Infosys' evaluation and its growth graph have been handed down like gospel. Yet internationally corporate brand evaluation is still a fuzzy area.

Whether it can be measured in absolute numerical terms at all, what the most efficacious method is for valuing a corporate brand, whether it should be assessed internally by the company or by professional audit firms, and whether brand valuation should be shared with shareholders and investors, are all questions on which there is a fair amount of debate.

In fact, Infosys may have opened up a Pandora's box bydeclaring its corporate brand value (CBV) as a numerical figure. The company, presided over by the redoubtable Narayana Murthy, has just got its shares listed in Nasdaq. According to professional audit firms in India and the US, Nasdaq and the Securities Exchange Commission (SEC, the US equivalent of our SEBI) will bombard Infosys with truculent queries about its handing down its CBV as an indubitable quantitative figure.

Infosys has been one of the first Indian companies to go in for corporate brand evaluation. The method it has adopted over the last few years is developed by the UK-based Inter-Brand. The approach is to first calculate the total earnings of a firm and then deduct from it the estimated earnings that can be naturally attributed to its tangible assets.

This Inter-Brand methodology, however, does not find acceptance in the US. The rub is that Infosys does a fair amount of software development for US clients. For one thing, the method does not make allowances for earnings that can beestimated to accrue from a firm's intangible assets.

Another well-known Indian business group Dr Reddy's Laboratories -- has landed itself in a piquant situation with the Inter-Brand approach of corporate brand evaluation. A couple of years ago, Dr Reddy's announced that it had calculated its CBV at Rs 200 crore. Cheminor Drugs, a group company, had also naturally begun to annually reckon its brand value and report it to its shareholders in its annual report. For 1996-97, Cheminor reported a sales turnover of Rs 130.5 crore and a profit before tax of Rs 9.1 crore. The CBV was found to be Rs 42.4 crore. For 1997-98, however, the value of the Cheminor brand, as estimated through the same methodology, turned out to be a negative Rs 3 crore!

The company reportedly went through a lot of internal brainstorming about whether to report this negative brand value to its shareholders through the annual report. Since the adoption of the Inter-Brand method had been consciously chosen by the company, it wasn't open tothe company to change the method. Further, having set a precedent, it couldn't keep the negative CBV for 1997-98 under wraps. Finally, it reported the negative brand value to its shareholders.

There are other snags in the Inter-Brand approach. The method is pivoted on a company's past earnings rather than its future earning prospects. When companies change hands internationally, and particularly in the US, the basic determinant of the prices at which they are bought and sold is projected future earnings. Fixed assets are of absolutely no consequence in the transaction. Black & Decker bought the GE small appliances business for US $300 million not based on GE's past profits, or on the tangible assets that came with the deal. The consideration was potential earnings, quality and technology standards that went with the GE name.

Around the world several methods of corporate brand evaluation and valuation of a firm's intangible assets are being still experimented with. One approach is to consider the corporatebrand value as the aggregate of the brand values of all the products and services offered by a company. Another is to look at the replacement cost of a corporate brand. The value of the Infosys corporate brand, according to this method, would be the cost that you would incur today to create another Infosys Technologies, populated by similar people and being a repository of equivalent intellectual capital.

Yet another approach is to reckon the current discounted value of projected future earnings. Another model, enunciated by the University of Chicago, uses the stock price to arrive at corporate brand equity. The premise on which this model is based is that the stock exchanges will adjust the share price of a company to reflect the future earnings prospects of its product and service brands.

A moot issue thrown up by Infosys handing out its corporate brand worth is: when there is as yet no internationally preferred model of corporate brand evaluation, was Infosys right to blow its own bugle? Was it at allnecessary for Infosys, or for that matter any other company, to declare its CBV?

Valuation experts in reputed audit firms are unanimous that brand evaluation and publicity are totally useless in the economic and business context. Comments a valuation expert with a leading international audit firm: ``Analysts and the stock market do not care for CBV. What they very minutely look at is cash flow. They study whether a company's cash flows give it sufficient elbow room to take care of its business plans. Everything else is extraneous puffery.''

Corporate brand valuation becomes important when you are looking at selling off a company. The estimate can then be a factor in arriving at the selling price. Otherwise, CBV has no worth in the conduct of a firm's business or its stock price. The use of as-yet wobbly international corporate brand evaluation methodologies is open to the charge of attempting to influence stock behaviour. Even if the corporate brand value has to be assessed and reported, how credible isit for the company in question to do it?

Internationally, and specifically in the US, CBV is regarded with some credibility only if estimated by a professional audit firm. The audit firm's reputation is vital. Cheminor Drugs has been stumped by its negative CBV while venturing to estimate its corporate brand itself. Infosys has also internally assessed its own brand worth. When the game is fuzzy, and the juror and the participant are the same, is a company exemplifying corporate governance in going to town with its trophy? Nasdaq and SEC will hold a company accountable to its figures to the last decimal. According to international audit firms, that is the lesson that the best and brightest of India's homegrown MNCs have to learn.

The author is a freelance writer