Valuation of a Financially Stressed EPC Company with Intangible Assets and Negligible Physical Assets - Case Study of an EPC Company in NCLT Proceedings
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Abstract
At the onset of the financial year for 2022 McNally Bharat Engg. Co. Ltd. was admitted into NCLT ( National Company Law Tribunal). The company had been trying to restructure its debts for the last 5 years outside NCLT, however an international arbitration award against the company lead to its admittance into NCLT for resolution under the Insolvency and bankruptcy Code (IBC) 2016. The present article traces the origins of the company, its technology adoption and indigenization of designs. We then see the rise and fall of the stock of this publically listed company and how it entered a financially stressed condition. The focus of the article will be on the valuation methods adopted to value this company which has majorly intellectual property (IP) and human capital and negligible physical assets. The present article does a literature survey on valuation methods adopted in Chapter 11 cases in the United States as IBC is a relatively new law enacted in India. A literature survey of articles published in India on NCLT, IBC and Bad bank is also done. This case study tries to analyze the limitations in perceptions for evaluating an IP heavy and asset light organization as well as undervaluation of these companies due to lack of expertise in valuation methods and knowledge of professionals in India. Valuation of data human and intellectual property is an extremely critical in the present day and this article tries to highlight how this should be approached. The article proposes real option valuation method for the future projects to obtain an accurate value for intangibles.