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These valuation guidelines have been designed to improve upon the quality of valuation
engagements and standardize the valuation process across Corporate Finance practice in India.
Any deviation from the standard practices should be should be agreed and confirmed with
Engagement Manager. These guidelines or standards practices are for the internal purposes

1. In all the valuation engagements appropriate financial model needs to be built. Financial
model has to be built based on the standard template (Refer Appendix 1). Any
deviations should be brought to the attention of the Engagement Manager and approved.
2. The model should comprise PL, BS and CF. Cash and bank should not be a balancing
figure. Also, all the sheets including assumptions should include historical and
projections in order to be able to relate to the quality of projections.
3. Ensure that your historical figures are matching with the audited reports.
4. Ensure that your projected financials (PL, BL and CF) are matching with the clients
file any differences should be highlighted and consent obtained from the client.
5. Run a spell check for the model as the tables / graphs sometime have spelling mistakes.
6. We c NOT use weighted average methods. DCF is used as our primary methodology
with comparable company (CoCos) multiples and comparable transactions (CoTrans) as
secondary methodologies for cross checks.
7. All our models and reports are to be done in INR million or thousands or relevant
foreign currency as the case may be. Do NOT model in lakh and crore.
8. All models must be audited by an independent CF person.
9. Please read Annual Reports, Directors Report and Notes to Account thoroughly in all
the valuation engagements.
10. Have appropriate business understanding with the Clients before doing any valuation.
Ask Clients relevant questions to understand the business for understanding key
concerns in the business. Template for relevant questions is also enclosed (Refer
Appendix 2).

Guidelines for Valuation


11. Preferably DCF should be carried out for at least 5 years and the terminal year
projections should be calculated separately.
12. The primary projection period should cover a typical business cycle following which
the terminal period is a mere extrapolation of steady-state. Hence, while the primary
project period of 5 years may be sufficient for a steady state business, we may need to
consider a 10-15 years projection for longer gestation projects like infrastructure, etc. If
correctly used, the ratio of primary value to total value and terminal value to total value
should be in the range of 60:40 to 70: 30 (to clarify, 70 per cent for Terminal Value =
Terminal Value /(Terminal Value + Primary Value)). If the ratio is outside the above
range please reconsider the projections, projection period, terminal value assumptions,
etc and build appropriate reasoning for the skewed ratio .
13. Working capital and Capex projections for Terminal Year should be calculated based on
the terminal growth. Capex should be only maintenance capex. If one does not have
capex figures depreciation should be considered as a capex. One can also use industry
benchmarks if we have proper back-up for the same.
14. BETA should be unlevered and Relevered based on the targeted debt-equity ratio either
calculated based on the mean/median of industry or companys targeted debt equity
ratio. While pulling out Betas values from databases adjusted daily betas must be
considered as opposed to raw betas if the comparable companies are outside India, use
USD as the currency as opposed to local currency. Please use beta data from Bloomberg
to ensure uniformity across practice. Beta should be for 1-5 years (3 years should be the
standard and any alteration should be discussed and approved by the Engagement
Manager). If comparable companies are listed for less than 9 months Beta should not be
15. If the Company is a subject of Corporate Actions like Merger, de merger, buy-back,
open offer, etc. then the company should be excluded form CoCos & Beta calculations.
16. Sources for Rm, Rf, beta should be consistent across teams and regions and should
strictly follow the Valuation Alerts. These parameters should be considered as at the
valuation date except for merger valuations where the latest available information
should be taken.

17. Sensitivities to WACC and g must be conducted on DCF. Further, if relevant, scenario
analysis should also be run in case of any critical event occurring or not occurring.
18. Check whether the DCF value is at least more than book value. Book Value which may
be a liquidation value also, should be always less than DCF value.
19. Contingent Liabilities should be reduced from Enterprise Values. Contingent liabilities
should be considered net of income-taxes (for other than contingent liabilities relating to
income-tax and other penalties) after applying appropriate probability (consider 50% if

Guidelines for Valuation


no reason to consider otherwise) factor. Contingent liabilities relating statutory

liabilities should be considered.
20. To calculate Equity Value, adjustment for Net Debt should be made to Enterprise
Value. Formula for Net Debt = Total Debt (including Working Capital Loans and Nonconvertible Redeemable Preference Shares, capital leases, ESOP reserves (net of strike
price)) Surplus and Non-Operating Assets (which includes surplus cash, investments,
surplus land, etc). All the cash and bank balance may not be surplus cash and therefore,
has to be checked on case to case basis.
21. Proposed Dividend should be removed from the current liabilities for the purpose of
calculating net working capital.
22. Use mid-year discounting model which means the cashflows are assumed to be evenly
accruing throughout the year. Follow this as standard unless there are strong reasons to
believe that cash flows are skewed heavily in the beginning or end of the year.
However, the discount factor for terminal value is at completed year of projections
hence to be adjusted for the period from the final year time period factor (which would
be middle of that financial year) to end of the year by when the terminal value is
estimated to accrue.
23. Include notes in the model relating to trends/anomalies in the business plan, reasoning
for alpha/terminal growth rate etc and also include assumptions made with respect to
computations. These are important from a QPR perspective as well as to capture the key
discussion points which should flow into the report.
24. Please have detailed workings for terminal year parameters like working capital
changes, capex, taxes etc similar to explicit period. Avoid doing these workings directly
in the DCF sheet.
25. Kindly follow the template (Appendix 3) for computation of multiples for comparable
26. The multiples should be computed as at the date of valuation (except merger
valuations). For e.g if the valuation date is 31 December 2011, the market data relating
to market capital and beta should be considered as at this date. For financial
information, the data as at the valuation date (if available) or the earliest date prior to
the valuation date available should be considered.
27. Sales, EBITDA, EBIT and PAT numbers should be for trailing twelve months as at the
valuation date (subject to the point mentioned above). Further, these numbers should be
adjusted for extra-ordinary, non-recurring income and expenses and other non-operating
income. All these adjustments should be carried out net of taxes. All the financial
information should be consolidated financial information. If consolidated financial
information is not available as at a particular date, please take an earlier date.

