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Summary
Understanding the fair value of unlisted shares is essential for making smart investment or exit decisions, especially as these shares lack transparent market pricing. This article explores key valuation methods like NAV and DCF, factors influencing share value, and common mistakes investors should avoid—empowering you to buy or sell with confidence.
A lot of smart investors are really keen on unlisted shares these days. They're hoping to get in early on high-growth companies before they even hit the stock market. But here's the tricky part: since these shares aren't traded publicly, it's pretty hard to tell if you're paying a fair price or letting them go for too little. That's exactly why knowing how to figure out the fair market value of unlisted shares is so incredibly important.
In this article, we'll dive into what "fair value" actually means for a company's shares before it's listed, why it's such a big deal, and the main ways you can accurately calculate it.
The fair value of unlisted shares is the estimated price that a buyer and seller would agree upon in an arm's-length transaction, assuming both have reasonable knowledge and are willing participants. Since these shares are not listed on public stock exchanges, investors must rely on alternative unlisted shares valuation methods to determine their worth.
Fair value of unlisted shares is not the same as market price (since one doesn't exist here), but rather the most probable price based on financial fundamentals, industry trends, and investor sentiment.
Avoid Overpaying: Overvaluation can significantly reduce your investment returns.
Spot Hidden Gems: Underpriced shares may deliver multi-fold returns when the company goes public.
Make Smarter Exits: Knowing the intrinsic value helps time your sale and secure better profits.
Negotiate Effectively: In secondary deals or pre-IPO transactions, data-backed valuations improve your leverage.
What It Is: This method values the company based on the net worth of its tangible assets.
Formula:
Example:
Total Assets = INR 100 crore
Total Liabilities = INR 40 crore
Outstanding Shares = 5 crore
So, NAV=60 crore/5 crore shares=INR 12 per share share
Best For:
Asset-heavy companies (e.g., real estate, manufacturing)
Limitations:
Ignores future growth
Not ideal for tech or service-based companies with intangible assets
What It Is: Projects future cash flows and discounts them to present value to arrive at the fair share price.
Formula:
Where:
= Year
= Discount rate (usually 15-20%)
Example: If a startup projects INR 100 crore per year for 5 years at a 20% discount rate, DCF helps determine the present value of those cash flows.
Best For:
Growth-stage companies and startups with strong earnings potential
Limitations:
Relies heavily on assumptions
Sensitive to interest rate changes and market volatility
Financial Performance: Revenue growth, profit margins, and cash flow stability
Management Quality: Experienced leadership often commands a premium
Market Conditions: Industry demand, economic outlook, and policy support
Regulatory Risks: Sectors like fintech or EVs may have changing compliance norms
Liquidity Premium: Investors often expect a discount due to lack of liquidity
Recent Transactions: Prior deals involving the value of unlisted share help anchor valuations
Using Only One Valuation Method: A blended approach (NAV + DCF) offers better accuracy.
Ignoring Industry Benchmarks: Compare valuations with similar companies in the same sector.
Neglecting Qualitative Factors: Brand value, customer loyalty, and innovation capacity also matter.
Overlooking Exit Timelines: Know when and how you'll monetize the investment (via IPO, acquisition, etc.)
Platforms like Sharescart.com offer curated research, crowdsourced valuation insights, and transaction data for hundreds of unlisted companies. These tools help bridge the information gap and make fair market value of unlisted shares assessment more reliable.
Valuing unlisted shares isn’t an exact science, but with the right tools and frameworks, you can make informed decisions that maximize returns and minimize risks. Whether you're an early-stage investor or looking for pre-IPO opportunities, understanding how to calculate fair market value of unlisted shares is the first step to successful investing.
Sell or Purchase Share (Tentative Price)
| Company | Industry | Stock P/E | P/B | Company rating | MCAP (in Cr.) | Current Price |
|---|---|---|---|---|---|---|
| Pharmeasy | e-Commerce | -2 | 1.9 | 4981 | 7.8 | |
| Reliance Retail | Retailing | 141.5 | 23 | 698659 | 1400 | |
| Orbis Financial | Finance - Investment | 46.1 | 9.5 | 6513 | 535 |
It is a leading global provider of BPO and IT services. Hexaware Technologies Limited provides IT consulting, software development, and business process services.
Unique Features
Incorporated in 2019, The company operates a consumer healthcare app called PharmEasy that enables the home delivery of pharmaceutical products.
Unique Features
Sterlite Power began on 5th May 2015 and is headquartered in Delhi. It is a leading developer & solution provider in integrated power transmission.
Unique Features
Incorporated in 2015. Signify is into the manufacturing of electric lights and light fixtures for consumers and professionals.
Unique Features
CSK is a subsidiary brand of India Cements. This company is quite popular in India as it known for its cricket team.
Unique Features
Elcid Investments Limited was incorporated on 3 December 1981 in Mumbai. It is a Non-Banking Finance Company registered with the Reserve Bank of India.
Unique Features
STUDDS is a leading manufacturer of motorcycle accessories and helmets. They become the largest helmet manufacturer (two-wheeler) in the world.
Unique Features
Mohan Meakin manufactures alcoholic beverages such as rum, whisky, beer, etc., and non-alcoholic beverages like apple juice, mineral water, etc.
Unique Features
Orbis is recognized as a leading player in the Financial Services Industry, providing Securities Services since 2009 to FDI, Corporate, HNI's.
Unique Features
Schneider Electric President Systems Limited is a designer, manufacturer and supplier of customized enclosure systems for over 30 years.
Unique Features
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