Introduction
In the dynamic world of real estate, accurate project valuation is critical—especially when market conditions or incomplete records create uncertainty. This case study explores how our team navigated the complexities of valuing an under-construction commercial project in India, applying the Discounted Cash Flow (DCF) method even when essential data was missing. Here’s how we delivered a fair, defendable result for both lenders and stakeholders.
Client & Project Overview
Our client, a well-known real estate developer in India, found itself at a crossroads after being classified as a Non-Performing Asset (NPA). The company’s portfolio included:
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Completed residential and commercial towers (with receivables and unsold inventory)
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An under-construction commercial property
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Development rights over a land parcel with active tenants
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A separate, vacant landholding
The focus of this study: valuing the under-construction commercial project, where incomplete financial records presented major hurdles.
Valuation Challenges
As we began our assessment, two significant issues emerged:
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Receivables Reconciliation Gaps: The amounts owed by sold unit holders didn’t align with agreement values or actual payments received.
Inventory Mismatch: The lists of sold and unsold units didn’t add up to the company’s reported total—making it impossible to trust the inventory data at face value.
Before diving into the DCF model, we followed the foundational steps detailed in our business valuation key events compliance needs and when your company should get one
This raised two essential questions:
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How do you value an under-construction project without full access to accurate data?
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How do you value completed projects with unsold units and unreliable receivables?
The Big Questions
These challenges are common in distressed asset scenarios. Reliable valuation must cut through data uncertainty to protect both the company and its creditors.
Understanding DCF: The Foundation
Discounted Cash Flow (DCF) is a valuation technique that estimates the present value of a project or company by forecasting its future cash flows and discounting them back to today’s value. DCF is grounded in the principle that money received today is worth more than the same amount received tomorrow, thanks to its earning potential.
Why use DCF?
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It is widely accepted for capital budgeting, investment analysis, and project valuation.
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It allows for scenario analysis and sensitivity to changing assumptions.
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It can be applied even when market comparables are scarce or unreliable.
Why DCF for This Project?
With direct market comparisons and clean financial data unavailable, DCF stood out as the best approach:
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Focuses on real, expected inflows and outflows
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Adjusts for uncertainty by using appropriate discount rates
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Provides a transparent, scenario-based view for all stakeholders
DCF Methodology & Process
To ensure objectivity and defensibility, we followed a step-by-step DCF process:
1. Projected Inflows
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Included: Only the sale value of unsold units at current market rates, plus reliable future projections.
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Excluded: Any receivables from already sold units due to unclear and inconsistent data.
2. Projected Outflows
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Included: Construction costs for unfinished areas (based on on-site verification), and marketing/sales expenses for unsold inventory.
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Excluded: Any speculative or uncertain costs.
3. Discounting to Present Value
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We applied a discount rate reflecting current market risks and developer profile.
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The cash flows were discounted to their present value to reflect the time value of money.
4. Adjustments
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Receipts Already Collected: Deductions made from the net cash position for amounts already received from sold units (which were verified).
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Non-Reconcilable Receivables: Excluded from the model to avoid overvaluation or reliance on questionable data.
5. Review & Cross-Validation
Multiple internal reviews ensured our calculations were realistic, conservative, and fully defendable.
Advantages & Limitations of DCF
Advantages
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Customizable: Can model various scenarios and market conditions.
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Versatile: Works across many asset types and situations.
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Transparent: Provides clear rationale for assumptions and results.
Limitations
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Heavily reliant on estimates: Results depend on the quality of projected cash flows and discount rates.
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Sensitive to market and economic variables: Unforeseen changes can affect accuracy.
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Not a standalone solution: Should be cross-checked with other methods where possible.
How We Solved the Case
After thorough discussions and careful modelling, our team provided a well-supported valuation for all key stakeholders:
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For the under-construction project: Only included reliable, observable inflows and necessary, confirmed outflows.
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For completed assets: Valued unsold units at current rates; disregarded unreliable receivables.
Our approach ensured the final valuation was neither overestimated nor underestimated, protecting the interests of both the lender and the client.
Key Lessons & Best Practices
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Don’t force data to fit: If records don’t reconcile, use only what’s verifiable.
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Site verification matters: Physical checks on project status strengthen your model.
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Document all assumptions: Transparency is key for stakeholder trust and regulatory compliance.
Consider alternative models: DCF is powerful but should be supported by other valuation methods when possible.
Conclusion
When data is fragmented or unreliable, the Discounted Cash Flow method—applied conservatively—remains a gold standard for real estate valuation. Our experience proves that with professional rigor, even distressed projects can be valued accurately, protecting all parties involved.
Need an expert valuation, even in complex situations?
Contact our team today for a confidential consultation or to learn more about our valuation process.
FAQs
1. What if project data is incomplete or unreliable?
Focus on what can be verified. Exclude unclear or disputed inflows/outflows to avoid distorted values.
2. Is DCF always the best choice for real estate valuation?
Not always. It’s excellent when you can reasonably project cash flows, but should be complemented by other methods when data is lacking.
3. How do you choose the right discount rate?
Consider market benchmarks, project risk, and investor expectations. Document your rationale for transparency.
About the Author – Sahil R. Narula
Sahil R. Narula is the Managing Partner at RNC, a prominent firm specializing in techno-commercial advisory services for the real estate and construction sectors in India . Based in Mumbai, he brings extensive expertise in project valuation, financial modeling, and asset performance analysis. Sahil holds a degree from Shivaji University and leverages his deep industry knowledge to guide developers and investors through complex valuation challenges and distressed asset scenarios.
Connect with Sahil R. Narula on LinkedIn:
https://in.linkedin.com/in/sahilrnarula/