What defines a company’s valuation?

Companies and investors are rethinking how to appropriately value their businesses, especially those not listed on bourses.

What defines a company’s valuation?

Monday April 24, 2023,

5 min Read

Hello,

Move over Monday blues. Here come Twitter blues.

Last week, the Elon Musk-led microblogging platform began removing ‘legacy’ verification badges, i.e. ones that meant Twitter had verified the identity of an account’s user—usually celebrities, news organisations, journalists, politicians, businesses, and other public figures. While some lamented the loss, others posted cheeky alternatives, and well, chaos ensued with fake accounts popping up everywhere. Remember the insulin scandal from last year?

But, lo and behold, many celebrities reported the comeback of their coveted blue ticks—some with delight, others with incredulity—allegedly without paying the $8. Turns out, Twitter is restoring verification badges for accounts with millions of followers, including for dead celebrities, further adding to the confusion.

Elsewhere, Union Finance Minister Nirmala Sitharaman called for a global template for the regulation of crypto, saying it’ll only be effective if all countries are together on it. The Minister, however, added that it does not mean controlling 'distributed ledger technology', which has its goodness and potential.

Last but not least, here’s how maps distort our perception of the world.

Did you know the African continent is as wide as Russia? 

In today’s newsletter, we will talk about 

  • What defines a company’s valuation?
  • Axis, HDFC pick up stake in Go Digit
  • MapmyIndia reports higher profits

Here’s your trivia for today: The Hubble is the only space telescope designed to be serviced in orbit by astronauts. How many such servicing trips have taken place since its launch in 1990?


Interview

What defines a company’s valuation?

Kroll Ross

The funding winter of the last several months has put global markets under much pressure. Amid all the hullabaloo, companies and investors are rethinking how to appropriately value their businesses, especially those not listed on bourses.

However, Ross Hostetter, Managing Director and Global Alternative Asset Advisory Leader at Kroll, a New York-headquartered risk and financial advisory solutions company, believes there should not be any changes in the fundamentals of determining a company’s valuation.

A different perspective:

  • Investors are going to take a longer, harder view before they put money at risk, he says, leading to a slightly different structure—probably smaller cheques, more terms favourable to the investor, etc.
  • According to Hostetter, funds have to balance between two factors—how the market is pricing risk levels and the performance of a business—before they strike.
  • While he says the fundamental approach to how a company is valued should not change over time, the inputs and assumptions will.


Insurance 

Axis, HDFC pick up stake in Go Digit

Digit Insurance

Kamesh Goyal, Founder and Chairman, Digit Insurance

Private sector lenders Axis Bank and HDFC Bank on Saturday said they have signed agreements to buy up to 9.94% stake each in Insurtech startup Go Digit Life Insurance Limited, for a total cash consideration of Rs 10.93 crore each. 

Last valued at $3.5 million, unicorn insuretech firm Digit Insurance is looking to raise $440 million through an IPO, which has been in limbo after SEBI returned its offer documents in January due to certain compliance issues related to employee stock plans in a private letter. Since then, Digit has rectified the issues and refiled the offer document in March.

Deal making:

  • In an exchange filing, Axis Bank said it has executed definitive agreements on April 21, 2023, to invest up to Rs 69.90 crore in Go Digit in two tranches. The bank will pay Rs 10.93 crore as a part of the first tranche.
  • Similar conditions and structure has been set out by HDFC Bank, which noted that the acquisition is likely to be completed within 3 to 6 months from the execution date. 
  • Go Digit Life is the latest venture of Go Digit General Insurance as it looks to foray into life insurance. The new firm is yet to receive a licence from IRDAI.


Financials

MapmyIndia reports higher profits

Geotech startup MapmyIndia reported an increase of 23% in its consolidated profits for FY23 to Rs 107.53 crore from Rs 87.7 crore the previous fiscal. The company, listed as CE Info Systems, saw its revenue from operations rise by almost 40% to Rs 281.46 crore. 

The consolidated financial numbers include results of MapmyIndia’s subsidiary companies—C.E. Info Systems International Inc.; Vidteq (India); and Gtroppy Systems, and associate company, Kogo Tech Labs. 

In the green: 

  • The company’s total income was Rs 315.8 crore in FY23, an increase of 30.5%. Its expenses also ballooned by 41.4% to Rs 176.24 crore compared with Rs 124.66 in FY22.
  • Employee benefit expenses and total cost of material (including the purchase of stock in trade, change in inventory, software and hardware material) formed a major share in expenses, followed by technical service outsourcing. 
  • Shares of CE Info Systems were last trading in NSE at Rs 1,007.00 as compared to the previous close of Rs 1,009.60.


News & updates

  • Bouncing back: The global market for initial public offerings is showing signs of life as a rebound in the stock market has emboldened companies to test investor appetite for new listings, particularly in Asia. But a full-fledged recovery looks distant.
  • Down and out: Bed Bath & Beyond filed for Chapter 11 bankruptcy protection after it failed to secure funds to stay afloat, and has begun a liquidation sale. The company has listed both its estimated assets and liabilities in the range of $1 billion and $10 billion.
  • Fuel for growth: SoftBank-owned Arm is developing its own chip to showcase the capabilities of its designs. The company will team up with manufacturing partners to develop the new chip, touted to be its most advanced chip-making effort.


The Hubble is the only space telescope designed to be serviced in orbit by astronauts. How many such servicing trips have taken place since its launch in 1990?

Answer: Five. The last one was in 2009.


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