fair valuation of assets

8/2/2019 Fair Valuation of Assets

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Fair Valuation of Assets

Physical Assets Reconcile With Book and Fair Valuation of Assets

At

Discovery Research Foundation (DRF) of Dr.Reddys Laboratories Ltd

In Partial Fulfillment of The Requirement for The Award of The

Masters Degree in Business Administration.

Mohammed Abdul Raheem(Hall Ticket No:-3605123)

Academic Year:-2005-2007Department of Business ManagementNizam Institute of Business Management,Hill Top Colony, Khairatabad, Hyderabad.


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Declaration

I here by declare that the project entitled fair valuation of assets at Discovery

Recovery Foundation (DRF) of Dr.Rddys Laboratories Ltd. Is an original work

done by me and has been submitted to Department of Business Management,

Osmania University in the partial fulfillment for the award of the Masters of

Business Administeration.

This report has not been submitted else where for the award of any other

degree or diploma

(MOHD ABDUL RAHEEM)


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Acknowledgement

First and foremost I would like to thank Dr.Reddys laboratories Ltd. For giving

me an opportunity to take up the project. It has been commendable experience

to work with such an esteemed organization.

With immense pleasure I expect my heartfelt gratitude and obligation to

Mr.Sampath Anand, Senior Finance Manager, for his stupendous guidance. His

valuable ideas and suggestions were of great help to me in better understanding

of the work and also giving a frame work for executing the project understanding.

I would like to render a heart full of thanks to Mr.Sirinivas , Mr.Nitesh ,Mrs

Mangayamma and to all the people who are associated with my project for their

cooperation.

I sincerely thank Mrs. Katyaiyani, Principal of Nizam Institute Of Business

Management for her able guidance continuous support and valuable suggestions

which help in an in-depth understanding of the project work.

Last but not least my sincere thank to all those who have help directly or

indirectly making this project a success.


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PROFILE OF THE COMPANY

As every new day unfolds, they begin their search for meaningful answers. After

all their business is about creating healthcare solutions that make peoples lives

Healthier and happier. Moreover, once they find an answer, they dont stop. For

there are other discoveries to be made, again it is to ask more questions. It was a

pioneering spirit that made their founder. DR. Anji Reddy, set up Dr Reddys

Group in 1984. Very soon, they evolved into a large pharma house

acknowledged for manufacturing innovative and affordable life-saving drugs.

Then came a time for them to expand their base and consolidate. The

acquisitaion of American Remedies Ltd., and the merger of their group company,

Cheminor Drugs, gave them the critical mass of capabilities and resources to

become globally competitive. Now, their competencies cover the entire

pharmaceutical chain basic research, finished dosages, generics, bulk actives,

biotechnology and diagnostics. Today, they are one of the Indias premier

pharmaceutical companies and even they enjoy a leadership status in

therapeutic areas.

Their discovery pipeline has a depth and breadth that few can rival. So far, they

have filled for many patents, and to their credit, many have been granted. In fact,

they are the first Indian company to out-licence a molecule for clinical trails to an

MNC, Nova Nordisk the world leader in Diabeties.


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They are exporting bulk actives, branded formulations and generics formulations

to more than sixty counties. Their inherent strength has always been in

identifying relevant bulk drugs, and formulations, and selling them at affordable

prices across the world.

For them, quality audits are a norm from start to finish. They have

accreditations from all premier international regulatory authorities for all three of

their finished dosages plants. Also, all six of their bulk activities manufacturing

plants are USFDA approved. And their success in getting ANDA and Dossier

approvals, in the highly competitive generics markets, is another reflection of

their product quality. They have implemented the quality, on-time delivery and

pricing. It provides vital decision-making support with on-line availability of

information, reduces lead and response times, and facilities transparency in the

entire system. The just-in-time (JIT) system had also been adopted for

packaging components. Thus, they constantly raise health standards through

continuous innovation and cross-functional integration.

They are determined to put the smile of satisfaction on the lips of people the

world over.

At Dr. Reddys, the atmosphere is highly charged. People are continuously

motivated to excel. They have a variety of programmes to encourage both

personnel and professional growth. For instance, the management development

programme is on initiative to identify, motivate and develop high performers. The

programme chalks out the career path of individuals and provides them the


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opportunities to move into leadership positions. Ankur, their learning center, is a

base for knowledge management and self-development. As a way of life, people

are encouraged to innovate, experiment and take risks. They share knowledge

by learning and passing information. Their open-house sessions serve as a

platform for people to voice their views and opinions. Above all, everyone is

given the scope to work at what they aspire for.

They are committed to preserving the environment by adopting eco-friendly

manufacturing process coupled with the latest waste handling systems. As a

good corporate citizen, they also believe in making the quality of peoples lives

better. The Company pursues social responsibility under the aegis of the Dr.

Reddys Foundation for Human and Social Development.

They want to be first Indian pharmaceutical company to entrench

themselves globally by successfully, taking their products from discovery to

commercial launch. And it is drug discoveries that will leas them in to ranks of

global pharmaceutical majors. Applications of IT, improvements in operation

through initiatives in the supply chain, and knowledge management give them

the cutting edge. Apart from that, they will constantly leverage their internal

capabilities in the area of product innovation and thus, surge ahead. They believe

in carrying their banner of hope across the world.


