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EIRC ICSI
KOLKATTA
19th OCT 2019
Valuation
–PAST & PRESENT SCENARIO
Books material to use
• IVS• CFA (USA) CFA (India)• SFM in CA Final & CMA final last 4 years• CS RVO• CMA RVO• IOV RVO• Lodha book 2019
• Vikas Goel book• OWL’s case study• Dialmers case study• Damodaran book• Material created by people• Google search
• June 2018 icsi magazine – valuation special issue• 34 case studies on ESOP valuation• Icsi rvo e-magazine – 6 issues• Valuation of startups, unicorns & aggregators• CA valuers professional insight vol 1 and vol 2• Vol 1 - 94 types of intangible assets with case studies
PAST & PRESENT SCENARIO
-War on tangibles to intangibles
• Sometimes, such as after an acquisition, companies are required to value intangible assets. The buyer must itemize intangibles like brand value and client lists, and update their value annually.
Accounting’s 21st Century Challenge: How to Value Intangible Assets
source: the wall street journal • The accounting department at Perrigo Co. , spends weeks at the
end of every year valuing and auditing intangibles that the Dublin-based pharmaceutical company has purchased over the past several years. Doing the same every quarter for earnings reports would be “a huge undertaking,” said finance chief Judy Brown.
• Businesses that file for bankruptcy value their intangibles, because those assets can be sold for millions. That, too, is a cumbersome process.
• Putting a value on RadioShack’s intangibles and selling them took about eight weeks, said David Peress, an executive vice president of valuation firm Hilco Streambank, who advised the company on the sale. Its brand and its customer data fetched $26.2 million.
War on tangibles to intangibles
War on natural intangibles to artificial intangibles
natural intangibles – panchmahabhootato artificial intangibles
ABCDR
natural intangibles – panchmahabhootaAGNI JAL DHARA VAYU AAKASH
MAN-MADE intangibles –ARTIFICIAL INTELIGENCE, BIG DATA, block chain, bitcoin,
MAN-MADE intangibles – contd.CLOUD COMPUTING, cryptocurrency, DIGITISATION/ DRONE, ROBOTICS/IOT
Unicorns - 20171. OLA
2. INMOBI
3. Flipkart
Unicorns - 20181. Zomato
2. Swiggy
3. Policy Bazaar
4. Paytm Mall
5. Freshworks
6. OYO
7. Udaan
8. Byjus
https://qz.com/india/1499596/indias-byjus-zomato-oyo-
swiggy-udaan-became-unicorns-in-2018/
Valuation of Unicorns & Aggregators
Zomato & Swiggy•12000 Cr •2018 exp. 21000 Cr•Cloud Kitchen
•QSR
FOOD AGGREGATORS
•Huge employment
•Burning cash to drive GMV
FOOD AGGREGATORS
•Huge employment
•Burning cash to drive GMV
FOOD AGGREGATORS
•FM 1 BHK – 1 BH
•FM 2 BHK – 2 BH
•DELETE KITCHEN word from dictionary
FOOD AGGREGATORS•HOME Tiffins also switch•Doubles growth & tax compliant•Cloud kitchens
FOOD AGGREGATORS
• Packaging challenges• Two wheelers sale up• Rent to sale down•SSG zooming up•ONLINE closed call centers
AGGREGATORS
• KING of AGGREGATORS – AMAZON, FLIPKART, RELIANCE
• CAB• FOOD• PHARMA• INSURANCE• FILM TICKETS• AIRLINE TICKETS• HOTELS• HOLIDAY HOMES
AGGREGATORS
•Rent-a-home
•Phone-number
•Temp. Drivers
Berkus (Super angel investor Dave Berkus) Method
It assigns a number, afinancial valuation, to each majorelement of risk faced by all youngcompanies — after crediting theentrepreneur some basic value forthe quality and potential of the ideaitself.Jan 17, 2017
Berkus method - Dr Berkus
If exists Add to Company value upto
Sound Idea (Basic value) $ ½ Million
Prototype (reducing technology risk)
$ ½ Million
Quality management team (reducing execution risk)
$ ½ Million
Strategic relationships (reducing market risk)
$ ½ Million
Product rollout or sales (reducing production risk)
$ ½ Million
Source Berkonomics.com
OLDEST AggregatorBE PROUD
DABBAWALAs
Aggregators1. Trivago2. Airbnb3. Pharmeasy4. 1mg5. Netmed6. Stayvilla
India & Indian do…….% Of infotechjobs.
•Ans : 74.93%
India & Indian do …..% Of the
world’s accounting jobs.
Ans: 31.49%
Expected to be 80%+ by 2022 (thanks to uniform Global accounting standards)
India & Indian will do …….% of valuation jobs in the world??
• This answer is in our hands
Globe wants us
• Usa, Singapore, Hongkong
• Gulf – UAE, Qatar, Saudi
• East Europe
• London
• Australia, Newzeland
HOW TO GET GLOBAL ASSIGNMENTS
• START WITH INDIAN mncs
• Ensure huge overseas contacts – LINKEDIN
• Work on - ESOPS, INTANGIBLES
M & A
HOW TO GET GLOBAL ASSIGNMENTS
• Do not say I am a valuer
• Offer one stop shop services
Target search, Valuations, Acquisitionnegotiation, FDD, Deal structuring,
Tangibles, Intangibles,
Tax,
Strategising,
Post-acquisition, CEOship
Where do we start?
