DLOM in Private Company Valuation India 2026: Illiquidity Discount, Methods & Checklist

Discount for lack of marketability in private company valuation is not a plug-in percentage. It is a valuation adjustment intended to reflect the lower liquidity of an ownership interest that cannot be readily sold in an active public market. For Indian founders, CFOs, investors and transaction teams, the practical question is not “what is the standard DLOM?” but whether a marketability discount is justified at all, what level of value the starting valuation represents, and what evidence supports the selected adjustment.

ICAI valuation material expressly notes that there is no exact DLOM percentage that applies to every transaction. The assessment varies with the facts and requires professional judgement. That makes documentation, consistency and sensitivity analysis more important than using a familiar percentage from another deal.

What is DLOM in private company valuation?

DLOM stands for Discount for Lack of Marketability. It adjusts an indicated value to reflect the economic disadvantage of holding an interest that cannot be converted into cash as quickly, cheaply or predictably as a freely traded listed security. The adjustment is most relevant where the valuation method or market evidence first produces a value comparable to a marketable security, while the subject interest is materially less liquid.

This distinction matters because valuation adjustments should follow the level of value actually produced by the method. If the valuation inputs already reflect a non-marketable minority interest, adding a second illiquidity adjustment can double-count the same economic disadvantage. Conversely, if listed-company trading multiples are used without considering the subject company’s lack of liquidity, the analysis may overstate transferability.

DLOM is different from DLOC and control premium

Marketability, control and transfer restrictions are separate concepts. A discount for lack of control addresses the reduced influence of a minority owner over distributions, strategy or a sale process. DLOM addresses liquidity. A further transferability restriction may arise from shareholder agreements, lock-ins, rights of first refusal or regulatory restrictions. The valuer should identify which economic characteristic each adjustment is capturing and avoid stacking percentages mechanically.

ICAI material on levels of value recommends applying discounts or premiums from the relevant adjacent level of value and cautions against treating such adjustments as arbitrary additions to the discount rate. In practice, a clear bridge from the starting level of value to the final concluded value is easier to review than a model in which illiquidity is hidden inside WACC or another assumption.

When can a marketability discount be relevant?

A DLOM analysis can become relevant in private-company fundraising, shareholder transactions, ESOP-related exercises, restructuring, dispute or tax work, and other valuation engagements where an unlisted interest is being valued. Whether a statutory registered-valuer report is required depends on the legal purpose. Section 247 of the Companies Act, 2013 requires valuations mandated under the Act to be performed by a registered valuer, and the Companies (Registered Valuers and Valuation) Rules govern that framework.

The presence of a private company does not, by itself, mean that a DLOM must be applied. A transaction price, a recent arm’s-length financing round, contractual exit rights, a near-term listing event or other market evidence may materially change the liquidity assessment. The adjustment has to follow the facts rather than the label “unlisted”.

Key factors that support a DLOM assessment

A robust marketability analysis commonly considers the size and nature of the holding, expected time to liquidity, costs of achieving liquidity, restrictions on transfer, dividend or distribution history, prospects of an IPO or strategic sale, shareholder rights, information access, financial performance, volatility and the depth of the likely buyer universe. ICAI educational material specifically identifies factors such as size and nature, time and costs associated with marketability, and transfer restrictions among relevant considerations.

The stronger the practical route to liquidity, the weaker the case may be for a large marketability discount. For example, a business that is already in an advanced sale process with credible bidders may not have the same liquidity profile as a closely held company with no exit pathway. On the other hand, a small minority stake subject to extensive transfer restrictions and no expected exit event may carry materially greater marketability risk.

Worked example: why the percentage cannot be chosen first

Assume a valuation using listed-company trading multiples indicates an equity value of ₹120 crore for an unlisted operating company. The subject interest is a 10% minority stake. The shareholders’ agreement restricts transfers, there is no committed liquidity event, and dividends have historically been limited. A valuer concludes that the market evidence represents a more marketable level of value than the subject interest.

If, purely for illustration, the valuer determines a 20% DLOM after considering relevant evidence, the adjusted equity value would be ₹96 crore and the pro-rata 10% interest would be ₹9.6 crore before considering any other properly justified level-of-value adjustment. The important point is not the 20% number—it is illustrative only. The professional work lies in demonstrating why the selected adjustment is appropriate for these specific facts and why the same economic factor has not already been reflected elsewhere in the valuation.

