The concept of valuation of shares sounds so complex and also bit boring unless you are deeply into it. But the moment you find yourself setting up an ESOP plan, raising funds, or trying to justify your company’s worth — it hits you. You have to know how this valuation thing works.
This isn't just for big corporates or VCs in suits. If you’re running a private company, handling finances, or even holding shares yourself — this is your problem too. The number on your balance sheet needs to reflect reality. Not just for peace of mind, but because regulators in India (and your investors) are watching.
And yeah, it's not something you can cook up on Excel after watching a YouTube video. There's a proper process. In fact, as per Indian law, only a Registered Valuer — someone who’s cleared exams, has experience, and is registered with IBBI — can sign off on it. That too, in certain cases, it’s mandatory.
So, if you’re trying to make sense of what your company’s shares are really worth, and when and why you need an official valuation, this guide is for you.
Why Do You Need Share Valuation?
Valuation of shares is required in multiple scenarios—some legal, some strategic:
- Mergers, acquisitions, or restructuring
- ESOP issuances
- Fundraising (private equity/venture capital)
- Buyback of shares
- Issue of shares at premium
- Exit or sale by investors
- Gift or transfer of shares among relatives
- Litigations, divorce settlements, or shareholder disputes
So, Who Can Actually Do a Share Valuation in India?
You can’t just ask your accountant or friend with an MBA to do it. The law has clearly specified on who can be the registered valuer. As per the Companies Act, 2013 (specifically, Section 247), anyone who is officially recognized as a "Registered Valuer" can do valuations in order to hold it legally valid.
Who can be the Registered Valuer?
A Registered Valuer is a person who has been approved by the Insolvency and Bankruptcy Board of India (IBBI). Registered valuers are qualified experts who focus on valuing assets like stocks, real estate, equipment, or financial instruments. They may be companies, partnerships, or individuals.
They can’t just call themselves valuers and start issuing reports. In order to be called as Registered Valuer, enrollment should be done with a Registered Valuer Organisation (RVO), complete the required training, pass an exam, and get officially registered with IBBI.
If your valuation report isn’t signed by one who complies with above criteria, then it would not hold valid in court, won’t satisfy regulators, and also, might not be taken seriously by investors either.
How Can You Become a Registered Valuer?
Let’s say you’re a finance professional and you want to be able to do this officially. Here’s the path:
- First, you’ll need a graduation degree—typically in commerce, business, finance, or something related.
- Then, you should have at least 3 years of relevant work experience in that field.
- After that, you have to complete a 50-hour training program from a recognized RVO.
- Once the training is done, you’ll need to pass the IBBI exam for the relevant asset class (in this case, securities or financial assets).
- Finally, apply to IBBI with all the paperwork, and once they approve, you’re in. You’ll get a registration number and can officially sign off on valuations.
- Completion of a 50-hour training with an RVO
- Passing the IBBI valuation exam
- Registration with IBBI post verification
Once approved, the valuer gets a unique registration number and can carry out valuations for companies, courts, or regulators.
Valuation Methods:
1. Net Asset Value (NAV) Method
This one is quite simple. The company's paper value is calculated by deducting its liabilities from its assets, which are the total value of everything the company owns. The per share value can be calculated by dividing total value with number of shares.
When does this make sense?
It’s ideal for companies that hold a lot of physical assets — like real estate firms, NBFCs, or investment companies. It is generally used when company is in the process of wind up.
Real-world tip:
Don’t use NAV if the company’s main value lies in its brand, tech, or future earnings — it won’t reflect that.
2. Discounted Cash Flow (DCF) Method:
Now this one’s a bit more involved. DCF approach is basically revolves around calculating the present value of all potential future incomes by discounting the figures with appropriate rate.It’s all about projections, assumptions, and discounting for risk.
When is this useful?
It’s great for startups, tech firms, or any business with strong growth potential — even if they’re not super profitable today. If the future looks bright, this method captures it.
Heads-up:
Since it’s based on assumptions, it’s also open to interpretation. That’s why a registered valuer needs to clearly state the logic behind every estimate.
3. Comparable Companies Method (CCM)
Also called the Market Multiple Method, this technique compares the company to similar businesses that are already listed on the stock exchange. The valuer looks at ratios like P/E (Price to Earnings) or EV/EBITDA and applies them to the company being valued.
When does this work best?
For well-established businesses in mature industries, where you can actually find good comparisons. Think manufacturing, retail chains, service companies, etc.
Quick note:
It only works if there are comparable companies and if the market hasn’t gone wild with speculation.
4. Income Capitalization Method
This method capitalizes maintainable profits by applying a suitable capitalization rate. A variant of the income approach, this is simpler than DCF.
What Goes into a Registered Valuation Report?
A Registered Valuation Report by an IBBI Registered Valuer is a formal document that includes:
- Purpose of valuation
- Background of the company
- Valuation date and scope
- Detailed assumptions and limitations
- Methodologies used and rationale
- Computation sheets
- Conclusion of value
- Declaration of independence and conflict of interest
This report is not just a formality. It is used by the ROC, Income Tax Department, SEBI, NCLT, and courts in legal proceedings or compliance assessments.
Regulatory Framework in India:
Let’s decode the legal side a bit.
- Companies Act, 2013 (Section 247): Mandates valuation by a Registered Valuer for specific transactions.
- Income Tax Act, 1961: For valuation under Section 56(2)(viib), Rule 11UA governs how FMV (Fair Market Value) is determined—either by NAV or DCF (by a merchant banker or CA).
- FEMA Regulations: For inbound or outbound investment, FEMA requires valuation by a SEBI Registered Merchant Banker or Chartered Accountant.
- Startups under DPIIT: Can get exemption from angel tax if they meet eligibility and provide valuation by a merchant banker.
- Depending on the law involved, the professional required may differ. But for company law transactions, IBBI Registered Valuer is mandatory.
Who Needs a Company Valuer?
The demand for Company Valuers is growing across the board:
- Startups need valuation reports for equity issuance or raising funding.
- Investors seek valuation for portfolio tracking and exits.
- Listed Companies require valuation in merger/demerger under SEBI norms.
- Auditors rely on independent valuations for impairment testing or fair value disclosures.
- Legal Advisors need registered valuation during litigation or arbitration.
Whether you're a founder trying to justify your share price, or a PE firm making an exit, an IBBI Registered Valuer is indispensable.
Choosing the Right Valuation Partner:
When selecting a valuer, keep in mind:
- Must be registered with IBBI (check the [IBBI portal](https://www.ibbi.gov.in/))
- Experience in similar transactions (buybacks, fundraising, ESOPs)
- Transparent in methods and assumptions
- Member of a reputed Registered Valuer Organisation (RVO)
- Prompt and compliant reporting
Registered Valuation is not a tick-box exercise. It's about integrity, accuracy, and defending your numbers when questioned.
Conclusion:
Pricing shares is not just about numbers—it's reason, experience, and instinct. Sure, models and equations play their part, but most importantly is how attuned the valuer is to the business, the sector, and the story behind the numbers. At the end of the day, it's more than an Excel spreadsheet.
The silver lining is that, with Registered Valuers under IBBI entering the picture, the process is far more structured and trustworthy. There's finally a proper system and that gives valuation reports in India both legal gravity and professional depth.
So, if money is changing hands, or shares are transferring ownership, don't take shortcuts. Hire someone who's authorized, competent, and has a stake in getting it right. Valuation done correctly doesn't only meet a compliance test—it gives you clarity, it gives you confidence, and sometimes even unlocks opportunity that you didn't even realize existed.
Because when valuation is correctly done, it doesn't just save value—it creates it.