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Intangibles
Intangible assets have a significant role in growth of a company. Intangibles include: Tradename/ Trademark (Brand) Human Resources Proprietary Technology/ R&D Capability Distribution Systems Business Relations(Suppliers, Customers) Brand is an Intangible Asset
Brand Valuation 2

Brand Valuation

Benefits of Brands
What is in a (Brand) Name Costs to create Long life(trade names) Provide stable and profitable earnings stream Help increase market share Provide Barriers to entry Differentiate products (even commodities) International recognition Leverage equity into new markets

What Brands are?

Brand includes: Trademarks & logo Packaging & get-up Proprietary design For the purpose of valuation, Brand generally recognised as a: specific, separable, and transferable asset No finite life Clear legal title
3 Brand Valuation 4

Brand Valuation

Why value Brands?

Acquisitions/Disposal/Joint Ventures Licensing/Franchising Strategic Planning/Reorganization Image Building: Additional information to shareholders & other stakeholders
Acquirer Coca-Cola Godrej R&C Colgate Dabur

Brand Valuations in India

Acquisition Deals:
Brand Parle owned brands (Thums Up etc.) Transelectra Burnol Cibaca Binaca Value (Rs Crores) 180 80 12 131 1

Additional Information:
Infosys BPL Cheminor Drugs

Brand Valuation

Brand Valuation

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Brand Valuation - Methodologies

Brand Earning Multiple Approach (Interbrand)

Deduct non-brand profits from historical EBIT stream

Brand Earning Multiple Approach (Interbrand) Excess Value Approach Relief from Royalty Approach Capitalization of Losses/Advertisement expenditure Restate at present value using Inflation compound factor and calculate weighted average profits Deduct Remuneration on Average Capital employed and tax outflow to arrive at the Net Brand Earnings Apply Brand Value/Brand Earning multiple (Based on Value Drivers) to obtain Brand Value.
Brand Valuation 8

Brand Valuation

Interbrand Approach: An Illustration

(Rs. Lacs)

Determination of Brand Earning Multiple (Value Driver Analysis)

Yr 1 20.95 24.44

1. 2. 3. 4. 5. 6. 7. 8.

Particulars EBIT less Non-brand Income Present Value of Brand Profits

(Compounded @ inflation=8% p.a.)

Yr 3 63.43 63.43 48.54 7.15 14.48 26.90 18.65 501.69

Yr 2 35.41 38.24

Weighted Average Brand Profits

(Weights 3:2:1)

Value Driver Leadership Stability Market

Less:Remuneration on Capital Employed

(@ 5% of Capital Employed)

Taxes (@ 35%) Post-Tax Brand Profits Brand Value/Brand Earnings Multiple Brand Value

Market Share & Influence Long estab lished Type of Market,Market Structure,Growth Trend Internationality International acceptance & appeal Longetivity,ab ility to Trend rem ain relevant Consistent investm ent, Support Management focus Registered tradem ark, Protection statutory protection

Max Score Brand Score 25 20 20 18 20 18 10 10 10 5 8 8 9 4

Brand Valuation

Brand Valuation

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Determination of Brand Earning Multiple

(S-Curve Interpolation)

Excess Value Approach

Assessment of Enterprise Value using DCF/Multiple/ other approaches Determination of fair value of tangible assets Assessment of Intangible value by deducting the fair value of Tangible assets from Enterprise Value Allocation of Intangible value to Brand and Other Intangibles

Brand Valuation

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Brand Valuation

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Excess Value Approach: An Illustration

(Rs Lacs)

Determination of Brand Share in Intangibles

Intangible Assets Human Resources Management Quality Proprietary Technology Customer Relationship Supplier Relationship Distribution System Product/Corporate Brand Relevance ** ** * ** * *** **** 45%
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Particulars
Total Enterprise value Less: Assessment of Tangible Assets Value of Attributable to Intangibles Share of Brand in Total Intangibles Value of Brand

Min
750 293 457 45% 206

Max
820 293 527 45% 237

Strength of Company M M L M L H H

Share of Brand in Total Intangibles

Brand Valuation 13 Brand Valuation

Relief from Royalty Approach

Premise: Savings in Royalty by owning the Brand Forecast Revenue attributable to Brand Multiple by applicable Royalty Rate Deduct tax to arrive at net royalty savings Discount the royalty savings stream to present value to arrive at the Brand Value

Relief from Royalty Approach

(Rs Lacs)

Particulars Revenue attributable to Brand Royalty(@ 10%) Taxes (@ 35%) After-tax Royalty cost savings Present Value Factor (@10%) PV of Royalty Savings Sum of PV of Royalty Savings
Brand Valuation 15 Brand Valuation

Yr 1

Yr 2

Yr 3

Yr 4

Perpetuity ~ ~ ~ ~ ~ ~

479.10 535.50 613.70 717.30 47.91 16.77 31.14 53.55 18.74 34.81 61.37 21.48 39.89 71.73 25.11 46.62

0.9091 0.8264 0.7513 0.6830 28.31 530.31 28.77 29.97 31.85

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Capitalization of Losses/Ad Exp.

Assess the losses/expenditure incurred on Advertisement on the Brand over the years; Calculate the Present worth of such losses; Capitalize the Present worth to have a fix on the Brand Value.

Brand Valuation

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