Methods used to estimate DLOM

Professional practice may use market-based studies, restricted-stock evidence, pre-IPO studies, option-based approaches and other analytical techniques. No method automatically produces the correct answer for every Indian private-company valuation. The selected approach should be consistent with the nature of the subject interest, available evidence, valuation purpose and the overall method used to estimate the base value.

For transaction teams, sensitivity analysis is especially useful. Showing the concluded value across a reasonable range of marketability assumptions makes the economic impact transparent to the board, investors and reviewers. It also exposes cases where the entire valuation conclusion is being driven by a single subjective adjustment.

Five common DLOM mistakes in Indian valuation work

First, applying a fixed 10%, 20% or 30% because it was used in another valuation. Second, applying DLOM simply because the company is unlisted without identifying the starting level of value. Third, double-counting illiquidity in both the discount rate and a separate DLOM. Fourth, ignoring contractual rights, impending liquidity events or transaction evidence that changes the marketability profile. Fifth, presenting a percentage without documenting the evidence, assumptions and sensitivity of the final conclusion.

CFO and transaction checklist

Before the valuation is finalised, finance teams should confirm the exact security and rights being valued; reconcile the cap table; identify transfer restrictions and shareholder rights; document expected liquidity events; provide recent financing or secondary-sale evidence; explain dividend policy; support forecasts and valuation inputs; distinguish control, marketability and transferability adjustments; run sensitivity analysis; and ensure the report clearly states the valuation purpose, assumptions, limitations and professional judgement.

How DLOM interacts with DCF and comparable-company valuation

A DCF can produce different levels of value depending on the cash flows, rights and assumptions embedded in the model. Comparable-company analysis usually starts from listed, marketable securities, which makes the level-of-value analysis particularly important when moving from public-market evidence to a private holding. The adjustment should therefore be assessed after understanding what the DCF or multiples result actually represents—not as an automatic final step.

For the broader framework, see PGT & Associates’ Private Company Valuation in India 2026 guide.

For market-multiple mechanics, see Comparable Company Analysis India 2026.

For the overall method selection and enterprise-to-equity bridge, see Business Valuation Methods in India.

Frequently asked questions

Is there a standard DLOM percentage in India?

No. ICAI educational material specifically states that there is no exact DLOM percentage applicable to each transaction. The appropriate adjustment depends on the facts and requires valuation judgement.

Does every unlisted share valuation require DLOM?

No. The need for a marketability adjustment depends on the valuation purpose, method, level of value, rights attached to the interest, evidence of liquidity and relevant legal or regulatory framework. An unlisted label alone is not sufficient justification.

Can DLOM be added to WACC?

That is generally a poor way to document the adjustment. ICAI material on levels of value cautions that discounts should be applied to value rather than mechanically added to discount rates. The model should make the nature of each adjustment visible and avoid double counting.

Who should perform a Companies Act valuation?

Where a valuation is required under the Companies Act, 2013, Section 247 provides for valuation by a registered valuer. The exact appointment and reporting requirements depend on the applicable provision and transaction.

Practical takeaway

DLOM is best treated as an evidence-based valuation judgement, not a standard haircut. A defensible analysis begins with the correct level of value, separates liquidity from control and transfer restrictions, documents the company-specific facts, tests sensitivity and explains how the adjustment changes the conclusion. That discipline is particularly important in fundraising, shareholder transactions and statutory valuation work where a seemingly small percentage can materially alter negotiated or reported value.

PGT & Associates can support transaction teams with valuation readiness, financial modelling, comparable-company analysis, DCF support, sensitivity analysis and transaction financial diligence. Where a regulated or statutory valuation requires a specifically registered professional, the applicable eligibility and appointment requirements should be independently confirmed and followed.

Authoritative references

ICAI Valuation Standards Board educational material: Discount for Lack of Marketability.

ICAI Valuation Standards Board material on levels of value and valuation adjustments: ICAI valuation material.

Companies Act, 2013, Section 247: MCA Companies Act, 2013.

Current valuation-rules repository: IBBI valuation rules.