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Valuation by Type of Assets

While financial assets are of various type and nature, its Valuation requires specialised skillset, domain knowledge, business/ asset understanding and practical approach. We specialize in Financial Valuation; the illustrative list of assets is given below. Each business is unique and has to be analysed by evaluating various factors affecting it and all related aspects that have bearing on the Valuation. 

Business Valuation is the process of determining the Fair value of a business organisation or business interests therein. Business Valuation enables one to know the value of any organisation as the same is required for transactional, strategic and regulatory requirements. Valuation of business organisations and interests may be performed for a variety of reasons such as public offerings, mergers acquisitions, ESOPs, share-based payments, valuation for the regulations of Insolvency and Bankruptcy code etc.

Valuation Approaches
  • Income Approach
  • Market Approach
  • Asset Approach  

    FairVal Process
    We are experts in delivering trusted, independent and quality professional services applying industry best practice and standards that has withstood the taste of time. As far as Business Valuation is concerned, we apply relevant applicable valuation standards / acceptable methodologies that are both justifiable and defensible. Some of the commonly used methods include:
  • Discounted Cash Flow Method (DCF)
  • Profit Earning Capacity Value (PECV)
  • Comparable Companies Method (CCM)
  • Comparable Transaction Method (CTM)
  • Book Value Method (BV)
  • Net Realisable Value Method (NRV)
    • As per ICAI Valuation Standards, “An intangible asset is an identifiable non-monetary asset without physical substance. Intangible Assets valuation has gained a lot of importance over the years. Goodwill, Patents, Copyrights Trademarks, Brand Name, customer relationships, trade names, and contracts etc. are commonly recognised intangible assets.

    Certain Transactions where the valuation of intangible assets are required are as follows
  • IND AS- 103, Business Combination for purchase price allocation
  • IND AS- 36 Impairment of Assets;
  • When a business is transferred by Slump Sale for Purchase Price allocation (PPA).
  • Merger and Acquisition transaction
  • financing, when an intangible is used as collateral;
  • For Bankruptcy and Restructuring Etc.
  • Compensation to be determined for litigation for cases where there has been a breach of contract/right and (h) bankruptcy/restructuring, etc;
  • issuance of sweat equity shares against technical know-how

    • Key Methods of Intangible Asset Valuation
  • Relief From Royalty Method
  • Multi-Period Excess Earning Method
  • With and Without Method
  • Replacement Cost Method

    FairVal Approach
    We are specialists in preparing independent, unbiased and professional practice valuations utilizing internationally accepted valuation methodologies.
    • As per ICAI Valuation Standards “Financial Instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity” Examples of Financial Instruments are Equity instruments, Debt Instruments, Derivatives etc. The fair valuation of Financial Instruments is required for regulatory and reporting purposes in case of Disputes, Purchase price allocation etc. It helps determine the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

    Key Methods for Valuation of Financial Instruments
    At FairVal, we are specialists in preparing independent, unbiased and professional practice valuations utilizing internationally accepted valuation methodologies. Some of the commonly used methods include
  • Market Approach
  • Income Approach
  • Cost Approach
    • Grant of shares or share options to employees and directors is a common feature with most companies and is known as “share-based payments”. There are three main categories of share-based payment transactions within the scope of IFRS 2

  • equity-settled share-based payment transactions,
  • cash-settled share-based payment transactions,
  • share-based payment transactions with cash alternatives.

    • The key consideration in share-based payment transactions is the valuation of the equity component, initial recognition of such transactions, and the allocation of the cost of goods/services over accounting periods.

    ​​Employee Stock Option Plan (ESOP)
     An Employee Stock Option Plan (ESOP) is a type of employee benefit plan that gives employees a share of the company’s ownership. ESOPs are issued as direct stock, profit-sharing plans or bonuses, and the employer has the sole discretion in deciding who could avail of these options. However, Employee stock ownership plans are just options that could be purchased at a specified price before the exercise date.
    At the time of grant of option valuation of fair value of shares shall be done by Registered Valuer. At the time of exercise of option valuation shall be done by Merchant Banker.