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DR. REDDYS STRATEGIC BUSINESS UNITS (SBUS)

The Strategic Business Units of Dr. Reddys are divided into revenue earnings

units and non- revenue earning units. The non-revenue earning unit is:

Discovery research

Moreover, the revenue earning units are:

Active Pharmaceuticals ingredients (APIs) or bulk activities

Branded formulations,

Generics,

Emerging Businesses, and

Custom Chemical Services or CCS.

Discovery Research

Dr.Reddys drug discovery program is at the heart of its vision to

be global. Discovery led major. With 260 scientists focused exclusively on

discovery research. 23 patents. And a malecule pipeline, it has built an array

of discovery skills. The Research Foundation in India has world-class

chemistry and strong pharmacology skills. Its Atlanta, USA lab focuses on

early stage research skills, like target identification and high throughput

screening. Aurigene, a discovery services unit, adds automated medicinal

chemistry and structure- based drug design to the mix.


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APIS

DR.Reddys API division is a proven manufacturer of bulk activities. The

Bulk actives business caters to the needs of both Innovators and Generic

Formulators world wide. At Dr.Reddys they manufacture about 00 bulk actives

and several key intermediates. All six of its manufacturing facilities are CGMP

approved and USFDA (United states food and Drug Administration) inspected.

Their expertise in organic synthesis, process development and a controlled

supply chain enables them to provide us with high quality Bulk Actives at

competitive prices. They are aggressively building their product portfolio to cater

to the generic players in emerging markets. Today, its emphasis is on building

profitable revenue from exports to regulated markets like USA and Western

Europe. The APIs are Ciprofloxacin


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Nizatidine, Ibuprofen, Sparfloxacin. Ranitidine Fm 1. Naproxen Sodium.

Dcxtromcthorphan. Ranitidine Hcl, Enrofloxacin. Doxazosin Mesylate, etc.

Branded Formulations

Dr Reddy's has a leading presence in India and the world market for

value-added branded finished dosages. They have, over the years, acquired a

strong reputation for their quality branded formulations. Here, their integrated

R&D facility and ability to scale-up production, while following exacting

international quality standards, gives them the edge. Their state-of-the-art R&D

facilities develop formulations and prepare bio-batches and finished dosages in

line with global regulatory requirements. This has helped them carve a niche for

themselves in the world market.

Dr Reddy's International Operations span Asia, Africa and Latin America.

With the help of their joint ventures, they have become one of the leading Indian

pharmaceutical companies in Russia. CIS Countries, Latin America, Africa and

China. They have also made a foray into developing markets like Myanmar. Sri

Lanka. Vietnam. Kenya. Trinidad and Malaysia, amongst others. Brazil and

China are their focus markets in this millennium.

India's top 10 brands are Nise. Omez. Stamlo, Ciprolet, Enam, Stamlo

Beta. Antoxid, BIO E, Reclide, GLA, etc. The therapeutic segments include

Cardiovascular, Pain management, Gastro-intestinal, Anti-infective. Specialty

and Naturals. Generics


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The generics business gives Dr. Reddy's a direct presence in first world

markets. It has always had an export focus and has grown aggressively on the

back of a slew of profitable products, successfully clearing inspections by

USFDA, MCC and the MCA. Its path to value has taken the high risk, high return

route, with a series of patent challenge products. Its current focus is to innovate

and build both technological and commercial skills to build capabilities for

specialty products.

Emerging Business

Critical Care Division: Launched in 1998. in the Critical Care Division (CCD), their

vision is to create a strong base in specialty segments for a sustainable long-

term competitive advantage. To meet this objective, opportunities and issues

have been identified and strategies formulated to exploit the opportunities.

Currently, the CCD deals with high value low volume oncology products. The

Oncology market is a fast growing segment, with more and more players vying

for a share of this pie. There are 22 players in the Indian Oncology market. In a

short span of four years, the division has achieved a leading position in the

oncology segment. The accelerated growth comes from its ability to face

challenges and achieve a paradigm shift. CCD has set new standards through

innovative product presentations, focused customer approach and customised

patient service.

Biotechnology: Biotechnology division was set up in 1998 with a mission to

develop a totally indigenous bio-generics technology platform that can offer

Indian consumers generic versions of imported therapeutic recombinant proteins


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at affordable prices. Dr.Reddy's Biotechnology division deals with therapeutics,

vaccines and diagnostics. Molecular biology, cell culture, fermentation,

downstream processing and hybridoma technology are the focus areas. This is

the first company in India to develop a molecule GRASTIM (generic name:

filgrastim), the human

Granulocyte Colony Stimulating Factor (hG-CSF), is a recombinant protein used

in chemotherapy-induced neutropenia and in bone marrow transplantation.

Custom Chemical Services

SBU Custom Chemical Services (CCS) provides services in Custom

Synthesis, Contract Manufacture and Supply of Key Intermediates. The objective

CCS is be the preferred partner for innovator companies and providing a

complete range of chemical services that are necessary to take innovations to

the market speedily and more efficiently. The focus of this business unit is to

leverage on skills in process development, analytical development and cGMP

manufacture to cater to various needs of innovator companies. CCS has a

competent team comprising research scientists, organic chemists, process

engineers and project coordinators dedicated to offering customised solutions to

the customer's needs, from the preclinical stage until commercialisation.

