Margin

• Pricing and Cost Control: A company’s ability to set the right prices and manage its expenses, such as raw materials, labour, and marketing, influences its EBITDA margin.
• Operational Efficiency: When a business makes its production processes more efficient, optimises resources, and achieves economies of scale, it reduces its overall costs and improves its profitability.
• Industry and Market Conditions: The level of market competition, demand, and changes in raw material prices across industries influence EBITDA margin levels.
• Economic and Regulatory Environment: The factors, such as inflation, changes in government policies, and regulatory compliance, might strengthen or cut down margins depending on how a company adapts to them.

Strategies to Improve EBITDA Margin

• Revenue Growth Strategies: A company might adopt strategies such as effective pricing, focusing on high-margin offers, upselling, expanding market size, or improving marketing activities.
• Cost Reduction Strategies: A company might cut down on expenses, negotiate with vendors for better prices, optimise the cost of goods sold, or reduce management costs.
• Improvement in Operational Efficiency: A company can improve its operational efficiency by automating processes such as accounting and inventory management to reduce errors and biases, lay down process layouts, and optimise working capital.

Limitations of EBITDA Margin

• Excludes Financial Expenses: The EBITDA margin leaves out interest, taxes, depreciation, and amortisation, which means it doesn’t reflect the full cost of debt, taxes, or long-term capital needs.
• Ignores Debt and Working Capital: It overlooks interest payments and changes in working capital, which makes it less useful for assessing liquidity or financial obligations.
• Lack of Standard Calculation: There is no uniform way to calculate EBITDA, which can lead to inconsistent comparisons between companies and industries.
• Risk of Misrepresentation: EBITDA might, in some cases, overstate profitability and hide underlying financial weaknesses.

Real-World Examples

• Adani Green Energy Ltd: The Company has an EBITDA margin of 92.5% for FY25, indicating its strong operational performance, stable cash flows and efficient cost management.
• Info Edge (India) Ltd: Info Edge, with an EBITDA margin of 72.6% in FY25, highlights its asset-light model and consistent profitability in the digital space.

Conclusion

The EBITDA margin serves as an indicator of operating efficiency and profitability of a company before adjusting the non-operating costs. It helps investors to compare performance across industries and evaluate managerial efficiency.

However, since it excludes interest, tax, and depreciation, it should be used together with other financial or profitability ratios for a full picture of a company’s true financial health.

FAQ‘s