    Methods of Valuation of ESOP
    Black Scholes Formula– This is the most commonly used method, and it’s best for small schemes with straightforward rules. The parameters here are share price (S), exercise price (K), volatility (sigma), duration till exercise (T), and the risk-free rate (r). The simplicity of this method is its primary benefit. The option price can be easily determined once the parameter values are known. Binomial Method– The binomial model is more complex and requires the application of statistical methods. The share price is projected using ‘up’ and ‘down’ probabilities from the date of grant to the date of exercise in this model. Monte Carlo Method. As with the Binomial Method, this method also involves projecting the share price. On the other hand, the forecasting of a share price is not constrained by predetermined up and down probabilities, the share price is now sampled from the selected share price distribution. The method entails projecting the share price under a variety of scenarios, each of which creates a specific path.

  • Sweat Equity Shares
    • Sweat shares are offered to certain employees or directors of the company for the following reasons
  • Remarkable contribution and efforts of an employee or a director in completion of any project.
  • Technical expertise in the field
  • Value addition to the company through extraordinary contribution and gaining intellectual property rights

    • Companies tend to offer sweat equity shares to the employees to attract and retain the talent who helps the company grow. When an employee has sweat equity shares, he or she can receive a part of the company’s profit as a return on their investment.

    Sweat equity shares of unlisted companies shall be issued at a price determined by a registered valuer as the fair price giving justification for such valuation. Also, the value of the intellectual property or know-how or any other value additions, for which the sweat equity shares have been issued to its directors or employees shall be determined by a valuation report of a Registered Valuer.

    If the sweat equity shares are issued for a non-cash consideration, the value of such non-cash consideration shall be based on a valuation report by a Registered Valuer. Additionally, if the sweat equity shares are issued pursuant to acquisition of an asset, the value of such asset shall also be determined based on a valuation report by a Registered Valuer.

    Purchase price allocation (“PPA”) is an exercise where the acquirer allocates the purchase price paid to the acquired assets and liabilities of the target company. PPA is usually carried out for accounting and financial reporting under Ind AS, IFRS and US GAAP, which requires companies to report the Fair Value of assets and liabilities acquired in their financial statements. PPA is also required for allocation of consideration paid in a ‘Slump sale’/ ‘Slump exchange’ transaction. PPA process allocates the purchase consideration paid for acquisition of an entity / business to the Fair Value of tangible and intangible assets acquired and liabilities assumed. The difference between the purchase consideration and the fair value of the tangible and intangible assets is allocated to goodwill (subject to the impairment assessment).

    PPA is a complex process and involve identification and valuation of intangible assets. It requires an in-depth knowledge of the acquired business and its key value drives as well as knowledge and experience in the application of various valuation approach and methodologies.

    Fairval has a strong in-house capability for the valuation of tangible assets, intangible assets& financial assets and has executed numerous complex Purchase Price Allocations involving leading corporates across a broad range of industries.

    Financial reporting usually require impairment assessment of Cash generating units (‘CGU”)/ business at periodical intervals or as and when circumstances indicates that there is a diminution in the valuation of the asset. Even purchased goodwill is require to be tested for impairment if circumstances so indicate. Impairment Analysis provides guidance for the re-measurement of assets or goodwill pursuant to the financial reporting requirement under IndAS/ IFRS.

    Fairval has the expertise to perform independent impairment assessment of the assets for financial reporting purposes and to provide clarityto senior management, auditors, valuation professionals and regulators by explaining the key valuation aspects.

    Disputes related to business, ownership interests etc. can be unnerving and sometimes unavoidable. The accurate assessment of the economic impact and value and damages in these legal matters is crucial. We at FairVal help you navigate and resolve disputes such as follows:

