News: David Haigh says India is red hot

(DNA 13/08/2006) Mumbai - India and China as global leitmotifs evoke memories of the over-valued dotcom bubble for David Haigh. Says the chief executive of Brand Finance, who is one of the world’s leading authorities on the subject of brand value, in a one-one with DNA Money: “India is red hot and everyone is on a buying spree. There is pressure for brand prices to go up quite significantly here and I won’t be surprised if many canny Indians make a lot of money out of gullible foreign investors. In the next five years, a lot more people will over-pay for Indian brands-every acquirer needs to do a thorough brand due diligence.”

Haigh should know. Brand Finance specialises in the valuation of brands and intangible assets worldwide. And the Chartered Institute of Marketing says he is one of the 50 leading marketing thinkers alive. He has also done many “due diligence” exercises of Indian companies/brands for external investors and more often the trend was to over-value, he says.

In today’s gung-ho climate “Indian companies have an expectation that their companies (and brands) are worth a lot more than they are and sometimes put a ridiculous figure”.

The valuation of brands and other Intellectual Properties looks at what are the sustainable economic returns coming from that asset and then putting a value on it.
The brand valuation process is getting a lot more transparent, he observes.

But the Black-Box approach is still a prevailing bane. “Black-Box is a generic term used when people (brand valuation experts) won’t tell you how they come up with an answer or valuation. They say: “We are the experts, don’t question us-it’s in our black box.”

There are different assumptions in the valuation model which need to be disclosed and transparent, so that they can be challenged if necessary, he says.

Meanwhile over- and under-valuations continue. Unni Krishnan, MD, Brand Finance India, cites Hindustan Lever food brands like Captain Cook, Dollops, Tarla Dalal ready mixes, Kissan, Modern and so on. He says: There is a fair degree of evidence they have not fully understood what the value of the brand is because most of those brands are nearly in death bed or don’t exist, and all were once very powerful brands.

HLL’s current pain is partly attributed to the fact that they didn’t get the valuations of what those brands mean; they didn’t understand where the business or brand value was.

Judgement is germane to brand valuation

The Jet-Air Sahara ruckus over enterprise valuation merely illustrates that perceptions related to a sector, brand and so on change all the time. “When we are talking about brand valuation, we as valuers are asked to put a fair market value on an asset; to hypothetically infer what a willing buyer would pay for an asset at that point of time. But it is only at a point in time,” says Haigh.

In Europe, Time Warner bought AOL, and created $60 billion goodwill in the balance sheet. “At the time they felt AOL had huge growth potential and was a sexy media business, but a year later had to write the $60 billion off. This was one of the biggest screw-ups in American corporate history,” he cites.

When Vodafone bought Airtel, they overestimated the value of many of its brands and put £100 billion as goodwill and created a huge intangible number. Conditions and views of their growth changed; they had overestimated the value of many of Airtel’s brands, but “at that point of time” they felt it was worth it, says Haigh.

His message: in these times of volatility, good judgement is the key in brand valuation. And it takes “vision” to know when a brand on the block is being under-valued. Some say Colorplus was under-valued. Another example: Snapple was a small brand which grew fast via alternative distribution channels. Its owners sold it for $1.7 billion to Quaker, who got the brand and distribution wrong and sold it three years later for $300 million. The VC firm Triac then managed the brand back to health and sold it three years later to Cadbury for $1 billion.