CASE STUDY ON

BRAND VALUATION

SOFTA INDIA LIMITED Page 1

Brand Valuation Report
1. EXECUTIVE SUMMARY

The valuation of Brand of SOFTA INDIA LIMITED (herein after referred to as ‘the
Company’ or ‘SOFTA’) was carried out based on its Audited financial statements, past
earnings and projected earnings and cost estimates. The data required for the purpose
of this exercise was obtained from:

• Audited financial statements as at March 31, 2008, on a stand alone basis;

• Projected earnings and cost estimates, and

• Discussions held with key officials of the Company.

All information pertaining to the projected earnings and cost estimates and audited
financial statements as at March 31, 2008 have been provided by the Company’s
personnel and have been relied upon by us. It may be mentioned that any changes in
the data could significantly affect the projections, our analysis and recommendations
based thereon.

As this valuation exercise has been based on information provided to us, we

recommend that any transaction based on this valuation be subject to a detailed due
diligence to establish the reasonableness of the estimates considered.

The Brand value of SOFTA activities as at March 31, 2008 has been assessed using the
following valuation methods:

Purpose of valuation

Considering the tremendous demand/growth potential for the Company’s

products and technology, which will be achieved through a combination of an
efficient man/machinery mix, increased productivity, re-engineering, long
term cost effectiveness as well as diversification, the management of SOFTA
has contemplated future expansion plans. For this purpose the Company
proposes to enter into a strategic alliance with global industry leaders by
offering equity shares in their Company. The purpose of this exercise is to
determine the fair value of the existing Brand of the SOFTA and to arrive at a
fair valuation of the shares of the Company.
The Brand value of SOFTA calculated by us is presented below:

Brand Valuation Method Value of Brand

(Rupees)
1. Royalty Relief Method 397,424,889

2. Brand Multiple Method 165,723,346

3. The Economic Use / Future 616,058,398
Earnings Method

The following sections detail industry overview, our understanding our methodology
and the various assumptions considered in assessing the Brand value of SOFTA. The
detailed calculations are presented in relevant annexure.

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Brand Valuation Report
2. LIMITATIONS AND DISCLAIMER

SOFTA INDIA LIMITED (“SOFTA” or “the Company”) has requested ABC & CO. to carry out
a valuation of its Brand. In preparing this valuation Report (“the Report”), we have relied upon
information, documented and oral, provided by SOFTA without independent verification. We
have by no means carried out any audit or due diligence exercise to verify the financial data
pertaining to the Company in terms of both past and current balance sheet or profit and loss
accounts as provided to us.

At this point, we offer no comments on the accuracy and completeness of the Brand
projections and related information as set out in the valuation document, given that such
estimates involve subjective judgment and, accordingly, no representations can be made as to
their attainability. The attainability of the projections is the responsibility of the management
of the SOFTA. Further, the valuation exercise is based on the Brand projections formulated
and any changes in the data or assumptions used for preparing the Brand projections could
significantly affect our valuation. We may mention that the Brand valuation as carried out by
us is based on the assessment of present and future understanding of the industry and the
Brands as on the date of valuation. Any changes in the assumptions undertaken may
substantially change the valuation of the Brands.

We may mention that our scope of work for this exercise did not include technical/financial
feasibility or market research.

We shall not have any liability for any misrepresentation (express or implied) contained in, or
for any omissions from, this document or for any other written or oral communication
transmitted to us for the purpose of this assignment. It should be noted that any estimates
contained herein are based on information available at the time of preparation. Any change in
the external/internal environment could significantly affect our analysis and findings.

This report contains confidential information that has been provided at your request and the
same should not be disclosed or circulated in whole or in part without express written consent
of ABC & CO. This document should not be duplicated or used, in whole or in part.

The Report is being provided solely for the benefit of the Company and is not on behalf of, and
shall not confer rights or remedies upon, any other person other than SOFTA. The Report may
not be used or relied upon by, or disclosed, referred to, or communicated by SOFTA (in whole
or in part) to any third party for any purpose whatsoever except with our prior written consent
in each instance. This document should not be duplicated or used, in whole or in part

In furnishing the Report, we reserve the right to amend or replace the Report at any time. Our
views are necessarily based on economic, market, and other conditions currently in effect, and
the information made available to us, as of the date hereof. It should be understood that
subsequent developments may affect our views and that we do not have any obligation to
update, revise, or reaffirm the views expressed in the Report. Nothing contained within the
Report is or should be relied upon as a promise or representation as to the future.