    • Mergers and Acquisition disputes:
    • Disputes arise on the purchase price represented and a Valuer is engaged by adjudicating authority to determine the appropriate purchase price by identifying errors, manipulations of projected cash flows and risks.
    • Shareholder disputes:
    • In many instances, there are allegations of oppression of minority shareholders or dissenting shareholders. Interest of minority shareholders need to be protected under all circumstances and their equity interest needs to be valued in a fair and unbiased manner.
    • Breach of Contract:
    • Independent valuers are appointed by Tribunals/Courts to estimate the damage caused to the plaintiff due to breach of contract. Misappropriation of Intangible Assets: Independent Valuer is appointed to estimate the erosion in value of intangibles like brand, patents, customer relationships etc on account of violation of terms of right to use these intangible assets.
    • Family Disputes:
    • Independent Valuer is appointed to estimate the value of estate of the spouse or family based on which the Court will issue a decree for settlement. An estate can comprise of business interest, real estate investments, jewellery, antiques and vintage cars. Valuers of SFA and tangible assets, both shall be required for drawing up the value of the estate
    • Alternative Dispute Resolution:
    • ADR refers to procedures for resolving dispute outside the Court system. ADR has become very popular in commercial world as it leads to savings in time and litigation cost. ADR can take the form of Mediation or Arbitration. For determining the award, the mediator or arbitrator will need the help of an expert to for developing damage calculations and range of potential damages. Nowadays RV is being used by many parties as an expert to support the same.
    Several startup valuation methods are available for use by financial analysts. Startups, in the most general sense, are new business ventures started up by an entrepreneur. They usually tend to focus on developing unique ideas or technologies and introducing them into the market in the form of a new product or service. While it mostly depends on the specifics of the case, given below are the illustrative list of possible methods generally used to value startups.

  • Berkus Approach
  • Cost-to-Duplicate Approach
  • Market Multiple Approach
  • Risk Factor Summation Approach
  • Discounted Cash Flow Approach

    • Valuation of New Age Companies often poses unique challenges due to their evolving business model(s), limited/lack of comparables, evolving technologies, and market dynamics. Fairval has provided valuation services to marquee clients in New Age Technology-oriented companies. We have valued them both from the perspective of subject companies as well as PE/VC investors.

    Real Estate Infrastructure Trusts and Infrastructure Investment Trusts are increasingly becoming preferred mode for raising capital by developers of real estate/infrastructure assets. As per SEBI Regulations, valuation of the underlying assets of REIT/ InvIT needs to be carried out by a person who is a Registered Valuer under the Companies Act, 2013.

    SEBI InvIT Regulations require valuation of the underlying assets of the Trust under the following circumstances:

    • Prior to any transaction of purchase or sale of real estate/infrastructure projects, whether directly or through holding company and/or SPVs of the Trust
    • Prior to any issue of units (other than bonus issue) by publicly offered REIT/InvIT
    • At annual Intervals
    • At periodical intervals (usually semi-annual/quarterly)

    A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for loss it incurs because a specified debtor fails to make payment that is due in accordance with the original or modified terms of a debt instrument.A financial guarantee contract may have different legal forms viz., guarantee, letter of credit, a credit default contract or an insurance contract. The accounting treatment for such financial guarantee contract is not dependent on its legal form.

    We advise on cothe amputation of the Fair Value of Financial Guarantees as per the requirement of the financial reporting standards.

    Mining assets are very challenging to value. The best way to value a mining asset or company is to build a discounted cash flow (DCF) model that takes into account a mining plan produced in a technical report (like a Feasibility Study mentioning the probable and possible mining reserves). Without such a study available, one has to resort to more crude metrics like Price to Net Asset Value, Price to Cash Flow, EV/Resource.

    Valuation for Compliance
    The Companies Act, 2013 mandates a valuation report to be obtained by the Company under various provisions of the Act.

  • Issue of Share Capital on Preferential Basis
    • If any Company proposes to issue new shares on preferential basis, the price of such shares should be determined by the valuation report of a Registered Valuer and the price of shares or other securities to be issued on preferential basis shall not be less than the price determined on the basis of the valuation report [Section 62(1)(c)].

  • Non-cash Transactions Involving Directors
    • A company could enter into an arrangement by which a Director of the company or its holding, subsidiary or associate company or a person connected with him/her or the company itself acquires / is to acquire assets for consideration other than cash. In such cases the value of the assets has to be calculated by a Registered Valuer [Section 192(2)].

  • Power to compromise or make arrangements with creditors and members (including Merger and Amalgamation of Companies)
    • In case a compromise or an arrangement is proposed between a company and its creditors or between a company and its members, then an application could be made to National Company Law Tribunal (NCLT) which could order a meeting of the creditors or members involved in such an arrangement. The application to the NCLT should include a valuation report in respect of the shares and property and all assets, tangible and intangible, movable and immovable, of the company by a registered valuer [Section 230(2)(v), 230(3) & 232]

  • Purchase of Minority Shareholding
    • In case an acquirer or any person becomes a registered holder of 90 percent or majority of equity share capital of a company by virtue of an amalgamation, shares exchange, conversion of securities or by any other reason, then such a holder should notify the company of its intention to buy the remaining equity shares (minority shareholders). The minority shareholders are required to be paid for the equity shares held by them at a price determined on the basis of valuation by the registered valuer [Section 236(2)].

