Due Diligence Report

January 28, 2018 | Author: Hitesh Jain | Category: Due Diligence, Accounting, Audit, Taxes, Expense
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A K Kocchar & Associates Chartered Accountants

Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 2 of 16

INDEX

Sr. No.

Contents

Page No.

I

Objective

3

II

Executive Summary

4

II

Company Background

5

III

Income Statement Analysis

6

IV

Balance Sheet Analysis

8

V

Tax Matters

10

VI

Other Matters

12

VII

Caveats

13

Appendix A – Engagement Letter

Due Diligence Report of Thyrocare Laboratories Ltd.

15

A K Kocchar & Associates Chartered Accountants

Page 3 of 16

I-OBJECTIVE Our objective of preparing this Due Diligence Report is to elucidate the findings of our comprehensive inspection / audit of lawfulness and commercial attractiveness of Thyrocare Laboratories Limited (“TLL”) for the last eight years (i.e. Starting from

01/04/2002

to

31/03/2010

so

as

to

evaluate

all

advantages

and

disadvantages of the said transaction and revelation of all possible risk i.e. financial / tax / any other risk connected to purchase of the company.

Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 4 of 16

II – E X E C U T I V E S U M M A R Y TLL is a Public Limited Company listed on Bombay Stock Exchange (“BSE”) and incorporated in the State of Maharashtra. TLL is in healthcare industry and expertising in the diagnostics division of healthcare industry. TLL does not have any business transaction for the last eight years, the main source of income for TLL during the last eight years have been only by way of interest income / Income from investments in shares and securities and there had been no kind of trading activities carried on by TLL during the period under due diligence. Share Holding Pattern of Thyrocare Laboratories Limited for the last two years is as given below. Type of Shareholder Promoter & Promoter’s Group Public – non Institutional Total

As on 31/03/2010 72.02 % 27.98 % 100 %

As on 31/03/2009 72.02 % 27.98 % 100 %

It has also been noted that the shares of the company are very thinly traded on the stock exchange. The Key Management Personnel of TLL are:



Mr. A Sundararaju (Chairman & Non-Executive Director).



Mr. G S Hegde (Non-Executive Director).



Mrs. V Sumathi (Non-Executive Director).



Mr. Rao Rajgopal J K (Non-Executive Director).

Bankers of TLL are Axis bank. Auditors of TLL are S D khanolkar & Co.

Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 5 of 16

III – C O M P A N Y B A C K G R O U N D Thyrocare Laboratories Limited (TLL) was formerly known as Ganapati Udyog Limited (“GUL”) which was initially incorporated in State of West Bengal on 09 March 1983. GUL was listed at Calcutta Stock Exchange (CSE), Uttar Pradesh Stock Exchange (UPSE) and Bombay Stock Exchange (BSE), main objects GUL was trading in fabric and electrodes. Post Take over the name of GUL was changed to TLL on 20 th May 2003 also the state of incorporation was changed

from West Bengal to Maharashtra and the

main objects of the company were altered accordingly.

Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 6 of 16

IV – I N C O M E S T A T E M E N T A N A L Y S I S We have set out the below audited income statement for the period under review. Particulars Operating Income Add : Income From Other Sources Less : Total Expenses Profit Before Taxes Less : Prior Period Items and Extraordinary Items Less : Taxes Including Deferred Tax Profit After Taxes

Year Ended

Year Ended

Year Ended

Year Ended

31/03/2006 Nil 10,48,059/3,76,228/6,71,831/-

31/03/2007 Nil 12,03,312/1,15,755/10,87,557/-

31/03/2008 Nil 9,86,149/82,598/9,03,551/-

31/03/2009 Nil 3,93,020/1,55,049/2,37,971/-

(10,200)/-

Nil

Nil

76,787/-

2,38,530/4,43,501/-

52,840/10,34,717/-

2,33,444/6,70,107/-

73,533/87,651/-

From the above Income statement it may be noted that the company does not have any Income from its operating Business, the only source of income for the company is Interest Income and Income from Investments. It has also been noticed that though the company does not have any income from operating business every year there is some amount of money spent towards advertising expenses. During Assessment Years 2006-2007, 2007-2008, and 2008-2009 TLL had traded in shares and securities apart from receiving Interest on loan, hence the reasons for incomparable revenues in March 2009. We further set out unaudited income statements for the year ended 31/03/2010: Particulars Operating Income Income From Other Sources Less : Total Expenses Profit Before Taxes

Year Ended 31/03/2010 Nil 3,00,000/1,41,271/1,58,729/-

For the year ended 31/03/2010 the company has received compensation of Rs. 3,00,000/- towards advance against property of Rs. 50,00,000/- which was outstanding in the books of the company as on 31/03/2003. The advance of Rs. 50,00,000/- against property was repaid back during 2004-2005 for which the company received compensation during 2009-2010. We have been provided with the documentation as regards compensation received. However, we documentation

Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 7 of 16

for advance given of Rs. 50,00,000/- towards purchase of property has been requested for from the Management which is yet to be received. Note: The audited figures given above are taken from the audited financials of the company.

Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 8 of 16

IV – B A L A N C E S H E E T A N A L Y S I S We have set out the below audited balance sheet for the period under review. Particulars

As On

As On

As On

As On

31/03/2006

31/03/2007

31/03/2008

31/03/2009

Application of Funds Cash & Bank Balances Advance recoverable in cash or kind Income Tax Misc. Expenses Deferred tax Asset

46,64,515/2,44,879/81,117/1,00,800/41,770/-

20,48,761/40,25,000/3,50,059/67,200/41,770/-

31,65,426/41,83,800/4,60,402/33,600/6,550/-

48,02,428/26,70,334/2,38,805/Nil 6,550/-

Source of Funds Share Capital Retained Earnings Sundry creditors Provision For Taxes

24,50,000/31,91,276/2,33,275/2,38,530/-

24,50,000/42,25,994/9,927/2,91,370/-

24,50,000/48,96,103/14,081/4,89,594/-

24,50,000/49,83,754/9,773/2,71,757/-

Advance receivable in cash and kind refers to amount given as loans & advances to certain parties on which interest was charged by TLL. There are no investments seen in the Balance sheet as the investments made by the company were disposed of before 31st March of every year to be precise the company had made only short term investments. Cash & Bank Balance as on 31/03/2009 also includes Fixed Deposit of Rs. 42,16,306/-, in all other years the company had never deposited any amount in fixed deposit. We further set out unaudited Balance Sheet as on 31/03/2010: Particulars Application of Funds Cash & Bank Balances Advance recoverable in cash or kind Income Tax Deferred tax Asset

As On 31/03/2010 35,95,38640,25,000/2,38,805/6,550/-

Source of Funds Share Capital Retained Earnings Sundry creditors Provision For Taxes

24,50,000/51,42,484/1,500/2,71,757/-

The above balance sheet as on 31/03/2010 is unaudited as produced before us, we are not able to comment on the true and fair nature of the same.

Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 9 of 16

We further like to bring to notice that the company had not received any interest on loans and advances during March 2010 unlike interest received in the previous financial years.

Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 10 of 16

V–TAX MATTERS Background & Organizational Tax history TLL came into existence on 20/05/2003 under tax records (Please note before that it was known as GUL). TLL has filed its Income Tax returns till 31/03/2009, sales tax returns till 31/03/2010. Income Tax We set out various Income Tax details of TLL. Particulars Applicability of Tax Audit Whether MAT Applicable Amount of MAT Payable Total MAT Credit Available Refund Due Date of Filing Tax returns Due Date of Filing Tax returns Whether Refund Orde/143(1)

31/03/2006 No No Nil 2,178/27,894/16/11/2006 30/11/2006 No

31/03/2007 No Yes 1,22,025/1,24,203/Nil 27/10/2007 15/11/2007 No

31/03/2008 No Yes 93,066/2,17,269/Nil 25/09/2008 30/09/2008 Yes

31/03/2009 No No Nil 2,05,529/47,624/24/09/2009 30/09/2009 No

Received Was there

No

No

No

No

1,82,438/-

1,82,438/-

65,036/-

Nil

any

scrutiny

of

Business

assessment Carry Forward Loss

We would like to bring to notice that the earliest last scrutiny assessment by income tax department on TLL was for the Assessment Year 2002-2003. The case had gone till ITAT stages ultimately after which the case was disposed of in TLL’s favour. TLL has not yet filed its income tax returns for 31st march 2010 i.e. A Y 2010– 2011, any tax liability for A Y 2010-2011 shall be the burden of TLL’s old management. It is also recommended that TLL recovers all its refund dues from Income Tax department before take over transaction is executed. In A Y 2010-2011 TLL had received compensations of Rs. 3,00,000/- which the management is treating as Business Income inspite of the same not being in line Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 11 of 16

with the main object clause of TLL’s MOA as TLL is neither a investment company nor a real estate company the same can be treated Income From Other Sources by Income tax Department creating a point of litigation in future which may lead to a reasonable amount of tax liability. Sales Tax TLL has filed all its sales tax returns on time till date, we would like to bring to light that TLL had never actually done any operating business and hence there has actually no sales tax liability on TLL.

Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 12 of 16

VI – O T H E R M A T T E R S Software Package The company is currently using Tally.ERP9 for maintenance of its books of accounts. IT Policy We understand that the Company does not have formal/ documented IT policy in place. Management states that, no IT related fraud or theft had taken place during the period under review. Human Resource Manuals & Policies The Company does not have an documented HR manual and policies in place. Internal Audit The Company does not have an internal audit system in place. Committee The Company does not have audit committee, remuneration committee and investor committee. Operational decisions are concentrated only in the hands of promoters. Authorization Matrix All documents are authorized by one of the promoters. Contingent Liabilities Management states that, there are no contingent liabilities outstanding as at March 31, 2010.

Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 13 of 16

VI – C A V E A T S Source of Information The information contained in this Report has been obtained primarily from reviewed financial statements of the Company for year ended March 31, 2003 to March 31, 2009, and unaudited books of accounts for the year ended March 31, 2010. The books of account and other records of the Company as made available to us during our field visit. Discussions with the relevant personnel of the Company and third party discussions. For purposes of our due diligence fieldwork, we visited the office of S D Khanolkar & Co. Chartered Accountants, 210, jolly Bhawan No. 2, 51 New marine Lines, Opp Nirmala Niketan, Churchgate, Mumbai – 400 020. Our report is based on the discussion and information received from Mr Sadashiv Khanolkar – Chartered Accountant (Auditor of Company). Scope of Work Our review of the affairs of the Company and its books and accounts does not constitute an audit in accordance with Auditing Standards and no verification work has been carried out by us. We have relied on explanations and source information provided by the Management of the Company. Consequently, we do not express an opinion on the figures included in this Report. The scope of our work has been limited both in terms of the areas of the business and operations which we have reviewed and the extent to which we have reviewed them. There may be matters, other than those noted in this Report, which might be relevant in the context of the transaction and which a wider scope might uncover.

Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 14 of 16

Limitation of Liability Our maximum liability relating to services rendered under this assignment (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the fees paid to us for the portion of our services or work products giving rise to the liability. In no event shall we be liable for consequential, special, incidental or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.) even if we have been advised of their possible existence. This provision shall apply even after termination of our assignment. The Company also agrees to hold harmless A K Kocchar & Associates and its employees against all actions, claims, proceedings, losses, damages, costs and expenses, whatsoever and howsoever caused, incurred, sustained or arising from, or in connection with, the provision of services. This provision shall apply even after the termination of the engagement for any reason. Confidential A K Kocchar & Associates shall hold in strict confidence all information provided to us by the management, directors, employees and advisors of Thyrocare Laboratories Limited shall not divulge the same to anyone, unless required by law, without the express or written consent of the Company. This provision shall apply even after completion of our assignment.

Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 15 of 16

APPENDIX A–ENGAGEMENT LETTER Our work and summary of procedures to be performed in connection with the limited scope accounting and financial due diligence review on Thyrocare Laboratories Limited (‘TLL’) is set out below. We will cover the matters set out below, but our report will not necessarily cover all of those matters because in the interests of clearer reporting, we will not report on matters that we do not believe to be significant. Financial information will be reviewed for the latest period for which audited accounts are available (‘period’). The scope of work for the accounting and financial due diligence review of the Company for the period would be limited to: General •

Review significant accounting policies, specifically covering revenue recognition, depreciation, write-downs, research and development expenditure, provisions and any other notable policies, currently applied by the target to understand whether these policies are in accordance with relevant GAAP .



Review internal audit reports, audit committee reports, statutory auditors’ management letters and significant issues or weaknesses identified for the period under review.



Review on the appropriateness of TLL’s insurance arrangements.



Review on the nature of the target’s pension arrangements.



Review on major operational agreements / arrangements with third parties.



Review on intra-group transactions and agreements / arrangements.



Review and comment on the financial statements of the TLL for the 8 years ended March 31, 2010.



Review of the operational management structure.



Review of employment contracts.

Other assets and liabilities •

Review of fixed assets.



Review of ownership documents for fixed assets and financial commitments attached to the assets.



Understand TLL’s general terms of business with major customers.



Understand the credit policies and credit control measures adopted. Due Diligence Report of Thyrocare Laboratories Ltd.

A K Kocchar & Associates Chartered Accountants

Page 16 of 16



Review ageing and composition of accounts receivable as at March 31, 2010.



Review adequacy of reserve for doubtful debts considering historical ageing trends and known exposures.



Review significant loans and advances and other current assets as at March 31, 2010.



Review current liabilities/provisions including employee related liabilities as at March 31, 2010.



Review the provisioning policy of the target



Review of contracts remaining to be executed on capital account and not provided for as at March 31, 2010, advances made there against and any claims for damages, penalty, interest.

We acknowledge that this Due Diligence Report has been made by us so as to evaluate all advantages and disadvantages of the said transaction and revelation of all possible risk i.e. financial / tax / any other risk connected to purchase of the company and the same may not be relied upon by any other person for any other purpose nor it be quoted in any public document. For A K Kocchar & Associates Chartered Accountants Arun Kocchar Partner Membership No. 108245 Mumbai, 27th August, 2010

Due Diligence Report of Thyrocare Laboratories Ltd.

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