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Profession of Registered Valuer in IndiaVALUATION PROCEDURE: APPROACHES AND METHODS - 4VALUATION PROCEDURE: APPROACHES AND METHODS - 3VALUATION PROCEDURE: APPROACHES AND METHODS - 2VALUATION PROCEDURE: APPROACHES AND METHODS - 1Minimum Alternate Tax (MAT) U/S 115JB Of Income Tax Act, 1961Deferred Tax-Accounting Standard-22-Accounting For Taxes On IncomeMinimum Alternate Tax (MAT) U/S 115JB Of Income Tax Act, 1961



Market approach is a valuation approach that uses prices and other relevant information generated by market transactions involving identical or comparable (i.e., similar) assets, liabilities or a group of assets and liabilities, such as a business.

The following are some of the instances where a valuer applies the market approach:

a.     where the asset to be valued or a comparable or identical asset is traded in the active market;

b.     there is a recent, orderly transaction in the asset to be valued; or

c.      there are recent comparable orderly transactions in identical or comparable asset(s) and information for the same is available and reliable.

The following are the common methodologies for the market approach:

o   Market Price Method;

o   Comparable Companies Multiple Method; and

o   Comparable Transaction Multiple Method.

Market Price Method:

A valuer shall consider the traded price observed over a reasonable period while valuing assets which are traded in the active market. A valuer shall also consider the market where the trading volume of asset is the highest when such asset is traded in more than one active market. A valuer shall use average price of the asset over a reasonable period. The valuer should consider using weighted average or volume weighted average to reduce the impact of volatility or any one-time event in the asset.


Comparable Companies Multiple (CCM) Method: -

I.                 Comparable Companies Multiple Method, also known as Guideline Public Company Method, involves valuing an asset based on market multiples derived from prices of market comparable traded on active market.

II.               The following are the major steps in deriving a value using the CCM method:

(a)   identify the market comparables;

(b)   select and calculate the market multiples of the identified market comparables;

(c)   compare the asset to be valued with the market comparables to understand material differences; and make necessary adjustments to the market multiple to account for such differences, if any;

(d)   apply the adjusted market multiple to the relevant parameter of the asset to be valued to arrive at the value of such asset; and

(e)   if value of the asset is derived by using market multiples based on different metrics/parameters, the valuer shall consider the reasonableness of the range of values.


III.              While identifying and selecting the market comparables, a valuer shall consider the factors such as-

(a)   industry to which the asset belongs;

(b)   geographic area of operations;

(c)   similar line of business, or similar economic forces that affect the asset being valued; or

(d)   other parameters such as size (for example - revenue, assets, etc), stage of life-cycle of the asset, profitability, diversification, etc.

IV.             The market multiples are generally computed on the basis of following inputs:

(a)   trading prices of market comparables in an active market; and

(b)   financial metrics such as Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA), Profit After Tax (PAT), Sales, Book Value of assets, etc.

V.               If market participants are using market multiple based on nonfinancial metrics for valuing an asset, such multiples may also be considered by the valuer in addition to market multiple based on the financial metrics. For example, Enterprise Value (EV) / Tower in case of tower telecom companies, EV/Tonne in case of cement industry, etc.

VI.             The following are some of the differences between the asset to be valued and market comparable that the valuer may consider while making adjustments to the market multiple:

(a)   size of the asset;

(b)   geographic location;

(c)   profitability;

(d)   stage of life-cycle of the asset;

(e)   diversification;

(f)    historical and expected growth; or

(g)   management profile.

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