Investing in unlisted shares is becoming increasingly popular among investors looking to earn high returns before a company goes public. However, unlike listed stocks, unlisted shares do not have a transparent, market-determined price. This makes calculating their fair value crucial before buying or selling.
In this blog, we’ll break down practical methods to help you estimate the fair value of unlisted shares—so you can make informed investment and exit decisions.
What is the Fair Value of Unlisted Shares?
The fair value of unlisted shares is the estimated price that a buyer and seller would agree on in an open and willing transaction. Since these shares don’t trade on stock exchanges, investors must assess a company’s financials, industry outlook, and growth potential to determine fair pricing.
Why it matters:
Correctly valuing unlisted shares ensures you buy at a fair price and sell at the right time for maximum profit.
Key Methods to Calculate Fair Value of Unlisted Shares
1. Net Asset Value (NAV) Method
What is the NAV Method?
This method values a company based on its net worth — calculated by subtracting liabilities from assets.
Formula:
NAV=Total Assets−Total Liabilities Number of Outstanding Shares\text{NAV} = \frac{\text{Total Assets} – \text{Total Liabilities}}{\text{Number of Outstanding Shares}}
How It Works:
If a company has:
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Total Assets = INR 100 crore
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Total Liabilities = INR 30 crore
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Outstanding Shares = 10 crore
Then,
NAV=70 crore10 crore shares=INR 7 per share\text{NAV} = \frac{70 \text{ crore}}{10 \text{ crore shares}} = \text{INR 7 per share}
Best Suited For:
Companies with tangible assets like:
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Real estate firms
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Manufacturing companies
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Asset-heavy businesses
Limitations:
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Doesn’t factor in future growth
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Not ideal for tech or service-based startups with intangible assets
2. Discounted Cash Flow (DCF) Method
What is the DCF Method?
The DCF method estimates the present value of a company’s future cash flows—helping you determine the intrinsic value of its shares.
Formula:
Fair Value=∑Cash Flow t(1+r)t\text{Fair Value} = \sum \frac{\text{Cash Flow}_t}{(1 + r)^t}
Where:
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rr = Discount rate (typically 10%–15%)
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tt = Year number
Example:
If a company is expected to generate INR 50 crore per year for the next 5 years, and the discount rate is 12%, you would discount each of those cash flows to calculate the total present value.
Best Suited For:
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Growth-stage companies
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Startups with strong future cash flow potential
Limitations:
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Relies heavily on future projections
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Sensitive to assumptions like discount rate and cash flow estimates
Final Thoughts
Accurately calculating the fair value of unlisted shares is essential before making any investment or divestment decisions. While no single method is perfect, using a combination of NAV and DCF (depending on the nature of the company) gives a more well-rounded valuation.
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