Intangible Asset Valuation — Brands, Technology and Customer Relationships

The most valuable asset many Indian companies own does not appear in their balance sheet. A brand built over forty years, a customer base that renews without being asked, a process nobody else has worked out — all of them generate the earnings, and none of them is recognised, because the accounting framework does not permit internally generated intangibles to be capitalised.

They become visible only at a transaction. When a buyer pays for the business, the price has to be allocated across identifiable assets, and intangibles the seller never recognised suddenly acquire carrying values, useful lives and amortisation charges. That allocation exercise is where most intangible valuation work originates, and it is examined closely by auditors because it determines reported profit for years afterwards.

N D Savla & Associates values brands, technology, customer relationships and other intangibles for companies across Mumbai, Navi Mumbai, Thane and Goa — for purchase price allocation, impairment testing, licensing, transfer pricing and disputes. Where the exercise forms part of a wider business valuation, the two are prepared together so the components reconcile to the whole.

The dividing line is identifiability. An intangible is recognised and valued separately where it is separable — capable of being sold, transferred, licensed or exchanged on its own — or where it arises from contractual or other legal rights. Everything that fails both tests falls into goodwill.

Which Methods Apply?

Relief from royalty — the dominant method for brands, trademarks and technology. It asks what the owner would have to pay a third party to license the asset, applies a royalty rate to the revenue the asset supports, and discounts the after-tax saving over the asset's life. Its strength is that royalty rates are observable; its weakness is comparability, and selecting the comparable set is where the judgement sits.

Multi-period excess earnings — the standard method for customer relationships. Forecast earnings are reduced by contributory asset charges representing a fair return on every other asset employed. It is applied to a single primary intangible in any allocation, because applying it twice counts the same cash flows in both.

With-and-without — two forecasts are prepared, the business as it is and the business without the intangible, and the difference in present value is the value of the asset. It suits non-compete agreements and situations where the intangible is genuinely decisive.

Cost approach — cost to recreate or replace, used for internally developed software, databases and assembled inputs where no income stream can be isolated. It sets a floor rather than a value and should not be used where an income method is available.

How Did Intangible Valuation Become Central?

For most of the period after independence, Indian corporate value sat in physical assets. Liberalisation changed the economics before it changed the accounting: from 1991 onwards Indian companies began acquiring businesses at prices that bore no relation to net asset value, and the difference was simply carried as goodwill and amortised, without any attempt to identify what had actually been bought.

Global practice moved first. The revision of international accounting standards in the early 2000s required acquirers to identify and separately recognise intangible assets acquired, prohibited amortisation of goodwill in favour of annual impairment testing, and set out the identifiability criteria that still govern. India adopted the framework through convergence, with phased applicability from 2016 onwards for larger companies.

Two further pressures followed: transfer pricing brought intangibles into tax scrutiny, focused on which group entity performs the development, enhancement, maintenance, protection and exploitation functions; and the withdrawal of depreciation on goodwill in 2021 sharpened the practical importance of allocating value to identifiable intangibles that continue to attract depreciation. Intangible valuation is now driven by three audiences — the auditor, the tax authority, and the acquirer — and a report written for one rarely satisfies the other two.

We test identifiability before valuing anything. Half the errors in intangible work are recognition errors rather than measurement errors.

Contributory asset charges applied completely. The excess earnings method only works if every other asset is charged for. Incomplete charges are the most common way customer relationships end up overvalued.

Royalty comparables selected with stated criteria. A royalty rate lifted from an unrelated sector is an assumption, not evidence. We document the comparable set, the screening criteria and the adjustments made.

The allocation reconciles as a whole. Individually plausible intangible values that do not sum sensibly to the consideration fail on review. We test the allocation as a system.

Six offices across Maharashtra and Goa. Andheri, Charni Road, Vashi, Thane, New Panvel and Panaji — time with the people who actually run the business, not a data room.