Merger Swap Ratio Valuation in India: Share Exchange Ratio for NCLT Schemes

What is a swap ratio valuation?

In a merger, shareholders of the company that disappears (the transferor) receive shares of the company that continues (the transferee). The swap ratio, or share exchange ratio, says how many shares of the transferee they receive for each share they hold. A swap ratio valuation is the report that derives that ratio from the relative values of the two companies on the same date and by consistent methods.

The report does not need to prove the absolute worth of either company. It has to show that the two were valued on a like-for-like basis, so that neither set of shareholders is favoured. In a demerger the equivalent figure is the share entitlement ratio.

When is a swap ratio valuation required?

Section 247 of the Companies Act, 2013 provides that where a valuation of shares, assets or net worth is required under the Act, it must be made by a registered valuer. The Rules of 2016 originally allowed an independent merchant banker or chartered accountant only until the registration of valuers was in place. Rule 25 was amended in September 2025 to open the fast-track route to more classes of company, including two or more unlisted companies whose aggregate outstanding loans, debentures and deposits do not exceed ₹200 crore and that have not defaulted.

Who can sign a swap ratio valuation?

CA V. Viswanathan signs swap ratio reports as an IBBI Registered Valuer for securities or financial assets (IBBI/RV/03/2019/12333). Where either company holds significant land, buildings or plant, those are valued by registered valuers of the relevant asset classes and their figures are taken into the share valuation.

How is the ratio arrived at?

• Same date, same basis: both companies are valued as at one valuation date, on a going-concern basis unless the facts say otherwise, and before any synergies from the merger itself.
• Income approach: discounted cash flow on each company's own projections, with discount rates built consistently.
• Market approach: multiples of comparable listed companies or transactions; for a listed party, market price over a period.
• Asset approach: net asset value, given more weight for investment or property-holding companies and less for operating businesses.
• Weights: the valuer assigns weights to the approaches and explains them. The same weights are normally used for both companies unless their businesses differ in kind.
• Rounding: the ratio is rounded to a workable fraction, and fractional entitlements are dealt with in the scheme, usually through a trustee who sells them.

A registered valuer follows the valuation standards under Rule 8 of the Companies (Registered Valuers and Valuation) Rules, 2017. The report states the standard followed, the sources of information, the extent of reliance on management, and the limitations.

Worked example: merger of two unlisted companies

Illustrative figures, not real companies. B Private Limited (transferor, 20,00,000 equity shares) merges into A Private Limited (transferee, 50,00,000 equity shares). Value per share under each approach, and the weights applied to both companies:

• Exact ratio: ₹132 ÷ ₹348 = 0.3793 share of A for each share of B.
• Recommended ratio: 19 shares of A for every 50 shares of B (0.38).
• Shares A issues: 20,00,000 × 19 ÷ 50 = 7,60,000.
• A's capital after the merger: 50,00,000 + 7,60,000 = 57,60,000 shares. Former B shareholders hold 13.19%.
• Check: value received 7,60,000 × ₹348 = ₹26,44,80,000; value given up 20,00,000 × ₹132 = ₹26,40,00,000. The difference of ₹4,80,000 (0.18%) arises only from rounding the ratio.

How is a share entitlement ratio in a demerger different?

In a demerger no shares are exchanged. The resulting company issues its shares to the shareholders of the demerged company, who keep the shares they already hold. The entitlement ratio says how many shares of the resulting company they receive for each share held.

Where every shareholder receives shares in proportion to the existing holding, the ratio does not move value between shareholders; it fixes the capital structure of the resulting company. Where the resulting company already has other shareholders, the undertaking transferred and the resulting company have to be valued on the same relative basis as in a merger. The scheme goes through the same sections 230 to 232, and the report is signed by a registered valuer.

What does the NCLT look at?

The Tribunal sanctions the scheme; it does not re-do the valuation. The Supreme Court held in Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1997) 1 SCC 579 that a court sanctioning a scheme does not sit in appeal over the commercial wisdom of the shareholders, and that an exchange ratio worked out by recognised experts and approved by the requisite majority will not be disturbed unless it is shown to be unfair or contrary to law. In practice, objections succeed when the two companies were valued on different bases, when the report is stale, or when material information was not disclosed to shareholders. A report that explains its methods and weights is the defence against all three.

Is the share swap taxable?

For a shareholder, receiving shares of the amalgamated company in exchange for shares of the amalgamating company is not regarded as a transfer, provided the amalgamated company is an Indian company and the conditions are met (section 47(vii) of the Income-tax Act, 1961; section 70(1)(f) of the Income-tax Act, 2025 for tax year 2026-27 onwards). The definition of amalgamation in section 2(1B) of the 1961 Act requires, among other things, that shareholders holding at least three-fourths in value of the shares of the amalgamating company become shareholders of the amalgamated company. Tax neutrality therefore depends on how the scheme is structured, not on the valuation alone.

