Sebi To Lay Down Set Of Norms For Dotcom Valuations

"It has come to our notice that dotcoms are being acquired or floating public offerings abroad solely on earnings which can be a valid model in only certain cases but not a general norm. Companies could take advantage of mentioning gross sales figures and end up getting inflated valuation from acquirer and public at large. Eyeballs could be considered a valid norm only in case of business-to-consumer (B2C) Websites and not in case of horizontal or vertical portals where actual e-commerce activity could take place." says J R Varma, who is a part of the Sebi-appointed Y H Malegham committee for dotcom valuation.

 

The other members of the panel include Pratip Kar , Sebi executive directors T V Mohandas Pai of Infosys Technologies, Ravi Narain, deputy managing director, NSE, among others. The committee is broadly looking into two specific aspects: disclosure norms and accounting policies to be adopted by dotcoms with regard to income recognition.

In the case of dotcom valuation, some of the guidelines would be generally applicable for all the companies intending to tap the market. But in addition to that some additional guidelines would be applicable specifically for dotcoms or even traditional businesses venturing into this area.

The basic accounting policy norm would pertain to identifying a standard norm for revenue recognition. The committee is in favour of valuation based solely on actual income and in certain cases in, the number of eyeballs, and not on gross sales. These are two fairly common mode of valuing the worth of a dotcom.

"As regulators we would not like to get into the specifics and intricacies of valuation exercise. After looking at the revenue models of some of the dotcoms, the committee would be coming up with suggestions on revenue recognition (accounting policies) and disclosure norms." says Sebi executive director J R Varma.

Dotcom companies coming out with public offerings would have meet certain additional disclosure norms apart from basic disclosure norms laid down for IPOs. This would include company background and whether company is a pure dotcom company or an Internet arm of a brick and mortar company, promoters' back ground in related area and information regarding existing listed companies, if any.