Why the Same EBITDA Means Very Different Things: Lessons from Asian Paints and Tata Steel

Introduction

EBITDA is often treated as a clean, neutral measure of operating performance.

When investors compare companies, they totally assume that a rupee of EBITDA from one business is broadly comparable to a rupee of EBITDA from another.

That assumption usually goes unchallenged, even though the financial statements quietly tell a very different story. How? This is what we’ll discuss in this post.

The difference does not lie in accounting tricks or one-off adjustments.

It lies in something far more structural: how much capital a business must reinvest simply to keep its EBITDA from shrinking?

Some companies can do well on their existing asset base. Others have to run hard just to stay at the same EBITDA level.

How to identify such a difference between companies? To learn this, we’ll take real-life examples and look into their financial reports.

I’ve picked five-year financials of Asian Paints Ltd and Tata Steel Ltd. Looking into the reports of these two companies will make this distinction impossible to ignore.

On paper, both these companies report substantial EBITDA. In economic reality, they live in completely different worlds. How? Let’s explore further.

1. Asian Paints vs Tata Steel: Numbers

Metric (5-Year Range)	Asian Paints Ltd	Tata Steel Ltd	Remarks
Revenue (FY21 → FY25)	~21,500 → ~33,800	~1,54,700 → ~2,16,800	Context only – scale is not the point
EBITDA (typical year)	~6,000–7,000	~18,000–25,000 (volatile)	Similar “headline strength”, different reality
Operating Cash Flow (OCF)	~4,000–6,100	~20,000–44,000	Cash generated before reinvestment
Net Cash Used in Investing Activities	~300–2,500	~9,000–18,000	I’ve used it as a proxy for total CapEx burden
OCF – Investing Cash (rough FCF)	Frequently positive	Often thin or negative	Tells you how much EBITDA survives
Depreciation & Amortisation	~800–1,000	~9,000–10,400	Accounting proxy vs real reinvestment
Fixed Assets (FY25)	~10,200	~1,86,600	Capital intensity snapshot
Capital Work-in-Progress (FY25)	~1,250	~40,600	Ongoing reinvestment pressure
Dividend Outgo (FY25)	~3,100	~4,500	Who can return cash comfortably
EBITDA Nature (Inference)	Largely Maintenance EBITDA	Largely Growth / Defensive EBITDA	Core economic distinction

To understand the above table and its remarks, I request to continue reading. I’m sure it will give you a very new perspective on EBITDA.

2. A Quiet Question That EBITDA Does Not Answer

EBITDA tells you what the business earned before depreciation and capital spending.

What it does not tell you is how much of that capital spending is optional.

The real question is not “How much EBITDA did the company generate?” but “How much EBITDA survives if the company stops investing for growth?”

This is where Maintenance EBITDA becomes useful in real life.

Maintenance is the part of EBITDA that remains after a company spends only what is necessary to keep its business running at the same level.

Any earnings (profits) that exist only because the company keeps adding new factories, plants, or capacity are not truly sustainable and should be looked at separately. This type of earning is what I call “Growth EBITDA.”

EBITDA Formula

Justf or our understanding, if I express EBITDA in terms of a formula, it will show like this:

EBITDA = Maintenance EBITDA + Growth EBITDA

Where:

• Maintenance EBITDA = EBITDA that can be sustained after spending the minimum capex required to keep current operations running.
• Growth EBITDA = The remaining portion of EBITDA that exists only because the company continues to invest in expanding capacity or assets.

Growth EBITDA is not an extra profit you can freely enjoy. It is the part of earnings that comes only because the company keeps putting money back into new plants, machines, or capacity.

If this spending stops, this portion of EBITDA will also stop coming.

You start seeing this difference clearly when you step beyond the P&L and look at the cash flow statement together with the balance sheet. How? Keep reading.

3. Asian Paints: EBITDA that largely sustains itself

Asian Paints’ numbers show a business where EBITDA converts into cash with relatively little resistance.

Description (Asian Paints)	Mar-21	Mar-22	Mar-23	Mar-24	Mar-25
EBITDA	5,158.65	5,183.62	6,646.32	8,272.94	6,578.82
Operating Cash Flow	3,683.35	986.49	4,193.43	6,103.60	4,423.96
Cash as % of EBITDA	71%	19%	63%	74%	67%

Over the last five years, operating cash flow has consistently formed a meaningful share of EBITDA. Except for FY22, when working capital temporarily absorbed cash.

For the other years, the company converted roughly 60–75% of its EBITDA into operating cash.

In FY25 alone, Asian Paints generated about Rs. 4,400 crore of operating cash flow against an EBITDA of roughly Rs. 6,600 crore.