Feasibility responses are provided promptly ensuring that the customer is given

rapid feedback on enquiries.

An extension of the process development facilities and services,

Technology Development Centre (TDC) at Miyapur, is a part of the Custom

Chemical Services, an independent business unit of Dr. Reddy's Group. The


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centre has well-resourced synthetic organic chemists laboratories to cater to the

needs of Dr.Reddy's molecules, Contract Research and Custom Synthesis for

innovator companies.

SAFETY, HEALTH AND ENVIRONMENT

At Dr. Reddy's, Safety, Health and Environment is an integral part of the

business. Commitment to environmentally appropriate behaviour is an important

part of its values. This commitment is expressed in Safety. Health and

Environment (SHE) Policy, which aims to protect the environment in which they

operate and to ensure health and safety of its employees, contractors, visitors

and the community. Over the years. Dr. Reddy's SHE practices have evolved

from an end-of-pipe approach - treating generated waste - to one that attempts to

minimise pollutants at the source. The SHE management now emphasises three

kinds of responses: Avoid, Minimise and Threat. The most preferred response is

to avoid the generation of waste by better processes; then to minimise the impact

on environment, wherever possible, through process modifications and lastly to

treat whatever is the residual impact.

DR. REDDY'S FOUNDATION

The Dr. Reddy's Foundation was started in 1996 as an innovative

experiment in poverty alleviation, targeted at economically vulnerable children,

youth and women who run households. The Foundation has grown impressively,

in terms of its development philosophy, financial size and impact. It has become

an effective agent of Dr. Reddy' social commitment and its sound operational


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principles have attracted support from the best of the national and worldwide

development organisations -CRY, UNICEF, UNDP-USAID, Plan International

and the Aga Khan Foundation-European Commission.

Programs

The CAP, or Child and Police Project: - CAP reaches 4250 children; it brings

together citizens, the City Police, corporates and policy makers with an aim to

rehabilitate child workers by turning them into students.

LABS (Livelihood Advancement Business School): LABS aims to help

economically disadvantaged youth enter the competitive job market. Youth from

the poorest sections are identified and given skills and thus the potential to earn

both steady income and dignity.

Clothes Bank: - Clothes Bank aims to promote the culture of simple giving among

citizens, corporates and the growing affluent middle class through the medium of

used clothes.

Projects

Genetic Disease Management-New Born Screening: - Dr. Reddy's Foundation

for

Human and Social Development (DRF-HSD) is the country's first NGO to support

the New Born Screening Program at the Center for DNA Fingerprinting and

Diagnostics in Hyderabad. The main objectives being to prevent mental disability

by early detection and intervention common congenial metabolic defects.


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Roshni: - Roshni, a support group for the depressed and suicidal was born in

1997.

The members aim to reach out through its networking and new centres and

generate community involvement to fight the conditions that lead to suicidal

behaviour which affects the individual, families and the community at large.


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MILESTONES

1984 Established with initial capital of Rs. 25 lakhs.

1986 Enters international market with exports of Methyldopa.

1987 Obtains its fret USFDA approval for Jbuprofen.

1990 For the first time in India new molecules, Norfloxacin and Ciprofloxacin.

are exported to Europe and the Far East.

1993 Dr. Reddy's Research Foundation is established and becomes

operational.

1994 Makes GDR issue of US$ 48 million; Foundation stone laid for a generic

formulations facility to cater to highly regulated markets.

1995 Sets up a subsidiary in Hong Kong and a JV in Russia

Group company Standard Equity Fund merges with Dr. Reddy's.

1997 Licenses anti-diabetic molecule, DRF-2593. to Novo Nordisk for clinical

trials in return for upfront payments, milestones payments and royalties.

1998 Licenses anti-diabetic molecule. DRF-2725. to Novo Nordisk for clinical

trials in return for upfront payments, milestones payments and royalties.

1999 Acquires Chennai based American Remedies Ltd.

2000 Becomes India's third largest pharmaceutical company with he merger of

Cheminor Drugs Ltd. and the acquisition of American Remedies Ltd.

2001 Dr. Reddy's lists on the New York Stock Exchange - the first Asia Pacific

pharmaceutical company, outside Japan, to do so.

2002 The first overseas acquisition of BMS Laboratories Limited and Meridian

Health Care, UK.


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2003 Announces a 15 year exclusive product development and marucling

agreement for OTC drugs with leiner.

2004 Acquires access to Drug Delivery Technology Platforms in the Dermatology

segment through the acquisition of Trigenesis

2005 Acquires Roche's API Business at the state-of-the-art manufacturing site

in Mexico with a total investment of USD 59 million.

Announces the formation of Perlecan Pharma: Indias First Integrated Drug

Development Company.

Announces India's first major co-development and commercialization deal

for it's molecule Balaglitazone (DRF 2593), with Rheoscience.

Announces a unique partnership for the commercialization of ANDAs with

ICICI Venture.

2006 Becomes an Authorized Generic Partner for Mercks Proscar & Zocor in

the US market during 180 day exclusivity period.

Acquires betapharm- the fourth-largest generics company in Germany for a total

enterprise value of 480 million.


