Corporate Finance

5.35

GUIDELINES FOR VALUATION OF EQUITY SHARES OF

COMPANIES AND THE BUSINESS AND NET ASSETS OF BRANCHES

PART I

1.

These are operating guidelines for valuation of equity share of companies.

Briefly, they will be referred to as valuation guidelines.

2.

These are purely administrative instructions for internal official use and are,

therefore, not to be quoted, cited or published as the official guidelines of the

Government.

3.

They will be effective from the date of their issue and will be applicable to all

pending and future cases arising for consideration in the Department of Economic

Affairs, Ministry of Finance.

4.

Specially, these guidelines will be applicable to the valuation of:(a)

equity shares of companies, private and public limited;

(b)

Indian business/net asses of the sterling tea companies; and

(c)

Indian business/net assets of the branches of foreign companies.

PART II

Principles and method of valuation

5.

The objective of the valuation process is to make a best reasonable judgment of

the value of the equity share of a company or of the business and net assets of a branch in

cases arising for valuation under the Foreign Exchange Regulation Act, 1973, and the

Capital Issues (Control) Act, 1947. The best reasonable judgment of the value will be

referred to as the fair value (FV) and it will be arrived at on the basis of the following in

the manner described in the subsequent paragraphs:

(1)

(2)

(3)

Net asset value (NAV);

Profit-earning capacity value (PECV);

Market value (MV) in the case of listed shares.

6.1

Net asset value (NAV). – The net asset value, as at the latest audited balancesheet date, will be calculated starting from the total assets of the company or of the

branch and deducting therefrom all debts, dues, borrowings and liabilities, including

current and likely contingent liabilities and preference capital, if any. In other words, it

should represent the true “net worth” of the business...