Investment Valuation in India

The Angel Tax imposed on start-ups has been the talk of the town lately. Various start-up founders have received demand notices from the tax authorities which plans to tax the capital receipts in the form of Income when the tax authorities believe that the amount is in excess of the value of the company. What is Angel Tax? In 2012, the then Finance Minister Pranab Mukherjee introduced a tax on unlisted companies which aimed at raising funds from investors (the 'angel investors") who invested in these companies with the objective of gaining significant returns. Since many companies used this route to launder money and raise funds at excessive valuations, the tax was imposed to arrest such money laundering. Angel Tax is a tax payable by the unlisted companies who raise funds via issue of shares where the share price is believed to be in excess of the fair market value of the shares sold. What is a Startup? An entity shall be considered as a Startup: (i). Upto a period o...

In the largest e-commerce deal in India so far, homegrown e-retailer and marketplace owner Flipkart has acquired online fashion retailer Myntra in an estimated Rs 2,000 crore deal.  Flipkart has been good at replicating established models and strategies. Flipkart founders - Bansals- were ex-Amazon employees and started Flipkart selling books online - just what Amazon did in its early days. Even in case of acquisition of Myntra, the strategy is the same as that of why Facebook acquired WhatsApp - kill competition. Fashion & Apparel has the largest potential in the e-commerce space and India is set to become the largest E-commerce market in the world - in terms of volume. As the urban (metro, Tier I and Tier II) population is getting more awareness and is getting exposed to E-commerce, India is slowly increasing its online spend. Apparel has been slow (it all began with books, to gift items to electronics - and now apparel) but has huge potential. Myntra has been a forerunner...

It is nearly impossible to document all ideas, issues, terms and techniques that an investment analysis professional encompasses during his or her work. Analysts often use one or more of the strategies while analysing a potential investment opportunity. Personally I believe that no literature can be complete and authoritative on this subject, though many authors, including myself, have attempted to cover as much as possible. This article only aims at stimulating and imaginative and holistic approach to dealing with investment matters and what questions one should be asking while analysing a company. What is the size of the firm (large, small)? What stage is the company and industry in (new, mature, declining)? Who are the customers of the company (individuals, industry, institutions)? Is the company project oriented (drugs, mining, oil & gas producers, construction)? How is the company socially responsible (is it a source of pollution, land contamination)...

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...

Investment in Unlisted Equity Shares With a view to bringing about uniformity in calculation of NAVs of mutual funds schemes, the following guidelines are being issued for valuation of unlisted equity shares in consultation with Association of Mutual Funds in India (AMFI). The guidelines also prescribe exercise of due diligence while making such investments and review of their performance so as to protect the interests of investors. Methodology for Valuation Unlisted equity shares of a company shall be valued "in good faith" on the basis of the valuation principles laid down below: Based on the latest available audited balance sheet, net worth shall be calculated as lower of (i) and (ii) below: (i) Net worth per share = [share capital plus free reserves (excluding revaluation reserves) minus Miscellaneous expenditure not written off or deferred revenue expenditure, intangible assets and accumulated losses] divided by Number of Paid up Shares. (ii) After taking into account th...