Borrowing against Brands !…Interesting,but Risky area opening out !

For Years ,Brand Valuation has been part of my sessions on Valuation of Equity at BSE and Other Forums….so it was with great Interest that I read the Economic Times Front Page atricle today on ‘Cos flash brands to raise cash’

Strapped for cash,Kingfisher Airlines has managed to Borrow from State Bank of India against it’s Brand of ‘Kingfisher Airlines’ which has been valued at Rs 1900 crs,that’s US $ 391 Million at an Exchange Rate of US $ =Rs 48.50 

Interestingly,Kingfisher Airlines has actually included this Brand Value as an Asset in it’s Balance Sheet…If it had not,then the Debt/Equity ratio would have computed higher….However,It’s probably because the Brand  is shown in the Balance Sheet,that PSU Bank,State Bank of India has been convinced to lend against this Asset

‘Kingfisher Airlines’ is a seperate registered Brand than ‘Kingfisher’ for Beer and Wines…Just a thought…if the Airlines defaults ,then the bank could opt to make the Brand it’s property…It would need to monetise this to recover dues…so it will have to sell the Brand !…to a Competitor Airline or a new Airline maybe !?…does the Borrowing Agreement categorically state that this Brand also include all the licenses and permissions  etc ?…what’s the hairline % taken by the Bank for this Asset value when lending?

Now Brand Value,like Intellectual Property Rights and Goodwill is an Intangible Asset.It normally is never reflected in the Accounts,because no real consideration has been paid for it…Thus this makes this Asset Class,riskier to lend against…It may be difficult to liquidate or realise monies for it in case of default

Being an Intangible,Brand Valuation is one of the most subjective and controversial areas in Valuation…Valuing Tangible Assets is a more objective exercise

Will Banks lend against Brand Value even if it is not reflected in the Books as an Asset !?

Clearly,Corporates appear to be running out of Tangible Assets to pledge or offer as Collateral and therefore borrow against…….They are resorting to prop up their  Brand Values for actual Funds leverage

An interesting Valuation and IPO assignment I was involved in recently,threw up this demand from the Promoters when we were working to price the placement and the IPO…”Does not our Brand count for anything ?”…Of course it did…In fact it is one of India’s largest companies in it’s field and has been in existence for over a hundred years !….but potential buyers were reluctant to negotiate a higher valuation that included,both soft and  hard numbers

This is also the reason many IPOs are priced simply too high,perhaps to capture even Brand Value…Mahindra Holidays and Resorts at Rs 300 is a very recent example…Last year Reliance Power short circuited us at Rs 427.50…Now we have Adani Power coming out in the Rs 90-Rs 100 Band…and all the pre-issue orchestrated Hype of the Company,Investment Bankers,Brokers,Paid Advisors and the Media suck all of us into applying for the IPOs at vulgar and excessive and obscene premiums,when Market Times and Sentiments are bullish

I recollect three very interesting instances in the past of Brand Valuations

1. Prakash Chauhan of Parle actually sold only his Brands of ‘Thumbs Up’,’Limca’, and ‘Gold Spot’ for Millions of Dollars to Coca Cola when they re-entered India
2. Goenkas of Raptakos Brett,quietly transferred out Four Pharmaceutical Brands into their Private Company and within a year had sold one of them for as much amount as they had paid Raptakos for all four Brands
3. In the 1990s,Amitabh Bachhan had promoted Amitabh Bachhan Company Ltd (ABCL)…Kotaks,who were advising ABCL, had valued Amitabh for,I think, Rs 18 crs and reflected this in the Equity of ABCL,without any Monies really coming in…When ABCL faced bankruptcy,it showed this Intagible Asset which could not be realised for any tangible and immediate Monies at the time   

And yet another recent and very Interesting Brand Valuation showed that the World’s Top Three Brands are

1. Google………..US $ 101.4 Billion 
2. Microsoft…….US $ 77.3 Billion
3. Coca Cola…….US $ 68.5 Billion

And if you pitch Google’s latest Market Cap of US $ 135 Billion (It quotes at US $ 428) against it’s Brand Value,it gives you a Valuation parameter of 1.33….Incidentally,Apple,with a Market Cap of US $ 140 Billion, has just surpassed Google….Google quotes at a ttm 30 Earnings Multiple….Mahindra Holidays and Resorts recently priced it’s IPO at Rs 300 at 30 times FY 09 Earnings   

Kingfisher Airlines is quoted at Rs 50,giving a Market Cap of Rs 1296 crs…if you pitch this against the Brand Value of Rs 1900 crs,you’ll get a lower Valuation parameter of 0.68…Clearly the Market is skeptical of the Company’s and Sector’s Prospects and is ignoring the Brand Valuation in the Balance Sheet

And hey ! someone told me that www.gauravblog.com is valued at US $ 1292.1 !…I googled this to be true !

I’m amused

Come on Guys ! I need all of you out there to help me add the Unit ‘Million’ to the Valuation !

This Blog will then be worth US $ 1.292 Billion !…I can then leverage it like Kingfisher Airlines ! …or just sell it ! Wishful Thinking ! 

Cheers !