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INTRODUCTION TO THE STUDY


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NEED OF THE STUDY

Discovery Research Foundation Which is Register under companies act

1956 under section 25, as a non profitable company, it is not carrying its own

research, but supporting indirectly. it proposes to sale of its assests at a fair

value to an organization that carries out on research.

The assests have been procure since 1993 and active research stops in

2002.

The need was to identify at what value the assets may be sold using principles

of fair valuation


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OBJECTIVES

Physical Assets Reconcile with books.

Fair valuation of Assets.


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SCOPE

STUDY ON PRINCIPLES OF FAIR VALUE.

PHYSICAL VERIFICATION PROGRAMME SUPPORT TO DISCOVERY

RESEARCH FOUNDATION.

RECONCILATION OF PHYSICAL ASSESTS WITH RECORDS.

CALCULATION OF FAIR VALUES BASED ON FAIR VALUATION

METHODOLOGY.


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LIMITATIONS

SOMETIMES QUOTED PRICES MIGHT NOT REPRESENT THE BEST

ESTIMATE OF FAIR VALUES

ACTUAL BALANCE USEFUL LIFE CANNOT BE ASSERTAINED BASED

ON DRFS SCIENTISTS ESTIMATEIONS.

MARKET PRICES OFTEN DIVERGES FROM FAIR VALUES

BECAUSE OF VARIOUS COMMON CONGNITIVE BIASES AMONG

BUYERS OR SELLERS.


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LITTRATURE ON FAIR VALUATION


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Definitions

A classic formulation of the definition of "fair market value" is found (in the

specific context of U.S. tax law) in the United States Supreme Court decision in

the Cartwrightcase:

The fair market value is the price at which the property would change hands

between a willing buyer and a willing seller, neither being under any compulsion

to buy or to sell and both having reasonable knowledge of relevant facts. [1]

There are numerous definitions of fair market value for various purposes and

jurisdictions. A highly general definition follows.

It is the most probable price at which a good or service will exchange,

expressed in terms of cash or equivalent, in a free market assuming:

o A knowledgeable and willing seller unencumbered by undue

pressure to sell and acting in his own best interest

o

A knowledgeable and willing buyer unencumbered by undue

pressure to buy and acting in his own best interest

o A reasonable time for exposure in a free and open market
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Under this concept, a real estate sale in lieu of an eminent domain taking would

not be considered a fair market transaction since one of the parties (i.e., the

seller) was under undue pressure to enter into the transaction. Other examples of

sales that would not meet the test of fair market value include a liquidation sale,

deed in lieu of foreclosure, distressed sale, and similar types of transactions.

Proving fair market value

Fair market value is generally proved by expert evidence, although for commonly

traded goods (such as new retail goods orsecurities) a court can takejudicial

notice of the price. Often, the fair market value is based on a date prior to the

hearing that would establish damages, such as the date the property was

destroyed, or the date of a separation when assessing the value ofmatrimonial

property that is sold at a later date.

For example, if a used car is destroyed in a crash, the insurance policy will

generally only pay for the fair market value of the car at the time of the accident.

This can generally be determined by looking at Kelley Blue Bookvalues, or the

costs of buying similar vehicles being sold by used car dealers in the local area.

Generally, the less liquid and more unique a piece of property is, the harder it is

to accurately determine its fair market value. For example, farmland is generally

treated as a commodity and its fair market value can be determined with relative

ease by comparing the sale prices of neighbouring properties. However, the fair

market value of a unique property, such as the Empire State Building, would be
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difficult to determine as even other New York skyscrapers are rarely if ever sold

on the open market.

Practical applications of the fair market value concept

Property taxation systems such as Market Value Assessment are generally

based on the fair market value of the property. Online tools can help anyone

estimate the fair market value forproperty providing informtation such as nearby

recently sold residentialproperty, neighborhood, average prices, average price

per square foot, propertyappreciationand display individual property locations

on Zillow.

Alternative pricing schemes, particularly for commercial properties, are

Replacement Value, or what it would cost to re-build the building that exists on

the site, orCommercial Value, based on the assumed rental income and the rate

of return on capital investment for similar properties. These values can often give

wildly different estimates than a fair market value approach.

The estimated value of all assets and liabilities of an acquired company used to

consolidate the financial statements of both companies.

2. In the futures market, fair value is the equilibrium price for a futures contract.

This is equal to the spot price after taking into account compounded interest (and

dividends lost because the investor owns the futures contract rather than the

physical stocks) over a certain period of time.
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2. The "fair value" quoted on TV refers to the relationship between the futures

contract on a market index and the actual value of the index. If the futures are

above fair value then traders are betting the market index will go higher, the

opposite is true if futures are below fair value.

Fair value, also called fair price, is a concept used in finance and economics,

defined as a rational and unbiased estimate of the potentialmarket price of a

good, service, or asset, taking into account such factors as:

relative scarcity

perceived utility (economist's term for subjective value based on personal

needs)

potential risk/return characteristics (i.e., for a tradable asset)

replacement costs, or costs of close substitutes

production/distribution costs, including a cost of capital

Fair value vs market price

There are two schools of thought about the relation between the market price

and fair value in any kind of market, but especially with regards to tradable

assets:

The efficient market hypothesis asserts that, in a well organized,

reasonably transparent market, the market price is generally equal to or
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close to the fair value, as investors react quickly to incorporate new

information about relative scarcity, utility, or potential returns in their bids;

see also Rational pricing.

