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 mohanbhave2@gmail.com

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!