The pro-forma, estimates and financial information contained herein was prepared by SOFTA
and our Report is based on certain assumptions, analysis of information available at the time
of Report preparation. While the information provided to us is believed to be accurate and
reliable, we do not make any representations or warranties, express or implied, as to the
accuracy or completeness of such information. Part of this information is based, inter-alia, on
published/private reports or research studies carried out by other agencies. The information
provided there has not been verified by us, though we are neither aware nor has reason to
believe that the information is otherwise unreliable in any material aspect. No representations
expressed or implied are made in that behalf.

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Brand Valuation Report
3. OUR UNDERSTANDING

3.1 COMPANY OVERVIEW

SOFTA India Limited is an Indian company operating in India and overseas. It

provides software/information technology based engineering and geospatial
solutions and services to customers across the world and has executed
projects in more than 35 countries. SOFTA is headquartered in Mumbai and
operates through a network of twelve regional/branch offices in India and
seven subsidiaries located in USA, Canada, UK, The Netherlands, Germany,
Saudi Arabia and UAE. It is listed on the Bombay Stock Exchange and
National Stock Exchange in India.

SOFTA is India’s leading provider of GIS/GeoEngineering solutions and

services and one of the major AM/FM/GIS photogrammetry service providers
in the world for segments such as Defense, Environment, Electric, Telecom,
Gas, Emergency Services, Municipalities and Airports. The company’s
customer base for GIS projects is spread across 17 countries with multi
million dollar projects executed in various parts of the world. SOFTA is also
leading provider of plant design automation solutions and services in India
and one of the major plant information management services providers
worldwide. The company’s customer base for such business is spread across
22 countries with over 500 projects executed in various parts of the world. To
move up the value chain in the engineering domain, the company has
established a joint venture with Stone & Webster Inc., USA, namely SWSL-
Stone & Webster SOFTA Limited. SWSL has access to Stone & Webster’s
proprietary technology. This joint venture provides high quality engineering
services worldwide and undertakes selective refinery, petrochemicals and
power projects in India.

The company provides eSecurity implementation services, rapid application

development and software testing services to its customers worldwide. In on-
going partnership with CA’s, the company has executed over 350 projects
globally in 18 countries. SOFTA globally has around 2500 employees. Nearly
75% of the company’s workforce has engineering qualifications, including
significant numbers with master’s degrees or doctorates and SOFTA ensures
constant ongoing training to its professionals. The annual IDC-DQ best
Employers Survey has consistently ranked the company as one of the top
employers in the IT industry in India.

SOFTA quality standards are benchmarked to world class levels, with top
quality certifications such as ISO 9001:2000, BS7799, and SEI CMM level 5.
The British Standards Institution (BSI) has awarded SOFTA the BS15000
certification for its entire range of IT service management processes. This
unique accreditation has been bestowed on less than 25 companies globally.

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Brand Valuation Report
 4. VALUATION METHODOLOGY

In this chapter, we have presented the methodology adopted in determining the value
of Brand.
There are many methodologies that may be used to value the Brand of a Company.
Though different values are arrived under various methods, it is necessary to arrive at
a fair value for the Brand of company.

For the purpose of estimation of brand value of SOFTA the following valuation
approaches were considered, each of which is discussed in the ensuing
sections:

1. Cost based valuation approach,

2. Earnings based valuation approach, and
3. Market based valuation approach.

1. Cost based valuation approach

Cost based approach seeks to aggregate the costs incurred in

developing the brand to its present condition. In case of SOFTA, being
an old brand, the information relating to the cost incurred on the
development of brand is not available. Moreover, since the brand is
used and maintained by licensee SOFTA India Technologies Limited
(SITL), the information on cost incurred for management of brand is
also not available. Further, there are some inherent limitations of cost
based method of brand valuation, that the cost incurred on
development of brand does not reflect possible economic value which
may possibly be realised from the economic use of brand. Hence we
have ignored this method of valuation and have predominantly used
the earnings based, and market based valuation approaches for the
purpose as discussed below:

2. Earnings Based Valuation

Under this valuation methodology we have considered the following
methods,

2.1 Royalty Relief Method

This method is used when licensing and royalty arrangements exist for
a brand name. The actual royalties, after deducting any costs
associated with maintaining the brand/licensing arrangements, and
taxes are capitalised at an appropriate rate. The capitalisation rate
which would be reflective of the brand’s current market position,
expected future sales growth, business risks and time value of money,
is used to discount the royalties to arrive at the value of the brand.

Brand SOFTA is also licensed to SITL, under a royalty arrangement

which is assumed to be 15% of the revenue of the SOFTA on an
annual basis.

Detailed Workings as per this Method are set out in Annexure 1.