  • Submission of Report by a Company Liquidator
    • In case the NCLT has made a winding up order or has appointed a company liquidator, then such a company liquidator is required to submit a report to the NCLT which should include the value of the assets held by the company. The valuation of the assets should be determined by a registered valuer [Section 281 (1) (a)].

  • Declaration of Solvency in Case of Proposal to Wind Up Voluntarily
    • In case of voluntarily winding up of a Company, a declaration by its directors is required which should affirm that the full enquiry of the company’s affairs have been done by them and the company does not have any debt or they will be able to pay its debts in full form the proceeds of assets sold in voluntary winding up. Such a declaration would be valid only if it meets the prescribed conditions which includes report of the valuation of the assets of the company prepared by a registered valuer [Section 305 (2)].

    Valuations are required under IND-AS in the following transactions:

    Purpose of Valuation

    Section

    Description

    Property, Plant & Equipment

    IND AS-16

    The Property, plant and equipment shall be recognised as an asset if, and only if:

     (a) it is probable that future economic benefits associated with the item will flow to the entity; and

    (b) the cost of the item can be measured reliably

    Impairment of Assets

    IND AS-36

    Fair Value of Assets/Cash Generating Unit (CGU) to be tested for impairment

    Intangible Assets

    IND AS-38

    Fair Value of Intangible Asset is to be measured in following circumstances

    ·  Exchange Transaction with a non-monetary asset

    ·  Acquisition by way of a Government Grant

    ·  Business Combination

    ·  Revaluation Model for subsequent recognition

    Investment Property

    IND AS-40

    Fair Value of Investment Property is to be measured in following circumstances

    ·         Exchange Transaction with a non-monetary asset

    ·         Acquired by way of finance lease

    Fair Value to be measured for disclosure purpose at each reporting period

    Share Based Payments

    IND AS-102

    Share-based payment transactions are to be measured at fair value for both listed and unlisted entities at each reporting date until final settlement

    Business Combinations

    IND AS-103

    Following items are to be valued at fair value at the acquisition date

    ·  Identifiable Assets and Liabilities

    ·  Any previously held equity interest in the acquiree by the acquirer

    ·  Non controlling Interest

    ·  Consideration transferred

    Financial Instruments

    IND AS-109

    ·  Valuation of Investments in Unquoted Equity shares

    ·  Valuation of Financial Instruments measured at fair value through Profit or Loss or fair value through Other Comprehensive Income

    Consolidated Financial Statements

    IND AS-110

    Investment in subsidiaries to be reported at fair value as on the reporting date.Any bank guarantee given by holding company on the Bank loan facility availed by the subsidiary company.

    Revenue from Contracts with Customers

    IND AS-115

    Fair value of Non cash consideration received from customers

     

     

    Sr. No.

    Section

    Brief Description

    Requirements

    1

    56 – rule 11UA

    Valuation of unlisted shares; Jewellery, works of art;

    Rule 11UA specifies a formula or valuation by a merchant banker using DCF method.

    2

    Wealth tax Act, Schedule III [see sec 7(1)]

    Rules for determining the value of assets

    Part D provides methodology for valuing assets of business. H provides methodology for valuing other assets.

    3

    28 (via)

    Profits and gains from conversion of inventory into capital assets

    Rule 11UAB

    4

    56(2)(x)

    Any person receives any property without consideration or for inadequate consideration

    Banks should have a clear policy for valuation of assets proposed to be sold.

    5

    50CA

    Special provision for full value of consideration for transfer of shares other than quoted shares

    Fair market value is the full value of consideration, where shares are transferred at less than fair market value.

    Accordion Content

    A Person resident in India who has made ODI in a foreign entity, in case of diminution of such investment where the corresponding original investment is more than USD 10 Million or in case where the amount of such diminution exceeds 20% of the total value of the outstanding dues towards the Indian entity or investor, the diminution in value shall be duly certified on an arm length basis by a Registered Valuer as per the Companies Act, 2013.

