Investment Valuation in India

RBI, wide notification no. Notification No. FEMA 20 / 2000-RB dated 3rd May, 2000 have amended the pricing and valuation guidelines for a private company issuing shares to a person resident outside India. RISGHTS ISSUE The offer on right basis to the persons resident outside India shall be at a price which is not less than the price at which the offer on right basis is made to resident shareholders. ISSUE OF SHARES Current Provision - Price of shares issued to persons resident outside India is required to be issued at a value arrived at by a Chartered Accountant who would determine the price in accordance with the erstwhile Controller of Capital Issues (CCI) Guidelines [conservative method of valuation by considering an average of the Net Asset Value (NAV) of the company and the company’s Profit Earning Capacity Value (PECV), which was arrived at based on its past financial performance]. Revised Guidelines - Price of shares issued to persons resident outside India, shall not be...

Valuation is a critical part of the merger process. A deal that may be sound from a business standpoint may be unsound from a financial standpoint if the bidder firm pays too much. The purpose of a valuation analysis is to provide a disciplined procedure for arriving at a price. If the buyer offers too little, the target may resist and, since it is in play, seek to interest other bidders. If the price is too high, the premium may never be recovered from postmerger synergies. These general principles are illustrated by the following simple model. ANALYSIS Mergers increase value when the value of the combined firm is greater than the sum of the premerger values of the independent entities. NVI = V BT – ( V B - V T) where NVI = net value increase V B = value of bidder alone V T = value of target alone V BT = value of firms combined A simple example will illustrate. Company B (the bidder) has a current market value of Rs.40mn. Company T (the target) has a current market value of Rs.40mn. ...