Metric Explainer: Net Debt to EBITDA
How many years of operating earnings it would take to repay all net debt. Lower means the company can pay off debt faster. "ND/EBITDA batata hai ki company k...
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Simple definition
How many years of operating earnings it would take to repay all net debt. Lower means the company can pay off debt faster.
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"ND/EBITDA batata hai ki company ko apna net debt chukane mein kitne saal lagenge EBITDA se. 2× matlab 2 saal. 0.5× matlab 6 months."
Why it matters
- Rating agency gold standard — CRISIL, ICRA, and global agencies use this as a primary leverage metric
- Cross-company comparable — unlike D/E, works across capital structures
- Debt sustainability — answers "can the company handle this debt?"
- Covenant trigger — many loan covenants specify max ND/EBITDA thresholds
Formula
Net Debt / EBITDA = (Total Debt − Cash) / EBITDA
Good range
| ND/EBITDA | Risk Level |
|---|---|
| Negative | Net cash — excellent |
| 0–1× | Very conservative |
| 1–2× | Comfortable — investment grade |
| 2–3× | Moderate — acceptable for capex-heavy sectors |
| 3–4× | Elevated — watch closely |
| > 4× | High risk — one bad year can cause distress |
Sector benchmarks
| Sector | Safe ND/EBITDA | Elevated |
|---|---|---|
| IT / FMCG | < 0.5× (or negative) | Rarely applies |
| Pharma | < 1.5× | > 3× |
| Metals / Mining | < 2× | > 4× |
| Telecom | < 3× | > 5× |
| Infrastructure | < 3.5× | > 5× |
| Real Estate | < 2.5× | > 4× |
A real framework: Deleveraging ND/EBITDA
FY21: ND/EBITDA 4.5×High leverage
FY22: ND/EBITDA 3.2×Repaying debt
FY23: ND/EBITDA 2.0×Comfortable
FY24: ND/EBITDA 1.5×Investment grade
A company actively reducing ND/EBITDA is "deleveraging" — often a strong positive signal. The stock price usually responds before the deleveraging is complete.
Common mistakes
Mistakes to avoid
- Using peak EBITDA — In cyclicals, current EBITDA may be abnormally high. Use normalised EBITDA
- Ignoring lease liabilities — Include IndAS 116 lease debt for a complete picture
- Not adjusting for restricted cash — Cash locked in subsidiaries or restricted accounts isn't freely available
- Comparing ND/EBITDA for banks — Not applicable; Use CAR (Capital Adequacy Ratio) instead
Red flags
- ND/EBITDA > 4× for a non-infrastructure company — high leverage risk
- ND/EBITDA rising every year — company adding debt without proportional EBITDA growth
- ND/EBITDA improvement driven by EBITDA spike (cyclical), not debt repayment — may reverse
- Debt covenant set at ND/EBITDA 3.5× and company is at 3.2× — dangerously close
Related metrics
- Net Debt — The numerator
- EBITDA — The denominator
- Interest Coverage — Flow-based debt serviceability
- Debt/Equity — Balance-sheet leverage view