    Top of Form

    Bottom of Form

    Section

    Brief description

    Requirement

    RBI Guidelines

    Valuation of shares of a foreign company

    Investment by way of remittance from India in an existing company, valuation of shares of the company outside India shall be made, where the investment is more than USD 5 mn by a Merchant Banker or by an IB registered outside India, in other cases by a CA or CPA

    RBI

    Issue or transfer of shares in case of investment by Non-resident

    While filing FC-GPR/FC-TRS, a valuation report from SEBI registered Merchant Banker / Chartered Accountant

     

    Valuations are required under SEBI Regulations when a listed entity undertakes specified transactions.Various SEBI Regulations require valuation to be conducted by a registered valuer. These include the following:

    • Valuation of AIF portfolio under Regulation 21 of SEBI (Alternative Investment Fund) (AIF) Regulations 2012
    • Valuation of REIT assets under Regulation 21 of SEBI (Real Estate Investment Trusts) (REIT) Regulations 2014
    • Valuation of InvIT assets under Regulation 21 of SEBI (Infrastructure Investment Trusts) Regulations 2014
    • Valuation of Security Receipts under Regulation 38D of SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulation, 2008 & Regulation 87A of SEBI (Listing Obligations and Disclosure Requirements) Regulations,2015
    • Valuation under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 & SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
    Valuations are required under Insolvency & Bankruptcy Code, 2016 and IBC Regulations in case of any of the following transactions:  

  • Corporate Debtor undergoing Corporate Insolvency Resolution Process (CIRP)
    • Regulation 27 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 mandate that an Insolvency Professional (IP) is required to appoint Registered Valuers for the determination of Fair Value and Liquidation value of the assets of the Corporate Debtor after initiation of CIRP by NCLT

  • Corporate Debtor undergoing Liquidation
    • Regulation 35 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 mandate that in cases where Valuation of assets of the corporate debtor has not been conducted during CIRP, the liquidator shall appoint two registered valuers to determine the realizable value of the assets or businesses under clauses (a) to (f) of regulation 32 of the corporate debtor.

  • Corporate Debtor undergoing Fast Track Corporate Insolvency Resolution Process (FTCIRP)
    • Regulation 26 of Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 mandate that an Insolvency Professional (IP) is required to appoint Registered Valuers for the determination of Fair Value and Liquidation value of the assets of the Corporate Debtor after initiation of FTCIRP by NCLT.

  • Corporate Debtor undergoing Voluntary Liquidation
    • Sec 59(3)(b)(ii) of the Insolvency and Bankruptcy Code, 2016 requires Corporate Debtor, filing for voluntary liquidation, to file a report of the valuation of the assets of the company prepared by a registered valuer where the Corporate Debtor has any assets.

  • Individual Guarantors to Corporate Debtors and other Individuals
    • Regulation 30 of IBBI (Bankruptcy Process For Personal Guarantors to Corporate Debtors) Regulations, 2019 allow the bankruptcy trustee to appoint a registered valuer to value the assets which may or may not form part of the bankrupt’s estate when he is of the opinion that it is necessary or when a resolution to that effect has been passed by the committee.
    Valuation for Special Situation
    • Valuation for Mergers & Acquisition
    • Valuation for Start-up Fund Raising (Angel/ VC/ PE)
    • Valuation for Strategic Partnerships/ Joint Venture
    • Valuation for Cross-border transactions (FDI/ ODI)
    • Valuation for Internal Restructuring/ Divestitures
    • Valuation for Distress Buy-out/ Distress M&A
    • Valuation for Financial Disputes & Litigation
    • Valuation for Capital/ Debt Restructuring
    • Valuation for IPO/ FPO
    • Fairness Opinion

    FairVal Advisors is a knowledge based boutique Valuation consulting and Financial advisory firm founded by Professionals carrying collective experience of over 3 decades in financial services domain. We cater the range of financial services including Valuation, Due Diligence, M&A, TEV/ Feasibility Study, Fund Raising (Debt/ Equity), Debt Restructuring & Resolution, Business Planning & Strategy, Financial Disputes & Litigation etc.

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    • Email
      info@fairval.in
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