VALUATION REPORT

on

Fair Value of Equity Shares

ABC
 Registered Valuer

Table of Contents

1 Context and Purpose....................................................................................................................... 3

2 Conditions and major assumptions ................................................................................................ 3
3 Background of the Company........................................................................................................... 4
4 Valuation Premise ........................................................................................................................... 5
5 Valuation Date ................................................................................................................................ 5
6 Valuation Standards ........................................................................................................................ 5
7 Valuation Methodology and Approach........................................................................................... 5
8 Source of Information ..................................................................................................................... 9
9 Caveats .......................................................................................................................................... 10
10 Distribution of Report ............................................................................................................... 11
11 Opinion on Fair Value of Equity Shares..................................................................................... 11

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 Registered Valuer

Valuation Analysis
We refer to our Engagement Letter dated ___ 2019 confirming our appointment as independent
valuers of ABC (the “Company”). In the following paragraphs, we have summarized our valuation
Analysis (the “Analysis”) of the business of the Company as informed by the management and
detailed herein, together with the description of the methodologies used and limitation on our
scope of work.

1 Context and Purpose

Based on discussion with the management, we understand that the Company’s promoters are
evaluating the possibility of Fair Value of Equity Shares under the Companies Act, 2013 and
applicable rules thereunder. In the context of these proposed transactions, the management
requires our assistance in determining the fair value of Equity Shares of the Company.

Proposed Transaction:

During the financial year 2019-20, Company is evaluating the possibility of issuing further securities
to prospective investors. In this context, the management of ABC (the “Management”) has
requested us to estimate the fair value of the Equity Shares. - “Proposed Transaction”.

2 Conditions and major assumptions

Conditions

The historical financial information about the Company presented in this report is included solely for
the purpose to arrive at value conclusion presented in this report and it should not be used by
anyone to obtain credit or for any other unintended purpose. Because of the limited purpose as
mentioned in the report, it may be incomplete and may contain departures from generally accepted
accounting principles prevailing in the country. We have not audited, reviewed or compiled the
financial statements and express no assurance on them.

Readers of this report should be aware that a business valuation is based on future earnings
potential that may or may not be materialised. Any financial projection e.g. projected balance sheet,
projected profit & loss account, projected cash flow statements as presented in this report are
included solely to assist in the development of the value conclusion. The actual results may vary
from the projections given, and the variations may be material, which may change the overall value.

This report is only to be used in its entirety, and for the purpose stated in the report. No third parties
should rely on the information or data contained in this report without the advice of their lawyer,
attorney or accountant.

We acknowledge that we have no present or contemplated financial interest in the Company. Our
fees for this valuation are based upon our normal billing rates, and not contingent upon the results
or the value of the business or in any other manner. We have no responsibility to modify this report
for events and circumstances occurring subsequent to the date of this report.

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 Registered Valuer

We have, however, used conceptually sound and generally accepted methods, principles and
procedures of valuation in determining the value estimate included in this report. The valuation
analyst, by reason of performing this valuation and preparing this report, is not to require to give
expert testimony nor to be in attendance in court or at any government hearing with reference to
the matters contained herein, unless prior arrangements have been made with the analyst regarding
such additional engagement.

Assumptions

The opinion of value given in this report is based on information provided by the management of the
Company and other sources as listed in the report. This information is assumed to be accurate and
complete.

We have relied upon the representations contained in the public and other documents in our
possession and any other assets or liabilities except as specifically stated to the contrary in this
report.

We have not attempted to confirm whether or not all assets of the business are free and clear of
liens and encumbrances, or that the owner has good title to all the assets.

We have also assumed that the business will be operated prudently and that there are no
unforeseen adverse changes in the economic conditions affecting the business, the market, or the
industry. This report presumes that the management of the Company will maintain the character
and integrity of the Company.

We have been informed by the management that there are no Significant lawsuits or any other
undisclosed contingent liabilities which may potentially affect the business, except as may be
disclosed elsewhere in this report. We have assumed that no costs or expenses will be incurred in
connection with such liabilities, except as explicitly stated in this report.