Guidelines for Valuation


28. Before selecting comparable companies for the analysis the trading volume % needs to
be calculated. Standard template for calculating trading % is also enclosed (Refer
Appendix 3). If the trading % is below 10 per cent of the total outstanding shares, then
exclude the company from the list of comparables. Formulas and calculations are
explained in the template.
29. For the purpose of deriving Market Cap to ascertain multiples market capitalisation
should not be as on the valuation date. Market Cap has to be calculated based on
volume weighted average price for 6 months from the valuation date. The calculation
has been explained in the enclosed template (Refer Appendix 4).
30. The Net debt for Enterprise Value should be calculated using the formula (Debt (incl.
preference stock and minority interest) cash investments / surplus investments).
Investments should not include operating investments like investments in subsidiary
companies because they are not surplus investments.
31. Summarize the valuation, based on comparable companies approach, in the financial
model and include the same for valuation conclusion.

1. Generally, we consider comparable transactions over a time span of 1-2 years prior to
the valuation date based on number of available transactions. If sufficient comparable
transactions are not available then please increase the no. of years
2. Summarize the valuation, based on comparable transactions approach, in the financial
model and include the same for valuation conclusion.

1. Adhere to the valuation report templates circulated along with this file. Refer Appendix
5 for FM and VM and refer Appendix 6 for consolidated VM. Kindly consult your
Engagement Manager right in the beginning for choice of consolidated VM or FM and
VM template (This will also need to be decided in light of what is given in the LOE
else need to execute a scope modification letter). Refer Appendix 7 for RBI Valuation
2. Valuation Report should have at least following sections Notice, Glossary, Contents,
Introduction, Transaction Overview, Company Overview, Industry Overview,
Historical Performance, Critical Assumptions in Management Business Plan, Valuation
Methodologies, Valuation Conclusion and Sources of Information.
3. Factual Memorandum - Notice, Glossary, Contents, Introduction, Transaction
Overview, Company Overview, Industry Overview, Historical Performance and Critical
Assumptions in Management Business Plan and Sources of Information.

Guidelines for Valuation


4. Valuation Memorandum - Notice, Glossary, Contents, Introduction, Transaction

Overview, Critical Assumptions in Management Business Plan, Valuation
Methodologies, Valuation Conclusion and Sources of Information.
5. Every Graph, Industry Overview, Shareholding Pattern, Tables etc. should have
appropriate source. Write-up should not have the source. Source should be written on
the left side of the bottom of table.
6. Report should preferably have a Football Field or graphical representation of valuation
ranges based on the different valuation methodologies. If the range is too wide please
use median to decide upon the valuation of the forecast bar.
7. Appropriate explanations should be given in the report for not using any methodologies.
All reports should contain CoCo Multiples and Transaction Multiples, even if not used
in the valuation conclusion.
8. Industry section of the valuation report should be drafted carefully. For eg., the industry
scenario should not be negative if the companys projections show positive trend.
REVIEWS. Please check for inconsistencies.
9. Use standard formats consistently eg. Date format is 31 March 2008. Units should be
INR million, not millions. Prefix of names should be Mr (no fullstop), or Ms
10. Please be extremely careful while using an old report as a template for a new report.
READ and ensure all find-replace are done manually and meticulously.
11. Top page of all reports should only contain Project Name followed by the words
Security Cover. This helps in maintaining confidentiality as reports lie around on
tables at both client and KPMG sites. The second page should contain name of Client,
followed by Report Name and a description.
12. INDEPENDENTLY QUALITY REVIEW: Ensure that the reports have been read by an
independent manager before sending them for partner review. Please complete the
Hygiene checks as per the indicative list enclosed before forwarding for any reviews
(Refer Appendix 8).
13. Immediately on sending the draft report to the client, kindly forward a mail to the
secys of the EP and CP with copies to the partners requesting them to book time
on the project.

1. Computation of multiples and beta values, based on comparable companies, should be
based on the latest available data and not restricted to data as at the valuation date.
2. The reports for merger-swap engagements should be addressed jointly to all the
companies involved in the merger process.

Guidelines for Valuation


1. Please use the standard LoE available on the intranet. If in case of using a previous LoE,
please compare it with the standard one available on the intranet to ensure that the latest
one is used.
2. GT and AT Refer Appendix 9 for KIPL GT and AT and Appendix 10 for BSR GT
and AT.


Appendix 1 Template for Financial Model

Appendix 2 Key questions for initial Management discussions

Appendix 3 Template for calculation of minimum stock trading criterion

Appendix 4 Template for calculating volume weighted market capitalization

Appendix 5 Template for Valuation Report FM and VM

Appendix 6 Template for Valuation Report Consolidated VM

Appendix 7 Template for Valuation Report RBI Valuation

Appendix 8 Hygiene checklist

Appendix 9 GT and AT for KIPL

Appendix 10 GT and AT for BSR

Appendix 11 Letter of Confirmation

Note: Version revised on 10 April 2012

Guidelines for Valuation