India is one of the largest and fastest growing economies in the world.

Partnering with Indian companies can bring significant benefits, including access to new markets and cost reductions through the use of advanced technologies. However, before entering into business relationship with an Indian counterparty, it is necessary to conduct a thorough check of the company in order to minimize risks and avoid possible problems. Failure to understand legal regulations, financial reporting, business practices and cultural differences can lead to serious consequences such as financial losses, violation of laws or loss of reputation.

In the context of expanding international cooperation, many companies are striving to enter new markets and establish partnerships with foreign counterparties. India attracts special attention from entrepreneurs and investors from all over the world. With population of over 1.4 billion people and a diverse economy, there are huge opportunities for business, but also many challenges that require heightened levels of due diligence.

The first step in checking an Indian counterparty should be to confirm its legal status and registration.

Forms of enterprise in India:

Information about shareholders is not disclosed in the publicly available data, however, it is included in the annual report that all the companies are required to submit. The financial year ends on March 31.

Companies are required to publish financial statements, although general partnerships and sole proprietorships are not required to register with the Companies Registry and submit statements.

As of 2021, there are more than 63 million partnerships and sole proprietorships and over 1.3 million companies (private, public companies) registered in India.

Using financial statements, you can check both the official registration of a potential counterparty and its financial status. If financial statements are not available, it must be requested directly from the company. For more in-depth and thorough analysis of financial condition and creditworthiness, financial statements should be requested for the last few years, as well as income and expense reports. It is important to ensure that company does not have significant debts or liabilities that could impact its ability to meet its obligations to you. It is also helpful to obtain credit report, which will show company's credit history and creditworthiness.

You can request licenses and certificates from your Indian counterparty to carry out compliance procedures. They are not mandatory, but their presence or absence will help ensure that due diligence process is followed.

Any operating company in India, except general partnerships and sole proprietorships, is required to have a business license and a unique identification number. Most Indian companies (except LLPs) have Corporate Identification Number (CIN). You can check registration details of a company on the Ministry of Corporate Affairs (MCA) website using company name or its CIN. Companies with LLP status are given an identification number (LLPIN), which can also be verified on the MCA website.

The CIN number provides key information about a company, and by looking at this 21-digit code, you can determine the type of a company, its location, and the date it was incorporated.

First letter of the CIN indicates the status of a company: U for non-public companies and L for public companies.

Next five digits represent the industry in which the company operates. Then there are two numbers indicating the state in which the company is registered. Next four digits indicate the year the company was registered.

Three letters following this determine the type of ownership of the company. For example, PLC means a public limited company, SGC means a state government company, and OPC means a sole member company.

Last six digits of the CIN number are unique company registration number that is officially assigned to a company.

Not all companies in India have export license that allows them to conduct foreign economic activities. Therefore, many organizations cooperate with transport and trading companies to organize export and import of products.

However, having export license significantly enhances company’s reputation, as it indicates supplier’s greater experience in international trade and working with foreign clients.

Taxpayer certificate, known as GST Certificate, is a mandatory document. It must be obtained by all companies that provide goods or services and whose annual revenue exceeds 20 LAK Indian Rupees (~$24K).

Company Tax Registration Number (GSTIN) can be checked on the Government of India website under the Goods and Services Tax section.

ISO 9001 certification is one of the most frequently requested international certifications from suppliers. This certificate confirms that the company has implemented quality management system that can be applied in various industries, not only in manufacturing.

Company that is ISO 9001 certified must have quality control department that is responsible for monitoring processes and checking products for compliance with established requirements. This system includes measures to correct identified deficiencies and control effectiveness of operations.

Indian suppliers are ISO 9001 certified if they export to America and Europe. Because many large organizations and brands require this certificate to start cooperation.

However, having a certificate does not guarantee that company's daily operations are fully compliant with the quality management system. In some cases, suppliers obtain certification only for appearance's sake and do not pay due attention to maintaining effective internal quality control system.

To prevent possible legal problems, you should check for any litigation or legal disputes that company might be involved in. In India, this can be done through the National Judicial Data Grid portal or by researching local news and publications about the company. It is important to pay attention to frequency and severity of such disputes, as this may indicate problems in the company's management or business practices.

Company's reputation in the market is an important aspect. Check reviews and ratings of a company from other clients and partners. This can be done by checking online reviews, as well as through business social media where you can find information about key executives and their professional reputation.

Indian market is characterized by certain specific risks. For example, presence of "family-owned" companies, where a significant portion of management is concentrated in the hands of one family clan, can create problems with transparency and management efficiency. It is also worth considering cultural differences in negotiating and deal-making - Indian companies may use longer timeframes for decision-making, which is important to take into account when planning joint projects.

In addition, India has tax and currency regulations that may impact financial transactions with counterparties.

Checking Indian counterparties requires comprehensive approach, including verification of legal status, financial stability, presence of litigation and reputation. Also consider specific risks associated with doing business in India. With a careful and informed approach, you can minimize risks and successfully cooperate with Indian companies.

Independently checking a counterparty from India is a complex task that requires attention, time and deep understanding of legal norms. To achieve the best results, it is recommended to contact professionals with the necessary knowledge and experience.

Information agency Credinform and Information and analytical system Globas can help in performing due diligence tasks when checking international business partners, including companies from India.

In Globas you can online obtain information about companies in Belarus, Kazakhstan, Kyrgyzstan, Latvia, Moldova, Tajikistan, and also generate a report on more than million companies from Europe, America, Africa and Asia-Pacific region. Report will include information on registration, financial statements, shareholders, beneficiaries and all basic information necessary to make an informed decision.