3 Background of the Company

ABC (‘the Company’)….

Shareholding pattern as on September 30, 2019 is given below:

Further data of the company as under:

CIN -
Company / LLP Name ABC
ROC Code -
Registration Number -
Company Category Company limited by Shares
Company SubCategory Non-govt company
Class of Company Private
Authorised Capital(Rs) -
Paid up Capital(Rs) -
Number of Members(Applicable in
case of company without Share
Capital) 0

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 Registered Valuer

Date of Incorporation -
Registered Address -
Email Id -
Whether Listed or not Unlisted
Date of last AGM -
Date of Balance Sheet -
Company Status(for efiling) Active

Directors and Key Managerial Persons

DIN/PAN Name Begin date Designation

4 Valuation Premise

The premise of value for our analyses is going concern value as there is neither a planned or
contemplated discontinuance of any line of business nor any liquidation of the Company.

5 Valuation Date
The Analysis of the Fair Value of Equity shares of the ABC of the Company has been carried out
based on the financials as on 30th September, 2019

6 Valuation Standards
The Report has been prepared in compliance with the internationally accepted valuation standards
and valuation standard adopted by ICAI Registered Valuers Organisation.

7 Valuation Methodology and Approach

The standard of value used in the Analysis is "Fair Value", which is often defined as the price, in
terms of cash or equivalent, that a buyer could reasonably be expected to pay, and a seller could
reasonably be expected to accept, if the business were exposed for sale on the open market for a
reasonable period of time, with both buyer and seller being In possession of the pertinent facts and
neither being under any compulsion to act.

Valuation of a business is not an exact science and ultimately depends upon what it is worth to a
serious investor or buyer who may be prepared to pay a substantial goodwill. This exercise may be
carried out using various methodologies, the relative emphasis of each often varying with:

• whether the entity is listed on a stock exchange

• industry to which the Company belongs
• past track record of the business and the ease with which the growth rate in cash flows to
perpetuity can be estimated
• Extent to which industry and comparable Company information is available.

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 Registered Valuer

The results of this exercise could vary significantly depending upon the basis used, the specific
circumstances and professional judgment of the valuer. In respect of going concerns, certain
valuation techniques have evolved over time and are commonly in vogue. These can be broadly
categorised as follows:

1. Asset Approach

Net Asset Value Method (“NAV")

The value arrived at under this approach is based on the audited financial statements of the business
and may be defined as Shareholders' Funds or Net Assets owned by the business. The balance
sheet values are adjusted for any contingent liabilities that are likely to materialise.

The Net Asset Value is generally used as the minimum break-up value for the transaction since this
methodology ignores the future return the assets can produce and is calculated using historical
accounting data that does not reflect how much the business is worth to someone who may buy
it as a going concern.

2. Market Approach

Comparable Company Market Multiple Method

Under this methodology, market multiples of comparable listed companies are computed and
applied to the business being valued in order to arrive at a multiple based valuation The difficulty
here in the selection of a comparable company since it is rare to find two or more companies with
the same product portfolio, size, capital structure, business strategy, profitability and accounting
practices.

Whereas no publicly traded company provides an identical match to the operations of a given
company, important information can be drawn from the way comparable enterprises are valued by
public markets. In case of early stage company and different business model the problem aggravates
further.

Comparable Transactions Multiple Method

This approach is somewhat similar to the market multiples approach except that the sales and
EBITDA multiples of reported transactions in the same industry in the recent past are applied to the
sales and EBlTDA of the business being valued.

3. Income Approach

Discounted Cash Flows - “DCF"

DCF uses the future free cash flows of the company discounted by the firm's weighted average cost
of capital (the average cost of all the capital used in the business, including debt and equity), plus a
risk factor measured by beta, to arrive at the present value.

Beta is an adjustment that uses historic stock market data to measure the sensitivity of the
Company's cash flow to market indices, for example, through business cycles.