This is an outcome that points to earnings which do not require heavy reinvestment just to stay intact. How? Because a large portion of EBITDA is already showing up as operating cash flow. This indicates that the business does not need to reinvest most of its earnings merely to maintain current operations.

Reinvestment

Now look at what the company had to reinvest.

Description (Asian Paints)	Mar-21	Mar-22	Mar-23	Mar-24	Mar-25
Cash From Investing Activities	-547.79	-321.69	-1,274.64	-2,517.63	-874.12
Operating Cash Flow	3,683.35	986.49	4,193.43	6,103.60	4,423.96
Investing Cash as % of Op. Cash	15%	33%	30%	41%	20%
Fixed Assets	5,738.87	5,702.63	6,561.57	9,425.80	10,255.01
Capital Work in Progress	182.98	426.43	1,019.59	2,698.37	1,254.49

Net cash used in investing activities fluctuated, but even in heavier years, it remained modest relative to operating cash flow.

Fixed assets did grow, from roughly Rs. 5,700 crore in FY21 to about Rs. 10,200 crore in FY25. But this growth was gradual and controlled at a rate of about ~12% per annum.

Capital work-in-progress spiked in some years and fell in others, but it never became a permanent drain on cash.

What’s the important point in all these numbers?

Asian Paints did not need to reinvest most of its EBITDA just to defend its existing earnings.

Even after routine maintenance capex, a large portion of operating cash flow was available for dividends, investments, or balance sheet flexibility.

That residual earning power is what Maintenance EBITDA looks like in practice.

4. The Balance Sheet Confirms The Story

The balance sheet reinforces this picture.

Description (Asian Paints)	Mar-21	Mar-22	Mar-23	Mar-24	Mar-25	CAGR (%)
Fixed Assets	5738.87	5702.63	6561.57	9425.8	10255.01	12.31%
Tangible Assets	5,321.90	5,090.21	5,354.57	6,302.47	8,631.34	10.15%
Capital Work-In-Progress	182.98	426.43	1,019.59	2,698.37	1,254.49	–

Over the last five years, Asian Paints’ revenue increased steadily.

But its fixed assets grew at a much slower and more measured pace. Tangible assets rose from about Rs. 5,300 crore in FY21 to roughly Rs. 8,600 crore in FY25. During this period, D&A (depreciation) remained stable at around Rs. 800–1,000 crore a year.

More importantly, capital work-in-progress (which refers to money already spent on factories, plants, or projects that are still under construction and not yet contributing to the company’s profits) moved up and down rather than rising relentlessly.

What do these numbers point to?

It tells us that capital spending was being used mainly for selective capacity additions and new initiatives, not for replacing worn-out assets just to keep the business running.

This is why Asian Paints can appear “expensive” on EV/EBITDA and still make economic sense. Why? Because much of its EBITDA belongs to shareholders by default.

For Asian Paints, growth is a choice, not a necessity. If growth slows, the business does not structurally slows down.

In other words, Asian Paints’ EBITDA has a high maintenance component and a relatively smaller growth-dependent component. It means that most of Asian Paints’ EBITDA can continue even without aggressive new investments. Only a smaller portion of its earnings depends on constantly adding new capacity or assets.

5. Tata Steel – Where EBITDA must be continuously defended

Tata Steel sits at the other end of the spectrum.

Its EBITDA numbers can look impressive in good years, but the cash flow statement tells you how hard that EBITDA has to work. Over the same five-year period, operating cash flow regularly exceeded Rs. 20,000 crore and even crossed Rs. 44,000 crore in peak years.

Description (Tata Steel)	Mar-21	Mar-22	Mar-23	Mar-24	Mar-25
Operating Cash Flow	44,326.68	44,380.99	21,683.08	20,300.67	23,511.81

At first glance, that looks extraordinary.

Then you look at investing cash flows.

Year after year, Tata Steel reinvested staggering sums, Rs. 14,000 to Rs. 18,000 crore annually in many periods. This was not discretionary spending. The balance sheet shows why. The fixed assets already exceed Rs. 1.8 lakh crore, with capital work-in-progress alone crossing Rs. 40,000 crore in FY25.

Description (Tata Steel)	Mar-21	Mar-22	Mar-23	Mar-24	Mar-25
Net Cash Used In Investing Activities	-9,322.88	-10,881.23	-18,679.84	-14,251.44	-14,172.73
Fixed Assets	1,50,437.89	1,51,022.18	1,72,232.83	1,77,424.61	1,86,577.88
Capital Work-In-Progress	18,128.74	21,227.62	30,307.90	33,370.19	40,601.88

This is not growth capex in the casual sense. A large part of this spending is required just to keep plants operational, efficient, and compliant. Without it, volumes, costs, and eventually EBITDA would deteriorate rapidly.

