What Services Does a Registered Valuer Offer in Asset Valuation?

The value of capital assets is assessed by the registered valuer as part of professionally independent advisory activities. These estimations serve to report on other assets in financial statements, optimize business deals, raise financial resources, analyze the value of the company's assets, reduce risks in the course of business activity, etc.

Valuers in India are governed by the Insolvency and Bankruptcy Board of India (IBBI) under the Rules of the Companies (Registered Valuers and Valuation) Rules, 2017. Registered valuers are associated with the market corresponding to the asset class to which he/she is registered. The valuers need registration to engage in valuation assignments under the scheme.

What Is the Role of Registered Valuer?

A registered valuer is a competent individual qualified to independently and impartially determine the value of an asset as at a specified valuation date. The work will include obtaining and reviewing relevant information, inspecting assets (as applicable), analysing financial and market data, calculating the asset value, and preparing a report.

Depending on the purpose of the valuation, you may need one for the accounts, to sell machinery, or perhaps the bank asks for an independent valuation of the property used as security.

It is the valuer's duty to generate a substantiated, well-argued valuation estimate and a value conclusion based on it, using the relevant assumptions, facts and methods.

What Services Can a Registered Valuer Provide?

The IBBI registers valuers of the following three classes of assets: Land and Building; Plant and Machinery; and Securities or Financial Assets. The services offered are based on the class of asset registered by the valuer and the expertise they possess.

1. Land and Building Valuation

Land and Building: a valuer in this asset class estimates the value of residential, commercial, industrial and other properties.

The scope of work could be for unsold lots, apartments, office buildings, manufacturing facilities, warehouses, hotels and other real property. The valuer takes into account location, land size, allowable use, accessibility, construction quality, condition of the property, age, marketability and sales of comparable properties.

Common services include property valuation for:

• Purchase, sale, and transfer of property.
• Bank financing and mortgage-related requirements.
• Mergers, acquisitions, and corporate restructuring.
• Financial reporting and regulatory purposes.
• Insurance, disputes, and other specified assignments.

In some cases, the valuer may consider the market, cost or income approaches, depending on the property and what information is available.

2. Plant and Machinery Valuation

The valuation of plant and machinery is the process of estimating the value of industrial equipment, machinery used in manufacturing, and tools of the trade.

An organisation that is engaged in asset intensive activities such as engineering companies, manufacturing companies, power plants or infrastructure companies are significantly benefited through this service.

Factors assessed by the valuer include the age, make, model, capacity, current condition, installation, history of maintenance, remaining useful life, relevant technological obsolescence and market demand for the machinery.

Commonuses include valuation for financial statement purposes, mergers and acquisitions, secured lending, insurance, business transfers and restructuring.

For instance, a manufacturing firm could ask for a valuer to value machinery valued at ₹3 crore and listed on the books. The valuer will determine its condition today and estimate replacement value, depreciation and marketability to arrive at a value at the valuation date. That value could be higher or lower than the asset's purchase price or accounting book value.

3. Securities or Financial Instruments Valuations

Securities or Financial Assets Registered valuer estimates the fair value of Securities or Financial Assets Securities or Financial Assets includes financial interests and instruments. The task can comprise stocks, securities and financial instruments, as well as other assets eligible for such valuation.

This applies when companies: issue or transfer shares; restructure capital; buy a business; or enter into a transaction which needs an independent assessment.

The valuer may apply one of the following tools for the use of the instrument and purpose, DCF method, multiples from the market, comparable transactions, net asset value or any other appropriate instrument.

For instance, if a business is looking to raise capital from investors, a valuation can provide a basis for estimating the value of the business' equity and aid in negotiations over an investment deal and ownership structure.

The right method would be based on the financial and future situation of the firm, capital structure and the market situation and the rights attached with the security.

Other Professional Services Associated with Asset Valuation

A registered valuer may also provide other relevant professional advice related to the value of an asset, within the scope of his or her registration and assignment.

The valuer determines which assets are subject to the engagement, reviews records (if available) and carries out physical inspection as needed, to determine the nature of the asset, condition and any restrictions.

Valuation methodology and analysis: The valuer considers the various valuation methods and analyses market transactions, replacement costs, income streams, financial forecasts, depreciation and other relevant considerations.

Valuation for financial reporting: Many companies will need valuation inputs for accounting or financial reporting purposes. The extent of valuation you might need for this will be different based on the relevant accounting requirements and the asset type.

The valuation could be used to assist mergers, acquisitions, transfer of companies, capital restructuring, and investment as well as negotiations among stakeholders.

The independent valuer prepares a report that sets out the assignment details, methodology, sources of information, valuation assumptions and limitations, and the conclusion of value.

These services do not provide for legal title check, statutory audit, tax certification or any investment advice. These activities will be performed by other specialists or require additional authorisations.

The Methods Employed by Registered Valuers in Valuation

Value method is selected as per the asset type, the purpose of valuation, the data available and the market situation. There are three most frequently used approaches:

Market Approach

The market approach is based on a comparison of the asset with similar assets or businesses that can be observed in the marketplace through data on market transactions.

For instance, a commercial property might be compared with other recently sold properties in the same area, with adjustments made for differences in size, location, condition and other factors.

Cost Approach

The cost approach arrives at a value which is based on the cost to reproduce or replace a similar property, with adjustments made for wear and tear and obsolescence, if appropriate.

A simplified formula is:

Asset Value = Replacement Cost Depreciation Obsolescence

Such approaches can be useful for specific types of machinery, industrial equipment, and some types of properties.

Income Approach

This method is one of the most common methods of valuation with the income method based on the number of the economic benefits expected for the future from this asset or this enterprise. The most popular method of this income method is DCF.

These are of particular significance when the asset or business produces specific income or cash flows which can be estimated with some level of certainty.

Documents Needed for Asset Valuation

The documents will vary according to the asset class and the purpose of the assignment. However, a registered valuer would usually be able to ask:

• Ownership & asset documentation Purchase invoices Title deeds Ownership Details Fixed asset registers Asset register schedules.
• Financial data: audited accounts, management accounts, income, budgets and projections as appropriate.
• Technical Specifications: Asset details, make, model, capacity, photographs, installation records and maintenance history.
• Legal and corporate documents: Incorporation and shareholding documents, agreements, approvals and associated documentation for transactions.
• Market information: Comparables, rents, quotes, industry indicators, and other supporting data.

Submitting sufficiently detailed information allows the valuer to undert ak the task more quickly, and also to best support their conclusion.

What are the contents of a Registered Valuation Report?

Valuation report describes the method on how the estimation has been carried out. As per Rule 8 of the Companies (Registered Valuers and Valuation) Rules, 2017, it includes, the asset background, reason for valuation, authority making the appointment, the name of the registered valuer, date of valuation, nature of inspection, sources of information, valuation process, valuation standards, essential elements, conclusion, and restrictions.

The right valuation depends on the asset class, purpose, methodology, quality of information, and professional expertise involved. Businesses should therefore appoint a suitably registered and experienced valuer and ensure that the valuation report clearly explains the basis of the final value conclusion.