The DCF method is a strong valuation tool, as it concentrates on cash generation potential of a
business. This valuation method is based on the capability of a company to generate cash flows in

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 Registered Valuer

the future. The free cash flows are projected for a certain number of years and then discounted at a
discount rate that reflects a Company's cost of capital and the risk associated with the cash flows it
generates. DCF analysis is based mainly on the following elements:

• Projection of financial statements (key value driving factors)

• The cost of capital to discount the projected cash flows

Analyse Business Determine Determine

company Revenue & Cost terminal value Equity & Debt
projection buildup & growth rate Risk

Determine
Derive NPV of Determine
Develop WACC capital
cash flows Country Risk
Structure

Valuation Methodology
The application of any particular method of valuation depends on the purpose for which the
valuation is done. Although different values may exist for different purposes, it cannot be too
strongly emphasized that a valuer can only arrive at one value for one purpose.

In the instant case, based on the nature of business of the Company, availability of data and
generally acceptable valuation methodologies, we have valued the Equity Shares using the DCF
method.

Our choice of methodology and valuation has been arrived using usual and conventional
methodologies adopted for purposes of a similar nature and our reasonable judgment, in an
independent and bona fide manner based on our previous experience of assignments of similar
nature.

Keeping in mind the context and purpose of the Report, we have used the DCF method as it captures
the growth potential of the business going forward. We have used this method to calculate the fair
value of the Equity Shares of the Company based on the financial projections prepared by the
Management of the Company.
Free Cash Flows
We have been provided with the business projection of the Company for Five years by the
Management, which we have considered for our Analysis. Accordingly, the projected free cash flows
to Equity ("FCFE") based on these financial statements is set out below:
Valuation Workings:

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 Registered Valuer

(INR Mn)

1 2 3 4 5 TV
Particulars FY20 FY21 FY22 FY23 FY24 TV
PAT - - - - - -

Add: Depreciation - - - - - -
Less: Capex - - - - -
(Increase)/ decrease in working capital - - - - - -

Free cash flow to firm ('FCFF') - - - - - -

Net Debt Taken / (Repaid) - - - - -
Interest & Finance Costs - - - - -
Other Non-Current Assets - - - - -
Equity Infusion - - - - -
Free cash flow to firm ('FCFF') - - - - - -

Discounting period (year) - - - - -

PV factor (end year discounting) - - - - - -
- - - - -
PV of FCFE - - - - -

PV of FCFE for the horizon period 1,725.87 A

FCFE for terminal year -

WACC -
Perpetuity Growth -
-
Gross terminal value -
PV factor -
PV of terminal value - B

Enterprise value - A+B

Less: Long Term Debt -
Less: Contingent liabilities -
Add: Cash & FDs -
Less : Equity Infusion ( present value) -
Equity value -

Assumptions
Cost of Equity -
Long Term Growth Rate -

Risk free rate (Rf) -

Market Return (Rm) -

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 Registered Valuer

Equity risk premia ( Rm - Rf) -

Beta -

Terminal Value

The terminal value refers to the present value of the business as a going concern beyond the period
of projections up to infinity. This value is estimated by taking into account expected growth rates of
the business in future, sustainable capital investments required for the business as well as the
estimates growth rate of the industry and economy. Based on dynamics of the sector and
discussions with the Management we have assumed a terminal growth rate of __ % for the Company
beyond the projections periods. The cash flows of Rs. ___ Mn have been used to determine the
terminal value. Based on these assumptions the terminal value has been calculated at Rs. ___ Mn.

Using these cash flows and a discount rate of __%, we estimate the equity value of the Company Rs.
__ Mn.

Discount Factor

Discount Factor considered for arriving at the present value of the free cash flows to the Equity
Shares of the Company is the cost of equity. The cost of equity is computed using the capital asset
pricing model (CAPM) using the formula shown below.

rE = rf + B (rM – rf) + CSP

Where,
rf = Risk free rate;
rM =Market return;
B = sensitivity of the index to the market / measure of market risk
CSP – Company Specific Risk
Rate Source
Risk free return (rf) 7.49% 10 year bond yield from
Market Return (Rm) 14.29% 20 year return of BSE 500
Measure of market risk(B) 1.00 No peer available
Company Specific Risk 10.00

Based on the above parameters, the cost of Equity has been calculated at __%.

