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Valuation Introduction

Knowing what business is worth and what determines its value is prerequisite for intelligent decision making.

Corporate valuations form the basis of corporate finance activity including M& A, fund raising, sale of businesses and also to meet regulatory and accounting requirements. Though there are International valuation standards however not much guidance is available in India on the manner in which specific valuation methodologies are to be applied and different valuers take different assumptions leading to difference in value conclusion. In many cases the valuation also lacks uniformity and generally accepted global valuation practices. Thus, in the absence of standards of business valuation in India, the valuation is more of an art based on the professional experience and exposure of the valuer rather than science based on empirical studies and logics

Credible valuations are critical to the efficient working of the capital markets, businesses, government and all its stakeholders. With growing shareholder activism, importance of independent valuations is arising all over the world including India. Role of a valuer is to consider the facts of each case, understand purpose of valuation and applicable regulatory norms for such transaction. Validation of the inherent assumptions of a business model is critical in any business valuation engagement. Limitations and Assumptions should be properly explained in the valuation report.

In our country, Valuation in itself is evolving. New concepts of “Registered Valuer” in Companies Act, 2013 and “Fair Value” in Ind-AS are setting the tone for Indian Valuation Standards. With the valuation process opening up in India and more debate happening on valuations, complex valuation methods are also getting recognition as valuation is emerging as a discipline in India.

Corporate Professionals Capital Pvt. Ltd. is a SEBI Registered (Cat-1) Merchant Banker and has a successful track record of providing a broad range of M&A, Transaction Advisory, Corporate Valuation Advisors, Corporate Valuation Consulting in India. Our Dedicated Team has more than 10 years of rich valuation experience. Our in-house research wing regularly identifies and prepares research articles on debated issues of business valuation, including how to apply the range of valuation techniques, including their appropriate application, advantages and disadvantages. We have created a niche in Valuation Services by executing more than 750 Corporate Valuations (uncoding tangibles & intangibles) of clients of International Repute across different Context, Industries and Boundaries and delivering well-reasoned and defensive Valuation Reports.

Key Facts Of Valuation

Price is not the same as Value

Interestingly Price is an outcome of a Transaction but Value need not require a Transaction Price is highly influenced by the prevailing market conditions but Value should not change materially unless fundamentals of the business change


Value varies with Person, Purpose and Time

  • Purpose of any valuation is very important. Like if the purpose is “Regulatory compliance / reporting” then the valuer has to strictly follow the prescribed valuation methodologies as the law shall prevail but if the purpose is “Business Valuation” then all valuation methodologies needs to be applied and value to be concluded based on facts of the case. Judgement and experience of Valuer would play a bigger role in this type of Valuation engagement.

    Type of Interest that can be valued may be Controlling Interest or Minority Interest

  • Time is critical for any valuation engagement as Relative Valuation is heavily dependent on the external market conditions of the Industry, economy etc. We have seen start up valuations to be all euphoria driven
  • Personis relevant in Valuation as it can determine Minority or Controlling stake valuations and also impact Investment valuation by way of Synergy

Standard and Premise of Valuation

To determine the Value of any business, the reasons for and circumstances surrounding the business valuation must be pre ascertained. These are formally known as the "Standard of Value" and "Premise of Value".

  • To be precise, the "Standard of Value" is the hypothetical conditions under which the business is valued. There are broadly four standards of Value namely Fair Market Value, Investment Value, Intrinsic Value and Fair Value
  • and the "Premise of Value" relates to the assumptions upon which the valuation is based. There are broadly two premise of value namely Going Concern Value and Liquidation Value

Revenue Ruling 59-60 (Internal Revenue Service, USA)

Revenue Ruling (RR) 59-60 is one of the oldest guidance available on Valuation in the world but still most relevant for Tax Valuations specifically for valuing closely held common stock. It is the most widely referenced revenue ruling, also often referenced for Non Tax Valuations. While Valuing , it gives primary guidance on eight basic factors to consider-

  • Nature the Business and the History of the Enterprise from its inception
  • Economic outlook in general and outlook of the specific industry in particular
  • Book Value of the stock and the Financial condition of the business
  • Earning Capacity of the company
  • Dividend-Paying Capacity of the company..
  • Goodwill or other Intangible value
  • Sales of the stock and the Size of the block of stock to be valued
  • Market prices of stock of corporations engaged in the same or a similar line of business