Global BV News: IFRS adoption to trigger valuation demand in India

BVWireIssue #169-4
October 26, 2016

BVWire attended a New York City chapter meeting of the American Society of Appraisers (ASA) last week, which featured an interesting panel discussion about the valuation profession in India. Ray Moran (MG Valuation LLC) moderated the panel that included Aroop Cherian, founder of Cherian Advisors, Bharat Kanodia, founder of Veristrat, and Pankti Shah, director of business development for Aranca who recently relocated to the firm’s New York City office.

IFRS in the wings: Panel members see a significant increase in demand for valuation services in India and believe that the BV market will grow at a rate of 20% to 25% over the next five years. Valuation professionals are being exposed to a wider variety of opportunities, which enhances their professional and career growth chances, according to Cherian. One of the demand drivers is the adoption of IFRS, which the Indian government is expected to require of companies within the next three to four years, according to Shah. This will, for example, trigger more fair value work (e.g., purchase price allocations, mark-to-market).

Shah also pointed out that the profession is highly fragmented in India and is dominated by the Big Four. However, there are opportunities for smaller valuation firms, she said. For example, while large family-owned businesses tend to go to the Big Four, the work may be outsourced to smaller firms. There are also growing cross-border opportunities for valuation work related to 409a, private equity and hedge funds, and providing back-office operations for U.S. firms (research, modelling, full support).

In terms of credentials, there are no valuation professional organizations in India, so valuation credentials are not widely known. The CFA designation is the most recognized in India, according to Kanodia, and the CPA credential is also well known, along with the Chartered Accountant (CA) designation issued by the Institute of Chartered Accountants of India (ICAI). Moran believes the new CEIV designation for fair value will eventually go beyond U.S. registrants and will gain favor in India. Kanodia agrees and feels that the CEIV credential would be more acceptable and widely leveraged in India because there is no requirement to submit a report, just a showing of experience and an appropriate recommendation.

An attendee asked the panel about developing the cost of equity for a company in India. Cherian, who is currently working on a valuation of a pharmaceutical company, says the procedure is much the same as in the U.S. One main exception is that there are no available data on the size premium in India, so the risk associated with size is incorporated into company-specific risk.

ASA chapter meetings such as these offer very informative discussions, and you don’t always have to be a member to attend. To check out a chapter in your area, click here.

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