Business Valuation Methods in India: Approaches and When a Registered Valuer Is Required

Business valuation in India isn’t a single calculation; it’s a choice between three distinct approaches, each producing a different number for the same company, and in a growing number of situations, a legal requirement that the number come from someone specifically licensed to produce it. This guide sets out the three standard valuation approaches used in India, when each applies, and when the Companies Act, 2013, requires you to use a registered valuer rather than any qualified professional.

The Three Standard Valuation Approaches

Nearly every valuation in India, whether for fundraising, M&A, ESOP grants, or statutory compliance, is built on one or a blend of these three approaches. The right one depends on the nature of the business, the purpose of the valuation, and the quality of available data.

Income Approach (Discounted Cash Flow)

The DCF method values a business based on its projected future cash flows, discounted back to present value using a rate that reflects the risk profile of the business. It’s the preferred approach for businesses with a credible forecasting basis, established operating history, reasonably predictable revenue, and a defensible discount rate. It’s also the approach most scrutinized in disputes, since small changes in growth or discount rate assumptions can move the valuation materially.

Asset Approach (Net Asset Value)

NAV values a business as the fair value of its assets minus liabilities. It’s most relevant for asset-heavy businesses, holding companies, or situations where a business is being wound down rather than valued as a going concern. It’s rarely the right primary method for an operating business with meaningful earning power, since it ignores the value of future cash-generating capacity.

Market Approach (Comparable Companies and Transactions)

This approach benchmarks the target against valuation multiples EV/EBITDA, P/E, and revenue multiples observed in comparable listed companies or recent M&A transactions in the same sector. It’s strongest when a genuinely comparable peer set exists; it weakens quickly for niche businesses, early-stage companies, or sectors with thin transaction data in the Indian market.

In practice, most credible valuation reports triangulate across two or more of these approaches and reconcile the results, rather than relying on a single method particularly where the valuation will be relied on by investors, regulators, or a court.

When Does Indian Law Require a Registered Valuer?

Section 247 of the Companies Act, 2013 requires that valuations of property, shares, securities, goodwill, or net worth carried out under the Act be performed by a registered valuer a professional registered with the Insolvency and Bankruptcy Board of India (IBBI) under the Companies (Registered Valuers and Valuation) Rules, 2017. This requirement has been mandatory since 1st February 2019; valuations under the Act performed by anyone outside this registration are not compliant, regardless of the professional’s other qualifications.

A registered valuer is typically required for:

• Issue of shares or securities, including preferential allotments
• Non-cash transactions involving directors
• Schemes of arrangement, merger, or demerger
• ESOP valuation for grant and exercise pricing
• Related-party transactions requiring fair value determination
• Valuation of goodwill and intangible assets under the Act

The registered valuer must be appointed by the audit committee, or by the Board of Directors where no audit committee exists, and must deliver an impartial, true, and fair valuation exercising due diligence — the standard set out explicitly in Section 247(2). Valuations required under other statutes (certain SEBI regulations, for instance) can independently mandate a registered valuer as well, even where the Companies Act itself isn’t the trigger.

Choosing the Right Approach for Your Situation

The method isn’t a matter of preference; it should follow the purpose of the valuation:

• Fundraising or investor negotiation: typically DCF, supported by comparable transaction benchmarking to stress-test the assumptions
• M&A and scheme of arrangement: a blended approach, since the registered valuer’s report will be scrutinized by the tribunal and by both sides’ advisors
• ESOP pricing: DCF or NAV depending on stage. Early-stage companies with limited cash-flow history often default to NAV or a blended method
• Winding down or asset-heavy holding structures: NAV, since going-concern earning power isn’t the relevant question

Getting this selection wrong doesn’t just produce an inaccurate number for statutory valuations, it can produce a report that fails to meet the Section 247 standard entirely, exposing the transaction to challenge.

Working With a Registered Valuer

Value and price are not the same thing; a valuation establishes an economic estimate, and the price is what a buyer and seller ultimately negotiate. A registered valuer’s job is to make sure that starting estimate is defensible, methodologically sound, and compliant with the standard the Act requires so that the negotiation that follows starts from solid ground rather than a number that unravels under scrutiny.

At MBG Corporate Services, our business valuation practice includes IBBI-registered valuers who work across DCF, NAV, and market-approach engagements for fundraising, M&A, ESOP, and statutory compliance under Section 247.

Email us at communications@mbgcorp.com or contact us at +91 88601-90008.

Additional Resources:

• Cost Optimization a Key to Evaluating Business Expenses
• Due Diligence in Business Decision Making
• Financial due diligence (FDD) Process
• Financial Due Diligence Checklist

Article contributed by Team: Risk & Transaction Advisory Services