Start-up valuation…• Venture capitalist model• First Chicago method• Berkus• Risk factor summation• Scorecard• Comparable transaction
SOURCE – Economic Times 21 May 2018https://economictimes.indiatimes.com/smallbiz/startups/newsbuzz/walmart-take-note-amazon-india-valued-at-16-billion/articleshow/64251173.cms
Market based valuation Citi research Valuation by using DCF method
Barclay’s report quoted by Quartz India
https://qz.com/india/1475828/amazon-india-has-higher-gmv-than-flipkart-but-lags-in-revenue/ -
Coming soon ……….
Crouching Tiger Hidden
Dragon – Ambani’s e
commerce ambitions
PLAYING NOW WALMART VS AMAZON
Venture capitalist method
•A venture capitalist is looking at an investment of Rs. 100 lakhs in a start-up technology for 5 years. The Company is expected to earn Rs. 200 lakhs profits in the fifth year. Comparable companies in the peer group have a PE multiple of 8 and the VC is negotiating a return of 33% p.a. on its investment.
•How much % stake VC should expect?
Venture capitalist method
•Answer
•100*1.33^5=416
•200*8=1600
•416/1600 = 26%
Start-up valuation - Telecom
Day 1 3 year plan
Per Minute Charge –down to 1/3rd
INR 1.50 INR 0.50 immediately
Market Size – Goes Up By 3 Times
3 Crores 9 Crores expected in 3rd year
Payback 3 YEARS
EBITDA 50%
Sales Quantity Growth Y-o-Y
2.5 TIMES
Market Share 60%
Number Of Minutes Per Day Usage
30 minutes
30 minutes per day = 900 p.m., say 1000 considering week-ends
At INR 0.50 INR bill p.m. = 500, i.e., INR 6000 p.a.
3 Crore quantity translates to 9 Crores in 3rd year
@60% share of market 5.4 Crores, Say 5 Crores.
5 Crores* 6000 = 30000 Crores
2.5 times growth each year
So 2nd year 30000/2.5 = 12000 Crores, and 1st year 12000/2.5 = 4800 Crore
EBITDA 50%, i.e., 1st year 2400 Crore, 2nd year 6000 Crores and 3rd year 15000 Crores
Total EBITDA 23400 with 3 years payback so CAPEX 23400 Crores
Start-up valuation - Telecom
ProjectionsYear 1 Year 2 Year 3
Market SIZE 9 Crore
Own Share 60% 80 Lakhs 2 Crore 5 Crore
50 Paisa * 1000 Minutes *12 Months =
6000 INR 6000 INR 6000 INR
Revenue 4800 Crore 12000 Crore
30000 Crore
EBITDA 2400 Crore 6000 Crore
15000 Crore
Payback In Years 3 Years
CAPEX Plan 2400+6000+15000=23400 Crore
Projections vis-à-vis Actual
YEAR 1 YEAR 2 YEAR 3
Market Size 9 Crore ---
Actual 20 Cr
Our Share 60% ---
Actual 25%
80 Lakhs
Done
2 Crore
Done
5 Crore Done
50 Paisa*1000
Minutes *12 Months
=
6000 INR
Done
6000 INR
Done
6000 INR
Done
Revenue 4800 Crore
DONE
12000 Crore
DONE
30000 Crore
Done
EBITDA 2400 Crore
DONE
6000 Crore
DONE
15000 Crore
DONE
Payback In Years 3 Years Done
CAPEX Plan 2400+6000+15000=23400 DONE
Intangibles - Panchmahabhuta
AGNI - POWERJAL – WATERDHARA – EARTHVAYU – AIRAAKASH - SKY54
AGNI - POWER
ELECTRICITY GENERATION ELECTRICITY DISTRIBUTION
ELECTRICITY TRANSMISSION
SOLAR ENERGY MFG RIGHT
NUCLEAR ENERGY
WINDMILL ENERGY TOWERS
55
JAL - WATER
Ferrying Right
Irrigation Rights
Fishing Right
56
DHARA - EARTH
Mineral Rights Landing Right Right To Fix Mobile Tower Toll Collection Rights Right To Cut Trees Tenancy Development Rights Construction Rights Urban Development Rights Right Of Way FSI
57
VAYU - AIR
Spectrum
LMDS TECHNOLOGY RIGHTS
TRP
Media Rights 58
AAKASH - SKY
Flying Rights
International Flying Rights
Carbon Credits
59
FINANCIAL ENGINEERING
•Redeemable Equity Shares
•Unsecured Perpetual Securities
•Irredeemable Preference Shares
•Contingently Issuable Shares
•Hybrid Instruments
•Compound Financial Instruments
Let us vow…• As principled valuer
• WE shall end NPAs
• We shall end evergreening & round tripping
+91 9167446744 [email protected]
Rammohan N. Bhave
Limca Record Holder WEBINAR 2009FCA, FCMA, ACS, LL.B. (G.),Ind AS – ICAI, Six sigma green belt.Diploma in IFR, ACCA, London
63
Thank You!