Behavioral finance asserts that the market price often diverges from fair

value because of various, common cognitive biases among buyers or

sellers. However, even proponents of behavioral finance generally

acknowledge that behavioral anomalies that may cause such a divergence

often do so in ways that are unpredictable, chaotic, or otherwise difficult to

capture in a sustainably profitable trading strategy, especially when

accounting for transaction costs.

Fair Value Measurements (US markets): Exposure Draft

The Financial Accounting Standards Board (FASB) issued Exposure Draft 1201-

100 on June 23, 2004, to provide proposed guidance about how entities should

determine fair value estimations for financial reporting purposes. The draft would

apply broadly to financial and nonfinancial assets and liabilities measured at fair

value under other authoritative accounting pronouncements. Absence of one

single consistent framework for applying fair value measurements and

developing a reliable estimate of a fair value in the absence of quoted prices has

created inconsistencies and incomparability. The purpose of this exposure draft

is to eliminate the inconsistencies by developing a solid framework to be used in

any fair value measurements.
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The draft suggests the following definition for fair value: the price at which an

asset or liability could be exchanged in a current transaction between

knowledgeable, unrelated willing parties. It notes that the price is an estimate in

the absence of an actual exchange.

The exposure draft emphasizes the use of market inputs in valuing an asset or

liability. The specific market inputs mentioned include: quoted prices, interest

rates, yield curve, credit data, etc. Fair value is, by definition, derived from a

current transaction which happens in an active market with knowledgeable and

unrelated parties. When fair value is not available due to the lack of an actual

transaction, it is logical to use information from an active market. However,

sometimes quoted prices might not represent the best estimate of fair value.

The basis of the framework in the exposure draft centers on a fair value

hierarchy. The hierarchy is suggested as a guide to determining what inputs to

include in valuing an asset or liability at fair value. The hierarchy is broken down

into three levels. Level One requires the use of quoted prices from an active

market for identical assets or liabilities. To use this level, the entity must have

immediate access to the market (could exchange in current condition). If more

than one market is available, the exposure draft requires the use of the most

advantageous market. Both the price and costs to do the transaction must be

considered.

Level Two requires the use of quoted prices for similar assets or liabilities in

active markets. While in Level One an entity is not permitted to make any change


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to the quoted price, an entity may make price adjustments, as necessary, in

Level Two since the assets or liabilities are only similar, not identical. It is stated,

however, that any adjustment must be objective. If the adjustment is not objective

or there are no similar goods in the active market, an entity must measure the fair

value based on Level Three. . This level requires the use of valuation

techniques. The draft suggests the use of the market, income, and cost

approach, unless the use of all three produces undue costs and effort. If that is

the case, an entity is to use the approach that produces the best approximation

of the fair value. Inputs used to determine the value should be external to the

entity. The entity may only rely on internal information if the cost and effort to

obtain external information is too high.

A working draft has been established for the fair value exposure draft. The

working draft was released for comment on October 21, 2005. One of the

noticeable changes in the working draft compared to the exposure draft is the

addition of two more levels in the fair value hierarchy. Level three has been

adjusted to only include assets or liabilities that have observable inputs other

than quoted prices. It is also explained that financial instruments must have an

input that is observable over the entire term of the instrument. The addition of the

additional levels helps to eliminate the ambiguity associated with the first

exposure draft. Instruments that have inputs that are not directly observable, but

have corroboration through other data, are considered level four. Level Five

encompasses any remaining valuation that requires all entity inputs and no

market inputs.


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Approaches For Valuation

Income Approach Cost Approach Market Approach

Rental Method Land and building Method Comparable Sales Method

Discounted Cash Flow Book Value Method Residue MethodTechnique Belting Theory Hypothetical Building Scheme

Profit Method Hypothetical Plotting scheme

Statutory Method


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Market approach:- this approach takes into consideration the market value of all

the tangible assets of the company to determine its value in theory, there are two

different approaches to determine asset based valuation Replacement cost

approach and liquidation value approach.

Replacement cost approach:- this approach takes into account the amount of

money that may be required to create a similar infrastructure(i.e. all the assets

that the company being valued owns as on a particular point in time when

valuation is exercise is undertaken.

Liquidation value approach takes into account the money that can be generated

by the company the sale of all its assets. In both the cases, it may however be

noted that all the liabilities of the company are required to be deducted to

determine the net value of the company, i.e, the value of the company for its

equity shareholders or to arrive at the value per share.


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Income approach :-

The income approach, sometimes called the income capitalization approach, is a

method of estimating value based on money one expects to receive in the future.

This method works best for standard income properties that are fully rented and

have been producing income for some time. These are sometimes called

stabilized income properties.

The income approach may not be that reliable for owner-occupied real estate,

because owners dont pay rent. Also, the income approach may be less reliable

for vacant, unique, unusual or mixed-use properties. A reconstructed operating

statement is a simple spreadsheet that lists the anticipated first year income and

expenses for commercial real estate. It is a useful tool for evaluating income

property. Market rent is the rental income that a property would most probably

command in the open market.