8 Source of Information
The Analysis is based on a review of the business plan of the Company provided by the Management
and information relating to sector as available in the public domain. Specifically, the sources of
information include:

 Management certified unaudited financial statements for valuation date and as on Mar 19;
 Audited Financials as on FY18

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 Registered Valuer

 Management certified consolidated projected financial statements for period of 5 years from
FY20 to FY24;
 Details of Shareholding and numbers of Equity Shares as on valuation date;
 Discussions with the Management of the Company;
 All Company specific information were sourced from the management of the Company, either in
the written hard copy or digital form;
 Other information / data available in public domain.

In addition to the above, we have also obtained such other information and explanations from the
Company as were considered relevant for the purpose of the valuation. It may be mentioned that
the Management has been provided the opportunity to review our draft report as part of our
standard practice to make sure that factual inaccuracies are avoided in our final report.

9 Caveats
Provision of valuation recommendations and considerations of the issues described herein are areas
of our regular corporate advisory practice. The services do not represent accounting, assurance,
financial due diligence review, consulting, transfer pricing or domestic/international tax-related
services that may otherwise be provided by us.

Our review of the affairs of the Company and their books and account does not constitute an audit
in accordance with Auditing Standards. We have relied on explanations and information provided by
the Management of the Company and accepted the information provided to us as accurate and
complete in all respects. Although, we have reviewed such data for consistency and reasonableness,
we have not independently investigated or otherwise verified the data provided. Nothing has come
to our attention to indicate that the information provided had material mis-statements or would not
afford reasonable grounds upon which to base the Report.

The report is based on the financial projections provided to us by the Management of the company
and thus the responsibility for forecasts and the assumptions on which they are based is solely
that of the Management of the Company and we do not provide any confirmation or
assurance on the achievability of these projections. It must be emphasized that profit forecasts
necessarily depend upon subjective judgement. Similarly we have relied on data from external
sources. These sources are considered to be reliable and therefore, we assume no liability for the
accuracy of the data. We have assumed that the business continues normally without any
disruptions due to statutory or other external/internal occurrences.

The valuation worksheets prepared for the exercise are proprietary to the Valuer and cannot be
shared. Any clarifications on the workings will be provided on request, prior to finalizing the Report,
as per the terms of our engagement.

The scope of our work has been limited both in terms of the areas of the business and operations
which we have reviewed and the extent to which we have reviewed them.

The Valuation Analysis contained herein represents the value only on the date that is specifically
Stated in this Report. This Report is issued on the understanding that the Management of the
Company has drawn our attention to all matters of which they are aware, which have an impact

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 Registered Valuer

on our Report up to the date of signature. We have no responsibility to update this Report for
events and circumstances occurring after the date of this Report.

We have no present or planned future interest in the Company and the fee for this Report is not
contingent upon the values reported herein.

Our Valuation analysis should not be construed as investment advice; specifically, we do not express
any opinion on the suitability or otherwise of entering into any transaction with the Company.

10 Distribution of Report
The Analysis is confidential and has been prepared exclusively for ABC. It should not be used,
reproduced or circulated to any other person or for any purpose other than as mentioned above, in
whole or in part, without the prior written consent of the valuer. Such consent will only be given
after full consideration of the circumstances at the time. However, we do understand that the report
will be shared with the investor / buyers of the Company / submission to government authorities
and regulators towards statutory compliances.

11 Opinion on Fair Value of Equity Shares

Based on our valuation exercise Fair Value of the Equity Shares is as under:
(INR Mn)

Method Value Weight Product

DCF Method - 100% -
-

R/off -

No of shares -

Value Per Share -

Value Per Share R/off -

We trust the above meets your requirements. Please feel free to contact us in case you require any
additional information or clarifications.

Yours faithfully

Registered Valuer - Securities or Financial Assets

(Reg No: IBBI/RV/____________________)

Date: -
Place: Mumbai

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