For a more detailed and thorough check, you can order an online report. Your request will be processed by a team of professional experts with extensive experience and specialization in this field. You will receive comprehensive information, including registration data, financial statements, ownership structure taking into account international connections, expert assessment, as well as verification of connections and affiliations with Russian companies.

Financial position of any company is determined through analysis of key indicators and ratios. Main goal of financial analysis is to understand and determine the level of solvency of a counterparty. As a result it is easier to build strategy for interaction with a partner and make correct management decision.

Financial Director or Financial Analyst is responsible for conducting financial analysis. However, it is not always possible to turn to financial consulting specialists or maintain a staff of employees responsible only for checking financial position.

Quite often functions of Risk Manager are distributed among other managers, accountants or other company employees. Without proper knowledge, it is quite difficult to understand which indicators to check and what they indicate. But with the help of a proven express method, it will become much easier to assess financial position of counterparties.

In the July Newsletter, we will tell you what financial indicators are used in the express method, what they are responsible for and how to quickly check financial position of a counterparty using Globas.

Analysis of financial position is one of the most important stages when checking a counterparty.

The express method was developed by the experts of Information Agency Credinform and has proven its effectiveness in solving various cases.

Express method includes checking of:

Using this express method, you can get answers to the following questions:

Answers to these questions will provide a comprehensive picture of company's financial health.

Analysis of key financial figures allows us to evaluate company's performance over a certain period.

Key financial figures are:

• Revenue;
• Net profit (loss);
• Retained profit (uncovered loss);
• Net asset value.

Revenue shows the amount for which company's goods or services were sold. Revenue should increase from year to year. Stagnation or decline in this figure will have a negative impact on profit. The main reason is the irreducible level of administration and commercial costs, as well as inflation.

Net Profit (Loss) line reflects the final result of company's activities for the period. Presence of positive result shows how much money organization has earned and will determine level of business success. The higher the share of profit in the revenue is, the more successful is financial activity. This figure can also be negative. In this case, loss is recorded at the end of the financial period. Net loss is recorded when total expenses exceed company's income. If there is a sufficient amount of equity, the resulting difference is covered and losses are not carried over to the next period.

However, there are often cases when company’s activities generate an insufficient amount of equity and it is not possible to cover the resulting loss. In such cases, the amount of loss is reflected in the next period in the line Retained earnings (uncovered loss).

Retained earnings (uncovered loss) reflects remaining profit at the end of the year, or loss incurred in previous years, not covered by any additional sources. Retained earnings form company's equity; the larger it is, the higher is the level of self-sufficiency and autonomy from third-party loans. Therefore, uncovered loss, on the contrary, reduces amount of equity, since they are directed towards repayment. In such cases, level of dependence on borrowed funds is quite high.

Analysis of liquidity ratios allows you to assess the level of funds for repaying short-term liabilities.

Liquidity coverage ratio reflects ability of an organization to pay off short-term liabilities using current assets. Short-term liabilities are payments that company expects to make in the next 12 months. Compliance or non-compliance of this figure is regulated by a segment from 1 to 2. Therefore, if its value is below the recommended segment, it means that in the event of unforeseen circumstances, when an enterprise will need to pay off all obligations at once, it will not be able to fully pay off its short-term obligations at its own expense.

There may be cases when liquidity coverage ratio corresponds to the recommended values, but in fact its value is fictitious. This may happen due to the high share of accounts receivable in the structure of current assets. Accounts receivable are expected cash flows that are due in the next 1 to 36 months. Therefore, in fact there is no money, but according to the accounting rules, it should be reflected in company's balance sheet.

Solvency ratio allows us to assess company's dependence on external loans.

Solvency ratio must be greater than 0.5. This means that more than half of company's activities must be financed from company's own funds, and the lesser part from borrowed funds. Of course, ideally, organization's activities should be supported by its own funds, but untimely decisions on business expansion can lead to stagnation and loss of market share. Therefore, attracting borrowed funds when planned development is required will not negatively affect organization’s activities. However, their share of total assets should be closely monitored.

Indicator of the speed at which an organization repays its debts to suppliers and contractors. This ratio shows how many days it takes a company to pay off its creditors. Maturity date can be used to determine the financial position. The longer the repayment period is, the less stable is the financial position of organization.

Comparison of indicators allows us to assess situation in the industry and identify emerging trends. In most cases, financial indicators may take values lower than their recommended values. However, this does not mean that organization is experiencing problems with solvency or financial stability. Company shows results that are typical of the industry trend in which it operates. For example, the industry liquidity coverage ratio is 0.84, with recommended values from 1, and company's ratio is 0.85. When comparing two indicators, we determine that organization operates as the industry allows it. Therefore, the ratio is normal and in line with the practical value of the industry.

By going through each point of the methodology, you can get a clear understanding of financial position of a partner or potential counterparty. Key financial figures will show company's performance. Analysis of liquidity ratios will allow you to assess the level of working capital to pay off short-term liabilities. Solvency ratio will reveal company's dependence on external loans, and comparison of all indicators with the industry ones will show the current trend.

Information and Analytical System Globas allows you to conduct an in-depth examination of financial position of a counterparty, identify temporary loss of solvency and conduct broad analytics on all forms of accounting statements.

Globas has everything for high-quality financial analysis of a counterparty, including all indicators and ratios described in the express method. In addition, services of automatic assessment are available for quick verification: Analytical financial report and Globas indexes will always tell you about current position of a company.