The best way to estimate market rent is to look at current rents paid for

comparable space. A lease is a written document that transfers the rights to use

and occupy real estate from the owner to a tenant for a specified period of time in

exchange for rent. Commercial floor area is measured differently than residential

floor area. Residential gross living area is normally calculated by measuring the


33/69

exterior dimensions of the house less non-livable areas such as garages and

storage spaces.

DCF METHODOLOGY:- expresses the present value of the business as a

function of its future cash earnings capacity, the methodology works on the

premises that the value of a business is measured in terms of future cash flows,

discounted to the present time at an appropriate discount rate.

The methodology is able to capture the value of all the tangible and intangible

assets of the company( those which are directly related to the possible future

cash flows.

The value of all the intangibles of a company such as brand, marketing and

distribution network and goodwill get captured either in the form of higher sales

or as higher profits of the company in comparison to its competitors who may not

have as strong or similar brand or distribution network. It also takes into account

the risk factor to which an enterprise can be exposed. The discount rate is based

on the risk perception of the business and the expected rate of return, it also

takes into account the value of the core assets of the company.


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Cost approach :-

The cost approach is one of the three standard methods appraisers use to

estimate value. The other two are the income approach and the sales

comparison approach.

The income approach is used mainly for commercial and residential income

properties where value is strongly related to rents. Understanding the cost

approach requires learning some new meanings for old words. Cost, price and

value are good examples. Cost refers to construction and development costs,

price refers to listing and selling prices, and value is always an estimate or

opinion.

The cost approach reflects market behavior because buyers and sellers relate

value to cost. The economic principle of substitution holds that a well-informed

buyer will not pay more for a property than the cost to buy a similar piece of land

and construct a similar building. Buyers often do some kind of cost analysis when

making the decision to buy or build. Developers usually do a cost analysis before

they decide to begin a new project.


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Fair valuation in DRF

Fair Value in DRF helps to estimate the actual worth of an asset in the

market.

The decision regarding the sale of an asset can be taken with the help offair value.

Average useful life of an asset can be obtained when fair value is known.

Fair value supports in distinguishing the book value and market value.

DRF is given an opportunity to decide the usage of ugaap and igaap.Based on the fair market value as both igaap and ugaap are used in

calculations.


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METHODOLOGY FOR VALUATION OF MOVEABLE ASSETS


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Procedure for valuation of moveable assets

Step1 :- physical verification of assets and their working conditions with the help

of expert evidence and ascertainment of remaining useful life of an assets based

on scientist estimations.

Step2 :- Reconciling this verified assets with book records.

Step3 :- Categorizing of equipments based on their usage description, such as

electrical equipments, furniture and fixtures, machinery and lab equipments.

Step4 :- Recording this all above information into excel sheets with the

approximate year of purchase, and also considering whether this particular

assets had been used or not.

Step5 :- Ascertainment of replacement cost per/unit based on companies

valuation policy, which is being valued on a particular point in time when

valuation is exercise is undertaken


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Step6 :- useful life of an assets is decided based on company polices of useful

life.

Step7 :- Fair value or value on life can be arrived using simple formula

Total replacement cost/per unit * Remaining useful life of an asset

_______________________________________________________

Total no of useful life (company policy)

Step8 :- In summary average useful life of an assets can be ascertain , when

total replacement cost is divided by replacement cost value at plan useful life.


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ANALYSIS AND INTERPRETATION


40/69

HERE PLEASE INSERT WORKING SHEET ONLY FOR( REFRENCE PLEASE )DELETE THIS PAPER I AM PROVIDING WOKING SHEETS IN ANOTHER FOLDER

PLEASE TAKE PRINTS OF THOSE WORKING SHEETS AND ADD AFTER ABOVE

PAPER


41/69

l Group Gross Bk repl value gross coverageavg uesfullife ba

1Machinery & Lab

Equipment143,393,13

2 101,611,900 70.90% 8.86

2 Electrical Equipment39,593,00

0 2,600,000 6.57% 1067

3 Office equipment1,980,90

0 26,000 13.66% 3.46

4 Furniture & Fixtures29,517,00

090,78,8

19 30.75% 7.43

Total of the above214,484,03

2 104,237,90045


42/69


43/69

T o t a l o f t

G r o s s B k 1 4 3 , 33 9 , 5 9 3 , 0 0 0 1 9 ,2 9 , 5 1 7 , 0 0 0

r e p l v a l u e g r o s s 1

2 , 6 0 0 , 0 0 0 2 6 , 0 09 0 , 7 8 , 8 1 9

c o v e r a g e 7 0 . 9 0 %3 0 . 7 5 %

a v g u e s f u l l i f e 8 . 8

b a la n l i f e r e p v a lu8 , 6 6 , 6 6 7 4 , 4 6 71 5 , 6 9 , 2 8 3

f a i r v a l u e 2 0 , 1 5 3

8 , 6 6 , 6 6 7 4 , 4 6 71 5 , 6 9 , 2 8 3


44/69

Graphical representation of machinery and lab equipment

valuation

0

20000000

40000000

60000000

80000000

100000000

120000000

140000000

160000000

Gross Bk repl value

gross

balan life

rep value

fair value

Machinery & LabEquipment

Interpretation:-machinery and lab equipment gross book value was14,33,93,132/- Rs but when valuation exercise by company, itsreplacement value is 10,16,11,900/-Rs for the average useful life of8.86 years . Usage of machinery and lab equipment is 70.90%, byobserving the above summary the fair value or value on life is2,01,53,305/-Rs


