Due diligence is where deals are re-priced. The letter of intent sets a number, and then a team of accountants spends five weeks establishing whether that number was based on earnings the business will actually keep producing. In our experience the gap between signing a term sheet and closing is where most Indian mid-market transactions lose value — not because the businesses are weak, but because they cannot evidence their own performance quickly enough or cleanly enough to keep the buyer confident.
N D Savla & Associates provides due diligence support on both sides of the table. We prepare companies for investor and acquirer scrutiny, build and run the data room, produce vendor due diligence reports, and manage the query flow that otherwise consumes a founder's entire quarter. On the buy side we carry out financial and tax due diligence for investors and acquirers, focused on the findings that change price or structure rather than an exhaustive document nobody reads.
As a Mumbai-based chartered accountancy firm with offices in Andheri East, Charni Road, Vashi, Thane, New Panvel and Goa, we sit close to the fund managers, merchant bankers and legal counsel who run these processes. Where we already act as Virtual CFO on accounting and tax compliance, due diligence readiness is largely a by-product of how the books were maintained in the first place.
What Is Due Diligence Support?
Due diligence support is the work of establishing, evidencing and defending the financial reality of a business during a transaction. It runs from data room construction and vendor reports on the sell side, through to quality of earnings, working capital and net debt analysis on the buy side.
The exercise differs from statutory audit in three ways. First, it is forward-looking: the question is not whether last year's accounts were fairly stated but whether next year's earnings will resemble them. Second, it is adjustment-driven: the output is a set of proposed changes to reported EBITDA, working capital and net debt that feed directly into the price mechanism. Third, it is adversarial in structure even when relations are cordial. In India, a fourth layer applies: GST input credit reconciliation, TDS compliance, transfer pricing documentation and open income tax assessments regularly produce contingent exposures that materially exceed the accounting adjustments.
Who Needs Due Diligence Support?
Founders Raising Institutional Capital
A first institutional round is often the first time records are examined by someone with no incentive to be charitable.
Sellers in an M&A Transaction
A vendor due diligence report prepared in advance lets the seller frame the adjustments rather than react to them. See our Due Diligence for Exit Support.
Investors and Acquirers
Need a report that is decision-useful — sustainable EBITDA, genuine working capital need, and what belongs in the SPA as an indemnity. See Due Diligence for Investors.
Companies Preparing for a Listing
IPO due diligence is broader and less forgiving; complex share capital histories should be addressed via capital structuring before diligence begins.
Lenders and Credit Committees
Need cash flow reliability, security cover and covenant testing rather than a price adjustment.
How Has Due Diligence Practice Evolved in India?
Before 1991, the concept barely existed in its modern form — foreign investment was capped at 40% under FERA, and value often lay in industrial licences rather than earnings. Liberalisation created a market for corporate control, and the first generation of private equity funds arriving in the late 1990s and early 2000s accelerated demand for quality of earnings analysis and working capital normalisation.
Three regulatory developments deepened the work further: the Companies Act, 2013 tightened related party transaction rules under Section 188; GST in 2017 created a machine-readable audit trail through GSTR-2A/2B reconciliation; and the Insolvency and Bankruptcy Code, 2016 sharpened diligence on the credit side. Ind AS convergence completed the picture, giving diligence teams a defined framework to test against. Current standards are published by the Ministry of Corporate Affairs.
Step-by-Step Due Diligence Support Process
- Scope and Materiality Setting — Agree what is in scope, what materiality threshold applies, and what the output needs to be.
- Data Room Construction and Indexing — Build the document set against a structured index and chase what's missing while there is still time.
- Financial Information Analysis — Trial balances rebuilt into a consistent analytical format covering revenue, margin trends, cost behaviour and cash conversion.
- Quality of Earnings and Normalisation — One-off items removed, owner-related costs adjusted, a defensible normalised EBITDA built.
- Working Capital and Net Debt Analysis — Normalised working capital across a full cycle and a complete debt-like items list.
- Tax and Statutory Exposure Review — Open assessments, GST reconciliation, TDS defaults and PF coverage quantified as ranges with likelihood.