Look at Tata Steel’s asset base.

When a company already operates with fixed assets of nearly Rs. 1.86 lakh crore, ongoing capital spending is not optional expansion; it is structural maintenance (it is not growth Capex, it is maintenance capex).

The consistently high capital work-in-progress, which rose to over Rs. 40,000 crore by FY25, shows that large projects are always underway simply to replace aging equipment, meet environmental and safety regulations, and maintain cost competitiveness.

In such businesses, depreciation significantly understates true economic wear and tear, which is why actual annual reinvestment remains far higher than accounting depreciation.

Description (Tata Steel)	Mar-25	Mar-24	Mar-23	Mar-22	Mar-21
Net Cash Used In Investing Activities	-14,172.73	-14,251.44	-18,679.84	-10,881.23	-9,322.88
D&A	10,421.33	9,882.16	9,335.20	9,100.87	9,233.64
Cash as % of D&A	136%	144%	200%	120%	101%

If this reinvestment slows, operating efficiency drops first, margins follow, and EBITDA eventually reflects the decline.

6. Same EBITDA, very different meanings

Put the two businesses side by side, and the contrast becomes even clearer.

Asian Paints can maintain most of its EBITDA with relatively modest reinvestment.

Tata Steel cannot.

For Asian Paints, growth capex expands profits. For Tata Steel, a significant portion of capex merely preserves its profits.

This difference explains why EV/EBITDA multiples behave the way they do.

Asian Paints often looks optically expensive. Tata Steel often looks optically cheap. The market, consciously or otherwise, is pricing Maintenance EBITDA – not headline EBITDA. This is also one justification of why Tata Steel often trades at a much lower P/E multiple than Asian Paints.

Once you start to see this in companies’ EBITDAs, many valuation puzzles would resolve themselves, right?

7. Thinking in Maintenance and Growth EBITDA

Separating EBITDA into maintenance and growth components is not only about a precise formula. It is also about being able to read the financial statements with a correct perspective.

How to do it?

Open the cash flow report and start with the operating cash flow number. From this number, observe how much capital the business must reinvest every year to stay in place.

What remains after that is the true economic engine.

For Asian Paints, that engine runs quietly and efficiently, but for Tata Steel, it operates at a high temperature and continuously consumes fuel.

Both produce EBITDA. Only one produces EBITDA that is more self-sufficient. The other needs continuous pampering even to stay the course (forget growth).

Conclusion

EBITDA, in its basic form, is not wrong, but it is incomplete.

The real utility of it would emerge when we ask what portion of EBITDA is optional and what portion is compulsory.

Maintenance EBITDA is not a new metric; it was already there. It is a reality that was earlier hiding in plain sight. The only difference was that we did not have the eyes to see it in the cash flow statements and balance sheets.

The next time two companies report similar EBITDA numbers, the more useful question may not be “Which one is cheaper?” but “How much of this EBITDA would still exist if the company stopped expanding and spent only what was necessary to maintain its current operations?”

Answering this single question will give you a much better idea about the capital-intensive nature of the business.

A practical takeaway for investors

When you look at EBITDA in the future, try breaking it down using this simple approach:

1. Start with EBITDA from the P&L: Treat it only as a starting point, not as the final answer.
2. Move to operating cash flow to test how real that EBITDA is: Compare EBITDA with operating cash flow to see how much of those earnings actually turn into cash. When operating cash flow is consistently close to EBITDA, it suggests the business is not consuming excessive cash just to run day-to-day operations.
3. Then, examine investing cash flows (Capex) to understand the reinvestment burden: Investing cash outflows tell you how much money the company must put back into assets every year. This step answers the key question: how much cash does the business need to reinvest to keep EBITDA from falling?
4. Use D&A and the Asset Base to judge whether this reinvestment is maintenance or growth: Compare annual reinvestment with depreciation and the size of fixed assets. If reinvestment broadly matches depreciation and assets grow slowly, most spending is maintenance. If reinvestment consistently exceeds depreciation and the asset base keeps expanding, a large part of EBITDA depends on continuous capital spending.
5. Separate what remains from what depends on reinvestment: The portion of EBITDA that can survive after necessary reinvestment is Maintenance EBITDA. The portion that exists only because capital keeps flowing into the business is Growth EBITDA.

Companies with high Maintenance EBITDA can sustain earnings with limited reinvestment and usually deserve higher-quality valuations.

Companies where EBITDA is largely growth-dependent may look attractive on EV/EBITDA level but often carry hidden capital risk.

The difference is not visible in one statement. It will emerge only when the P&L, cash flow, and balance sheet are read together, with a clear purpose.

Have a happy investing.