What documents are needed?

• Audited financial statements of each company for the last three years and management accounts to the valuation date
• Projections for each company, prepared on consistent assumptions
• Shareholding patterns, including convertible instruments and options
• Draft scheme of arrangement and the rationale for the merger
• Details of related-party balances and cross-holdings between the companies
• Reports of other registered valuers for land, buildings or plant, where material

What is the process and how long does it take?

1. Scoping call with both companies and their advisers on the scheme.
2. Engagement letter approved by each Board or audit committee, as section 247 requires.
3. Valuation of both companies on one valuation date.
4. Draft ratio discussed with management for factual accuracy.
5. Signed registered valuer's report with UDIN, addressed to the Boards.
6. Summary of the report for the explanatory statement, and replies to queries from the Regional Director or the Tribunal.

Reports are usually issued within 5–7 working days of complete information, and within 15 working days for complex cases. The clock starts when the last document is received, not on the date of engagement. The scheme itself then runs to the timetable of the Tribunal or the Regional Director.

What does a swap ratio valuation cost?

Our fee for a swap ratio valuation starts from ₹35,000 + 18% GST. The figure depends on the number of instruments or companies to be valued, whether projections exist, and how many laws the same transaction has to satisfy. We quote a fixed fee after a first call and before any work starts. Statutory filing fees, stamp duty and any merchant banker's fee are separate.

Related valuations

Where the scheme issues shares to non-resident shareholders, see FEMA valuation certificate for FC-GPR and FC-TRS. Valuation in insolvency follows different regulations: see securities or financial assets valuation under IBC.

Every valuation report we issue, with the law behind it and the person who must sign it, is listed on our valuation services page.

About V Viswanathan & Associates

Frequently Asked Questions

Who can issue a swap ratio valuation report in India?

A registered valuer. Section 247 of the Companies Act, 2013 requires valuations under the Act to be made by a registered valuer, and a swap ratio report for a scheme under sections 230 to 232 falls within it.

Is a valuation report mandatory for an NCLT merger?

Section 232(2) requires the directors' report to lay out the share exchange ratio and requires the expert's valuation report, if any, to be circulated for the meeting. Where shares are exchanged between different sets of shareholders, a registered valuer's report is in practice always obtained and its summary goes into the explanatory statement.

Is a fairness opinion the same as a valuation report?

No. The valuation report derives the ratio and is signed by a registered valuer. A fairness opinion is a separate view on that valuation from a SEBI-registered merchant banker, and is required where a listed company is a party.

Does a fast-track merger need a swap ratio valuation?

Section 233 has no separate valuation provision. If shares are to be issued to shareholders of the transferor, the scheme still states an exchange ratio and the companies need a basis for it. Where the transferor is a wholly owned subsidiary, no shares are issued and no ratio arises.

How is a swap ratio calculated?

Each company is valued per share on the same date by the income, market and asset approaches. The valuer weights the approaches, arrives at a relative value per share for each company, divides one by the other and rounds the result to a workable fraction.

Can the NCLT change the swap ratio?

The Tribunal does not substitute its own valuation. Following Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1997) 1 SCC 579, a ratio worked out by recognised experts and approved by the requisite majority is not disturbed unless it is shown to be unfair or contrary to law.

How old can the valuation report be?

Company law does not fix a period for an unlisted scheme, but a report that is stale by the time shareholders vote is a common ground of objection. We date the valuation close to the Board meetings that approve the scheme and update it if the timetable slips.

Do shareholders pay tax on shares received in a merger?

Not at the time of the swap, where the conditions are met. The exchange is not regarded as a transfer under section 47(vii) of the Income-tax Act, 1961 and section 70(1)(f) of the Income-tax Act, 2025, provided the amalgamated company is an Indian company.

How long does a swap ratio valuation take?

Usually 5–7 working days from complete information for two unlisted companies, and up to 15 working days where there are several companies, cross-holdings or assets needing other valuers.

What is the difference between a swap ratio and a share entitlement ratio?

A swap ratio applies to a merger: shareholders of the transferor give up their shares and receive shares of the transferee. A share entitlement ratio applies to a demerger: shareholders of the demerged company keep their shares and also receive shares of the resulting company.

Related Guides

Law stated as at 13 November 2026. Official sources: Companies Act, 2013 and rules (India Code), section 70, Income-tax Act, 2025 (Income Tax Department), IBBI register of registered valuers. This page is general information, not advice on a specific transaction.