45/69

Graphical representation of Electrical equipment valuation

-

5,000,000.00

10,000,000.00

15,000,000.00

20,000,000.00

25,000,000.00

30,000,000.00

35,000,000.00

40,000,000.00

45,000,000.00

Group Gross Bk repl value

gross

balan life rep

value

fair value

Series1

Series2

Series3

Series4

Series5

Series6

Series7Series8

Series9

Interpretation:- electrical equipment gross book value or purchasevalue at the time of procurement was 3,95,93,000, but whenvaluation exercise by company its replacement value is 2,60,00,000coverage of usage life 6.75% and average useful life is 10 years ,when fair valuation methodology used , we arrived at fair value of8,66,667 /- Rs for the remaining useful life of an asset.


46/69

Graphical representation of office equipment valuation

Office equipment

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Gross Bk repl value gross balan life rep

value

fair value

Office equipment

Interpretation:- office equipment gross book value was 19,80,900,when valuation exercise its replacement value is 26,000 with anaverage coverage of 0.13667% and used life is 3.46 . when fairvaluation methodology applies we arrived at a value of 4,467.


47/69

Graphical representation of furniture and fixtures valuation

Furniture & Fixtures

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000


value

fair value


Interpretation :- the gross book of furniture and fixtures was2,95,17,000but valuationexercise the replacement value is

90,78,819 with a cove rage ratio of 30.755 and average used life of7.43 , but fair valuation methodology is used we arrived at a fair valueof 15,69,283.


48/69

Graphical representation of machinery and lab equipment

valuation

0

20000000

40000000

60000000

80000000

100000000

120000000

140000000

160000000

Gross Bk repl value

gross

balan life

rep value

fair value

Machinery & Lab

Equipment

Interpretation:-machinery and lab equipment gross book value was14,33,93,132/- Rs but when valuation exercise by company, itsreplacement value is 10,16,11,900/-Rs for the average useful life of8.86 years . Usage of machinery and lab equipment is 70.90%, by


49/69

observing the above summary the fair value or value on life is2,01,53,305/-Rs

Graphical representation of Electrical equipment valuation

-

5,000,000.00

10,000,000.00

15,000,000.00

20,000,000.00

25,000,000.00

30,000,000.00

35,000,000.00

40,000,000.00

45,000,000.00

Group Gross Bk repl value

gross

balan life rep

value

fair value

Series1

Series2

Series3

Series4

Series5

Series6

Series7

Series8

Series9

Interpretation:- electrical equipment gross book value or purchasevalue at the time of procurement was 3,95,93,000, but whenvaluation exercise by company its replacement value is 2,60,00,000coverage of usage life 6.75% and average useful life is 10 years ,


50/69

when fair valuation methodology used , we arrived at fair value of8,66,667 /- Rs for the remaining useful life of an asset.

Graphical representation of office equipment valuation

Office equipment

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000


value

fair value

Office equipment

Interpretation:- office equipment gross book value was 19,80,900,when valuation exercise its replacement value is 26,000 with anaverage coverage of 0.13667% and used life is 3.46 . when fairvaluation methodology applies we arrived at a value of 4,467.


51/69

Graphical representation of furniture and fixtures valuation


-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000


value

fair value


Interpretation :- the gross book of furniture and fixtures was2,95,17,000but valuationexercise the replacement value is90,78,819 with a cove rage ratio of 30.755 and average used life of7.43 , but fair valuation methodology is used we arrived at a fair valueof 15,69,283.


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Comparision of market prices with identical assets from an active market

lab/dept

Tag

running no Description

MARKE

TPRICES

DRF

FAIRPRICES

CIL 9 Polari Meter-DRF/ANAL/CIL/93/488 315,000 57143

CIL/NMR 1 Gemini-200 1507500 1176471

CIL/X-RAY 6 GC/MS-LC 67500 54000

CIL/X-RAY 5 Powder X-RD 99000 738462

RADIOBIOLOGY 3 Freezer,REVCO,DRF/PHRM/RDIO/96/3266 4500 2462

RADIOBIOLOGY 9 TopCount,Packard,DRF/PHRM/RDIO/95/1671C 382500 230769

HPCL 6 Rotovapor- Buchi 67455 44364

HPCL 5 IKA-Stiress 54000 20000

HPCL 1 UV-Chamber 80775 55000


53/69

SUGGESTIONS

One of the limitations is mentioned as usage of quoted prices for

estimation of fair values. This limitation can be covered in case DRF

applies income approach where in EBDIT would be used to perform the

evaluation.

DRF can apply discounted cash flow methodology of income approach to

ascertain the actual fair values.

When fair value is not available due to lack actual transaction, it is logical

to use information from an active market.

When it is using this option , it must have immediate access to the market

to exchange its current condition in more then one market which is the

The most advantageous market , for both the price and costs to be

considered.


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ANNEXURE


55/69

Shimadzu HPLC LC-6A Liquid Chromatograph

Pump

This auction is for one used Shimadzu LC-6A LiquidChromatograph, w/manual. Powers on successfully,otherwise untested. Cosmetically in good condition.Shipping: Right now we only ship to US and Canadian addresses. Weare happy to ship to a freight forwarder in the US or Canada forInternational buyers. US Continental shipping: DHL Ground for $28.50;Canada via DHL Air for $49.50.

