BRAND VALUATION

OF DABUR USING
REAL OPTIONS
NI KI TA MI RAKHUR
PARVATHY RAJAN
VED PRAKASH
Relevance and Objectives of the
study
oRelevance
o Traditional methods of brand valuation only the market (indicative) value of the intangible asset
o Brands grossly undervalued; real options adds values of potential brand and line extensions
oTo study traditional methods of brand valuation and assess the pros and cons of limiting the
brand value to an intangible asset in the balance sheet
oTo analyse the current state of the brand with respect to past and possible brand and line
extensions and value each in a standalone fashion
oTo analyse the existing methods of brand valuation using real options and choose one as the
most appropriate method for this brand
oTo propose a method of valuing similar brands which can be employed universally and reiterate
the importance of using the proposed method in measuring and accounting brand values
LITERATURE REVIEW
Measuring the Contributions of Brand to
Shareholder value, by John Gerzema, Ed
Lebar, and Anne Rivers, Young & Rubicam
Brands
Increase in the P/E ratio is due to investors
expectations of lower risk and higher growth
due to leveraging the brand. The research
concludes that while 1/3
rd
of the effect of
brand equity is reflected in the earnings of
the company, the remaining 2/3rds is
attributed to its effect on an investors
expectations.

A Seetharaman, Zainal Azlan Bin Mohd Nadzir, S. Gunalan
(2001) "A conceptual study on brand valuation",Journal of
Product & Brand Management
The paper identifies and discusses about the 4 main valuation
techniques for valuing brands- Cost-based method, Income-
based method, Market-based method and formulary method
with each method specific to the brand and its current use in
the companys portfolio

Valuing Brands and brand equities: Methods and processes,
Russell Abratt, Geoffery Bick, Journal of Applied management
and Entrepreneurship
It address important yet neglected issues of discount rate,
growth rate and useful life of the brand in the contet of
valuation.
LITERATURE REVIEW (contd.)
Brand valuation and control: An Emprical Study,
Thomas Gunther/Catharina Kriegbaum-Kling,
Schmalenbach Business Review
This paper uses empirical surveys based on 132
German companies to investigate the brand
accounting, brand control and brand valuation. It
analyses the budgeting process, brand-related
decision making an the underlying incentive system.


The Impact of Brand Qulaity on Shareholder Wealth, Sundar G.
Bhardwaj, Kapil R. Tuli, Andre Bonfer (2011), Journal of Marketing
AMA
This paper analyses the impact of brand quality on 3 components of
shareholders wealth- stock returns, systematic risk and idiosyncratic
risk. The study reveals that brand qulaity enhances shaeholders wealth
as unanticipated changes in brand quality are positively related with
stock returns and negatively related to idiosyncratic risks. But the brand
quality may also at times lead to erosion of shareholders wealth due to
their positive association with changes in systematic risk.
The Creation of Shareholder Value through Branding, Germana Alexandra Gabriela, Financial Management and Stock
Exchange DAFI, II, Bucharest Academy of Economic Studies 2013
The research uses Fama French 3 factor model on 55 stocks traded on the Bucharest Stock Exchange between 2005-2012 to
provide emperical evidence for branding- shareholder value creation link. The study also reveals that strong brands not ony
provide higher than benchmark returns on shareholders wealth but at a lower risk.
METHODOLOGY
The brand of a company is an intangible asset and hence we propose to value the same using two
different techniques: Relief from Royalty Method (RFR); Economic use method (EUM)

RELIEF FROM ROYALTY METHOD
In this method, we discount the royalty that could potentially be derived from the sales of the
Dabur brand
Dabur however does not have any royalty arrangements, hence the data for the royalty income
would not be available. An alternate way would be to study the royalty arrangements of any other
comparable firm in similar or in different industry
We would try to predict the royalty income of Dabur as a percentage of EBIT or revenues and
discount it at the WACC to determine the present value
Calculation of Terminal Value
This value is estimated taking into consideration the past growth rates of the product / service,
economic life cycle of the product / service, expected growth rates in future, capital investments
made in the business as well the estimated growth rate of the industry and economy.
For the calculation of the terminal value, stable growth is assumed for the royalty income.
METHODOLOGY (Contd.)
ECONOMIC USE METHOD

This method derives the brands net contribution to the business and is a combination of research based brand equity approach and
financial approach
The marketing principle relates to the commercial function that brands perform within businesses such as brands generate customer
demand that translates into revenues through purchase volume, price and frequency
The financial principle under this method related to the brands future earnings being identified and then discounted to a net present
value using a discount rate that reflects the risk of those earnings being realized.
We estimate the PBT for the year. From this we deduct the estimated required return on fixed (tangible) assets (also known as
Contributory Asset Charges). It would be a fair assumption to estimate the CAC as equal to the WACC of the company. This will help us
in determing the cash flows attributable to intangible assets
These cash flows would be split into those attributable to the brand and those attributable to other intangibles. The percentage of the
cash flows attributable to the brand would be based on the brand index of the company
For estimating the brand index, various demand drivers would be identified for the industry and weights would be assigned to the
same depending on the degree to which they are influenced by the brand
Finally the cash flows attributable to the brand would be discounted by the WACC to get the present value of the brand Dabur. This
would also include the PV of the terminal value of the cash flows attributable to the brand



Thank you