There are several time-tested valuation methodologies used for arriving at a valuation of a company. These include methods under the cost, income and market approaches. Most of these methods traditionally assume that the business is single country-specific. In the current Indian context, with the growing hybrid models in business, arising out of internationalization of Indian corporates, giving importance to the local economy/country/region is changing rapidly and dynamically. There is a significant shift from focus on the locus operandi to the modus operandi of the business. The evolution of hybrid business models has hence necessitated using appropriate valuation approaches, which are discussed in this article.
Wipro Infotech acquired Infocrossing, a US com pany...
United Spirits acquired Whyte & Mackay, a UK company...
WNS acquired Marketics, a Indian company focusing on the US market...
Tata Steel acquired Corus, a UK company with an international market...
Suzlon acquired Hansen, a Belgian company with operations in Australia, Brazil, UK, South Africa, etc...
Are standard valuation techniques used to value all the above businesses? How do global operations have an impact on valuation methodologies?
Many of the standard valuation techniques need to be revisited and adapted appropriately with globalization and with the changing business models of India Inc.
There are several time-tested valuation methodologies used for arriving at the enterprise and equity values of a company.
While using the income/market methods, it was traditionally important to understand the `locus operandi' of the business. The dynamics of each region as well as each stock market is different. The expected return in a specific country could be significantly higher than another country as this takes into consideration the growth of the economy, growth of the industry, margins of the industry, demand and supply of capital etc.
Similarly, the market multiples (such as Enterprise Value (EV)/sales, P/E, EV/EBITDA) varies significantly from economy to economy even for the same industry. The fact that in certain economies P/E is a more popular measure than EV/EBITDA shows the cultural difference and risk perceptions.
In the Indian context, with the growing hybrid models in business, the assumption of giving importance to the local economy/country/region is changing rapidly and dynamically. There is a significant shift from focus on the locus operandi to the modus operandi of the business. The evolution of hybrid business models is depicted in and hence there is a need for using appropriate valuation approaches. |
