Sirvel Infra capitalises Rs 30 crore of staff and overhead costs into projects that its peers expense. Restate EBITDA and free cash flow on a peer basis, and work out how much of its value at 8x reported EBITDA is an accounting choice.

On a peer basis EBITDA is Rs 120 crore, not Rs 150 crore, and Rs 240 crore of value at 8x is the accounting choice. Moving Rs 30 crore of capitalised costs back into operating costs cuts EBITDA and capex by the same amount, so EBITDA less capex stays at Rs 60 crore. At 8x, enterprise value falls from Rs 1,200 crore to Rs 960 crore, and after Rs 450 crore of net debt the equity falls by 32%.

Suppose you pay a carpenter Rs 50,000 to build a cupboard in your flat. You could call it this month's spending, or call it part of the flat's value and spread it over ten years. Your bank balance is the same either way; only your monthly budget looks different. Capitalising a cost moves it from the income statement to the balance sheet: EBITDA rises, capex rises by the same amount, and cash does not change at all. Sirvel has done that with Rs 30 crore of staff and overhead.

Restate on the peers' policy. EBITDA falls from Rs 150 crore to Rs 120 crore, and the margin from 15% to 12%, exactly the peer level. Capex falls from Rs 90 crore to Rs 60 crore. EBITDA less capex is Rs 60 crore on both bases, so Sirvel's apparent three-point margin lead over its peers is entirely the accounting policy.

Apply the peers' 8x to each EBITDA. Reported, Sirvel is worth Rs 1,200 crore; on the peers' basis, Rs 960 crore. Rs 240 crore, 20% of enterprise value, comes from applying a multiple to costs that were reclassified, not avoided. Equity magnifies it: after Rs 450 crore of net debt, equity is Rs 750 crore against Rs 510 crore, so 32% of the equity value at 8x reported EBITDA is the policy.

Look for the tell-tale pattern: an EBITDA margin above peers with no obvious reason, capex rising faster than revenue, and weak cash conversionThe share of EBITDA that remains as cash after capex, and sometimes after working capital. Low conversion means EBITDA overstates the cash a business produces.. Sirvel converts only 40% of reported EBITDA into cash after capex, against 50% on the restated figure. Capitalising is legitimate for costs that genuinely build a long-lived asset, such as engineers working full time on a new tower; it is a red flag for general overhead. So ask for the split before you restate all of it.

Leverage matters too, because lenders test covenants on EBITDA. Net debt of Rs 450 crore is 3.0x reported EBITDA but 3.75x on a peer basis, close to where many loan agreements start to bite. The cleanest cross-check is a multiple of EBITDA less capex, which no capitalisation policy can move: Rs 60 crore at peer-basis value is 16x. The view: value Sirvel on the peers' policy, and treat the reported margin as unproven until the footnote is explained.