Valuation reports of listed companies are meaningless, says SES
Stakeholder Empowerment Services says most valuation reports are not independent and are based on data readily available on the Internet
Mumbai: Proxy governance firm Stakeholder Empowerment Services (SES) has termed valuation reports of listed companies as meaningless, saying they add little value for investors as they are not independent and are based on data readily available in the public domain.
“SES finds that the entire process followed by companies in practice is just technical compliance without any utility to investors. Valuation reports, in most of the cases, do not give any insight into valuation but give lots of theory easily found on the internet, fairness opinion is replica of valuation report and audit committee is duty bound to agree," SES said after a detailed study of 13 transactions that took place over the past two years.
The capital markets regulator Securities and Exchange Board of India (Sebi) and provisions of the Companies Act, 2013, require that any proposal of merger, demerger, acquisition and divestment of assets should include a valuation report followed by a fairness report and finally the recommendations of the audit committee.
SES’s study found that in almost all the companies, the three steps were completed in just one day. In many cases, the board meeting also took place on the same day. In some, the same agency issued the valuation report and the fairness opinion.
“These reports normally are great piece of academic paper on valuation methodology. It is altogether immaterial that most of the contents are easily available on internet and are just one google click away," SES said in its analysis.
The proxy firm further added that in some fairness opinions, the report copied and pasted several paragraphs of the valuation report.
Thus, valuation and fairness reports do not help investors in arriving at a decision, the proxy advisory firm said.
Agreeing with SES’s assessment, Shriram Subramanian, founder and the managing director of InGovern Research Services Pvt. Ltd, a proxy advisory firm, said companies tend to follow a “tick-box" approach when it comes to valuation.
“It is a tick-box approach for companies so that they are in compliance with regulatory requirements. No report comes across as independent as they generally endorse the companies’ view," said Subramanian. “A savvy investor is capable of his own valuation assessment but for lay investors such reports do not add any value."
To ensure that shareholders’ money is aptly utilized, SES recommends that Sebi issues directions to make valuation reports meaningful.
“Or Sebi should direct the listed companies to not spend shareholders’ money on valuation reports," said J.N. Gupta, co-founder and the managing director of SES.
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