RBI has changed the valuation norms for unlisted companies. The unlisted companies will now have to be valued using a discounted cash flow model.
The provisions have been amended under the FEMA act.
This move is expect to remove any discretion in price fixing and also reduce the chances of lower valuation under the earlier guidelines that fixed the price at average of two different valuations.
As per the earlier model, the value of the company was taken as an average of the NAV method and the profit earning capacity value method.
The new methd is being considered better as it will value the company based on future earning s rather than the current performance.
All the preferential allotments made by an Indian resident to a non-resident will also be governed by this new guideline.
