Prof. D.

Choudhury

DARSHAN
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CASE FACTS
The case study deals with the acquisition of a cable manufacturing unit called DARSHAN ENTERPRISES and the financial analysis of the same for its purchasing proposition. The purchase has been in consideration by Mukund Mishra and the analysis could help him to explore the hidden opportunities in the enterprises for growth.

Prof. D. Choudhury

The plant is located in Tribedi with the industrial centers in its proximity. The plant has been dysfunctional for almost a year and more. The plant has been operational in a rented land and building and has no property of its own. The machinery is valued at 40% to 60% of its original value
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MUKUND NEED BEFORE DECIDING

WHETHER TO BUY DARSHAN OR NOT?
To make a decision whether to buy or not Mukund needs information regarding the following:
Prof. D. Choudhury

Where to set up the business, keeping in mind this that the firm has no land and property, of its own. Thus the acquisition cost of the land and building has to be taken into account and included in the total cost of the acquisition of Darshan Enterprises. Information regarding the debts, loans, advances taken by the firm or advanced by the firm is also required. It would help Mukund to understand the interest coverage ratio and thus apply for further loans accordingly. In case the firm has a every low rate of interest coverage then it would not be possible for Mukund to leverage the firm properly and it would further reduce the chances of the firm to break even.. In such a case the present valuation cannot be also justified.
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Q2) DO YOU AGREE WITH THE FINANCIAL ANALYSIS DONE BY MUKUND?

Ans: The financial analysis done by Mukund can be further detailed and elaborated to give scope for explanation of various other details.

The analysis can include the analysis of the cash flow statement of a period of three years pre and post acquisition. The post acquisition can be presented as an estimate. This would help the firm to prepare budgets and in target setting and thus achieve better results in future. The financial statement analysis remains incomplete without a time series analysis of the investment that has to be done. The firm would bring in an investment now and it needs to determine what should be the volume of investment. This planning can be visualized only when there is the light of the various schemes of returns indicating the IRR, NPV and other determinants to predict the potentiality of the investment. There can be a comparative analysis of two situations like purchase or lease and such an analysis would help to decide which option would be profitable pursuit for Mukund. There can be a comparative analysis of the leveraging situation of the firm. This would strategically be advantageous for Mukund to enhance his earning capacities.

Prof. D. Choudhury

BASED ON THE CURRENT INFORMATION, DO YOU THINK MUKUND SHOULD BUY THE COMPANY?
The purchase decision of the company is based on a variety of informational inputs.
Prof. D. Choudhury

analysis of the capitals structure and capital budgeting as Mukund is going to deal with an entirely new business, it is advisable that he should have information regarding the financial position of the company the hidden costs associated with the company and the detailed too help him take the decision regarding the acquisition of the Darshan enterprises.
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Q4) DO YOU THINK IT IS A BETTER IDEA TO JUST BUY THE MACHINERY AND NOT THE WHOLE COMPANY?

Ans: The total machinery would cost almost one and a half lakh of

rupees.
Prof. D. Choudhury

This amount is very less as compared to the total investment that has to be done to acquire the firm. The machinery of the firm has been previously valued where the depreciating rate would be almost 40% to 60%. The same rate tells us that the tools and machineries are not in a satisfactory working conditions and the productivity would decrease the total productivity of the main organization with which they are attached.

Moreover its maintenance cost would be too high. If the machines are being purchased the firm may have to start production soon so the amount invested would be blocked, and the depreciation and interest cost would result as a burden on the firm. In-spite of this the amount invested in the acquisition of the firm has to be given more consideration and the purchase has to be done only after the information regarding the capital investment is available for analysis
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