Assignment: A green energy company from Germany with an arm in India was looking out for a tie up with a Pune based waste to energy company. Netrika was assigned the task to carry out a detailed reputational due diligence exercise on the subject entity.
Findings:Team Netrika first profiled the entity in detail and noted that the company was in existence for more than 9 years with all the licenses in place. The initial source of funding of the entity was Jawaharlal Nehru National Urban Renewal Mission. The promoters were highly qualified with relevant experience. Subject company was generating sufficient revenue with no income, which was widely acceptable in this business. Losses were gradually reducing. The promoters were maintaining healthy relations with all political parties without any specific inclination. The company and its promoters had good reputation and strong hold in the market. There were no labour related issues. Team also identified certain issues such as in one of the plants of the company an explosion happened about 6 years ago. A client also highlighted that the quality of the compost delivered by the company is raw and not properly made. Some sources highlighted instances of sand, glass particles in the compost. Few vendors of the company had faced certain payment related delays.
Solution/ Conclusion:We focused more on the issues identified and carried out further rounds of searches and detail inquiries. It is noted that the company had faced certain quality issues with the compost products which was primarily because of the technical loop-hole in the segregation process of solid waste. This was the reason of less generation of electricity than committed. The subject entity was working towards it. The subject entity was also facing some funding issues because of which they were not able to pay to their vendors and employees on time. It was further noted that if the company was not being able to manage the financial stress and technology loop-holes, it might not last long. Because of this reason, the subject entity was looking out for a tie up with our client and when asked promoters readily accepted all the issues identified in due diligence. Our findings helped our client in better price negotiation during valuation stage.