Ad# 314094

Make:Shimadzu Model: LC-6A Price: LabAuction Age: Unknown Condition:

Unknown Config: As Shown Weight: ~40 lbs Hits: 184

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56/69

Current Bid: No Bid Closes: Fri, Feb 16 12:07 PM ET

Opening Bid: $100.00 Closes In: 7 days, 6 hours

Shimadzu HPLC LC-6A Liquid Chromatograph Pump Ad# 314094

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59/69

RIGAKU MINIFLEX PORTABLE XRD w/

SEARCH/MATCH

The Rigaku Miniflex has shown its quality throughout

industry as a very competitive alternative to a fullsized XRD. It's compact size makes it an excellentchoice for anyone with minimal space. It's light weightmakes it a great tool for those who prefer to bringtheir analysis to the field, rather than ship testsamples back from a remote site. Installation at anysite is as simple as plugging the XRD and chiller intoa standard 110V outlet and connecting the chillerhoses. The entire system could easily be transported,in an average passenger car, by two people.This particular Miniflex also features a vertically mounted opticspath. This is invaluable for anyone wishing to perform XRDanalysis on loose powders. Data analysis is performed with aMDI

Jade analysis package, including Search/Match capability,with a database for material characterization. See pictures of atest scan, performed at our facility, which was immediatelyidentified as Quartz SiO2. This software package alone wouldcost over $13,000 to duplicate today.Support for this system is readily available from multipleservice providers nationwide. All manuals will be included with theunit, as well as some spare parts.Special features

Vertical optics (new style) Cu anode x-ray tube (used) MDI Jade analysis software MDI Search/Match plug-in for Jade Searchable database including mineral,

organic and inorganics Closed loop, air-cooled water chiller (very

small)

The Miniflex is available for demonstration at our facility in Texas.Feel free to contact us with any questions.

Ad# 307011

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60/69

GC MS 5988/5890

HP 5988A GC/MS This unit has a 5890A GC.This unit wasremoved from a lab , and was fully functional whenremoved. Unit includes 5890 GC with HPIB (GPIB) cardand cable with single injector. Cabinet with vacuum systemwith two Edwards vacuum pumps, and diff. Pumps andvacuum manifold system with cut off valves between thediff. pumps and the vacuum chambers.Vacuum pump Edwards E2M2 Vacuum pump Edwards E2M18 VacuumDiffusion Pump Edwards Diffstak 63 Vacuum Diffusion Pump EdwardsDiffstak 160This item is sold as is, no warranty, packing fee of $100.00 applies.Customer is responsible for all shipping costs. Payment is due within 7days of auction close. Preferred payment methods for auction items arePaypal or money order.ONLY bidders who intend to complete the transaction should bid.Please be aware of shipping costs before bidding, as this item has to be

shipped from Canada.Please call or email with any questions. Thank you!

Ad# 313819

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61/69

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GC MS 5988/5890 Ad# 313819

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Contact Name: John Snow Phone: Register Now orSign In

Rating: 4.9 ( 1=Poor, 5=Excellent )
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Location: Ajax, Ontario, Canada Current Ads: 29 ads posted

Member Since: Jul 03, 1997 Previous Ads: 1433

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Comparision of market prices with identical assets from an

active market

Lab/deptTag

runningno

Description MARKETPRICES

DRF FAIRPRICES


CIL/NMR 1 Gemini-200 1507500 1176471



RADIOBIOLOGY

3 Freezer,REVCO,DRF/PHRM/RDIO/96/3266 4500 2462

RADIOBIOLOGY

9 Top Count,Packard,DRF/PHRM/RDIO/95/1671C 382500 230769





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Graphical representation of market and DRF prices for

identical assets.

0 500,000 1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

1

2

3

4

5

6

7

8

9

MARKET PRICES

DRF FAIR PRICE

Notation:- As from the above chart we found that, there is a hike in market

prices for the identical assets as compared to DRF fair values ,this is

because of usage of assets and based on remaining useful life of assets.


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Comparision of market prices with identical assets from an

active market

Lab/deptTag

runningno

Description MARKETPRICES

DRF FAIRPRICES


CIL/NMR 1 Gemini-200 1507500 1176471



RADIOBIOLOGY

3 Freezer,REVCO,DRF/PHRM/RDIO/96/3266 4500 2462

RADIOBIOLOGY

9 Top Count,Packard,DRF/PHRM/RDIO/95/1671C 382500 230769





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Graphical representation of market and DRF prices for

identical assets.

0 500,000 1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

1

2

3

4

5

6

7

8

9

MARKET PRICES

DRF FAIR PRICE

Notation:- As from the above chart we found that, there is a hike in market

prices for the identical assets as compared to DRF fair values ,this is

because of usage of assets and based on remaining useful life of assets.


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BIBLIOGRAPHY

Assets and Liability management by Ravi Kumar.

Financial Systems and Services by Prasanna Chandra.

Quoted prices for identical assets from Labx.com.

Literature on fair valuation down loaded from web sources.

www.drreddys.com

fair valuation of assets

Documents