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Brand Valuation Report
 2.2 Capitalisation of Premium Profit Margins attributable to
the Brand Names

The value of a brand may be assessed by comparing the profitability of

a branded product to the profitability of an unbranded product of a
similar quality and design. The difference in profitability represents the
premium price that a buyer is willing to pay for a particular branded
product. We have arrived at the conclusion that it would not be
practically feasible to look at this method of brand valuation on
account of lack of availability of data for prices in various regions.

2.3 Imputed royalty method

In this method, the brand is valued with reference to the amount of
royalty income it would generate if the brand was instead licensed in
an arm’s length transaction. The benchmark royalty rate for the
subject brand is arrived at by looking at royalty rates of comparable
transactions. The net revenues expected to generate by the subject
brand are then multiplied by the benchmark royalty rate. The
benchmark royalty amount so calculated, is then adjusted for the
advertisement and marketing cost to maintain the brand, to arrive at
net income stream for the brand.

2.4 The Brand Multiple/Historical Earnings Approach

The “Brand Multiple” method is the “historical earnings” approach, the
main steps for which are as follows:

• Starting with the revenue attributable to the brand, multiply by

the profit margin for the brand to get the operating profit for the brand (or,
equivalently, deduct from the revenue the operating costs associated with the
brand).

• Estimate the capital employed by the brand, including both

fixed assets and working capital. Multiply this by an appropriate capital charge to
obtain the charge for capital employed by the brand.

• Subtract the charge for capital employed by the brand from the
operating profit for the brand to get the earnings after capital charge · Not all of
these earnings are attributable to the strength of the brand itself there could well be
some earnings after capital charge even if the brand were weak. Therefore multiply
the earnings after capital charge by the proportion of the earnings that are
attributable to the strength of the brand to obtain the brand earnings.

• Multiply the brand earnings by the tax rate to get the tax
payable on the brand earnings. Then subtract the tax payable from the brand
earnings to get the brand earnings after tax.

• Finally, multiply the brand earnings after tax by the multiple to

obtain the brand valuation.

The Detailed workings under this Method are set out in Annexure 2.

Brand Multiple Applied calculations:

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Brand Valuation Report
 Though the detailed calculation can not be shown on account of breach of privacy of
the company and lack of authentic information, the overall view has been given by
indicating the factors used for computing Brand Multiple Applied or Brand Strength
Factor.

Factors considered while computing or Brand Multiple Applied or Brand Strength Factor
is as follows. The higher the score of the factor, the stronger the brand is.

1. Leadership – It signifies that the brand is more stable and has more value
than another brand with a lower market share because leadership gives --

a. market influence,

b. the power to set prices,

c. control of distribution channels

d. greater resistance to competitors

2. Stability – It signifies the brand’s strength in terms of

a. Degree of consumer loyalty

3. Market – it signifies the brand strength in terms of

a. Growth in market

b. Consistency in sales

c. Level of entry barrier (High entry barrier will give more score)

4. Internationality – it refers to the brand strength in terms of international

presence. The higher the number of presence in the international market, the
more will be the overall score.

5. Trend – It implies the brand’s tendency to keep up-to-date and relevant for
the consumer increases its value

6. Support – It implies that the brands that have received investment and
support must be considered to be more valuable than those that have not. The
quantity and quality of this support is also considered.

7. Protection – The robustness and breadth of the brand’s protection (“Legal

Monopoly”) is critical factor in its valuation.

Weighted average of all factors has been considered to determine brand strength
factor.

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Brand Valuation Report
 2.5 The Economic Use/Future Earnings Approach
The multiple used in the “historical earnings” approach should reflect
both the growth prospects for the brand and the uncertainty attached
to future earnings from the brand. Under this approach of brand
valuation the Net Present Value of the future brand earnings after tax
is estimated and discounted.

The Detailed workings under this Method are set out in Annexure 3.

3. Market based methodologies

Market based methodologies determine value of brand with reference
to the value of comparable brand in recent market transactions. The
comparable brand value will be adjusted on account of changes in
economic conditions, the bundle of rights being sold / assigned,
method of payment etc. The methods used are:

4. Sales Transaction Method

This method estimates the value of the brand based on sale of sector
comparable brand to independent third parties. However, the details of
recent transaction were not available for the purpose of calculation of
transaction multiples. Hence we did not use this method of cross
verification for valuation of brand.

Summary
From the various methods of brand valuation as discussed above, we have arrived at
the following valuations:

Brand Valuation Method Value of Brand

(Rupees)
1 Royalty Relief Method 397,424,889
.
2 Brand Multiple Method 165,723,346
.
3 The Economic Use / Future 616,058,398
. Earnings Method

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Brand Valuation Report