- Reporting and Query Management — Findings reported by impact — price adjustment, indemnity, condition precedent, or noted only.
Practical tip: appoint a single internal owner for all data room responses. Multiple people answering the same buyer independently produces inconsistent answers.
What Do Due Diligence Workstreams Actually Test?
| Workstream | What Is Tested | Common Finding |
|---|
| Quality of Earnings | Sustainability of reported EBITDA | One-off gains treated as recurring revenue |
| Working Capital | Normalised level over 12-24 months | Year-end window dressing of receivables |
| Net Debt | All debt-like items, not just borrowings | Unfunded gratuity and disputed statutory dues |
| Revenue Recognition | Cut-off, contract terms, Ind AS 115 | Revenue booked before performance obligation met |
| Related Parties | Pricing, disclosure, dependency | Group services charged without agreements |
| Tax and Statutory | Open assessments, TDS, GST reconciliation | GSTR-2B versus books input credit mismatch |
Deal timelines are lost in the data room, not in the analysis. Companies that begin assembling documents after the term sheet is signed routinely add four to six weeks to the process.
How Does Due Diligence Differ by Sector?
Manufacturing and Industrial
Inventory valuation, capitalisation policy, environmental/factory licence compliance, and Contract Labour Act engagement dominate.
Technology and SaaS
Revenue recognition under Ind AS 115, deferred revenue, customer concentration and churn, ESOP accounting and IP ownership.
Financial Services and NBFCs
Asset quality, provisioning against RBI norms, ECL modelling, and related party lending carry most of the risk.
Retail, Consumer and Distribution
Channel inventory, sales returns provisioning, trade scheme accruals, and lease accounting under Ind AS 116.
Why Choose N D Savla & Associates for Due Diligence Support?
- Both sides of the transaction — sell-side readiness and buy-side financial due diligence, so we know precisely what the other team will look for.
- Findings ranked by consequence — every finding classified as price adjustment, indemnity, condition precedent or noted only.
- Tax exposure quantified, not described — GST, TDS, PF and open assessment exposures presented as ranges with probability.
- Continuity into the deal — the same team supports query management, closing adjustments and post-completion integration.
- Senior availability when it matters — partners and independent professional resourcing structured for weekend diligence questions.
Most Common Due Diligence Red Flags in India
- Revenue recognised on invoicing rather than delivery or performance.
- GST input credit claimed without a matching GSTR-2B entry.
- Contract labour engaged without provident fund and ESI coverage.
- Related party transactions without agreements or arm's length pricing.
- Unfunded gratuity and leave encashment obligations.
- Incomplete statutory registers and unsigned board minutes.
- Customer concentration disclosed late in the process.
Frequently Asked Questions
What is due diligence support and how is it different from an audit?
Due diligence support is transaction-focused work carried out to help a buyer, investor or seller understand the real financial position of a business before a deal closes. An audit gives an opinion on whether financial statements present a true and fair view. Due diligence asks what are the sustainable earnings, normalised working capital, off-balance-sheet liabilities, and what should change the price.
How long does financial due diligence take in India?
A focused due diligence on a small or mid-sized Indian company typically takes three to five weeks from data room access to a final report. Larger or multi-entity groups take six to ten weeks.
What is a quality of earnings analysis?
A quality of earnings analysis separates the earnings a business will keep generating from those it happened to report — removing one-off items, adjusting for owner-related expenses, and correcting accounting policies that inflate current-period profit.
What documents are needed for a due diligence data room?
A standard Indian data room includes audited financials and tax returns for three years, monthly trial balances and MIS, GST returns with reconciliations, TDS returns, the statutory register set, board and shareholder minutes, the cap table, material contracts, employment agreements, property and loan documents, and litigation status.
Should a seller conduct its own due diligence before a transaction?
Yes, where the transaction matters. Sell-side or vendor due diligence identifies the issues a buyer will find while the seller still controls the timetable and narrative, and the cost of preparing is almost always smaller than the value adjustment it prevents.