Due Diligence Checklist for Unlisted Shares

In the listed market, a lot of the research groundwork is done for you. Hundreds of analysts publish reports on every major stock. Quarterly results are public. Price history is visible. The market has already digested most available information.

In the unlisted market, none of that exists. There is no analyst coverage, no quarterly earnings call, no real-time news feed. You are largely on your own. This makes due diligence not just helpful — it is essential.

This chapter gives you a practical, step-by-step due diligence checklist. Think of it as your research process before investing in any unlisted company.

Step 1: Understand the Business

Start with the basics. Before you look at any number, you need to understand what the company actually does.

What product or service does the company sell?

Who are its customers — retail consumers, businesses, or government?

What is its revenue model — subscription, transaction-based, asset-heavy?

How large is the market it operates in, and what share does it hold?

Who are its main competitors, and what is the company's competitive advantage?

For example, if you are looking at NSE unlisted shares, the business is clear — it is a stock exchange with a dominant market share in equity derivatives. Understanding this helps you assess how durable its earnings are. For Zepto, the question is different: can a quick commerce company achieve sustainable profitability at scale?

Step 2: Study the Financials

For unlisted companies, financial data is not published quarterly. However, annual financial statements are filed with the Ministry of Corporate Affairs (MCA) and are publicly accessible at mca.gov.in. Search for the company name and access its annual returns.

Key financial metrics to examine:

Step 3: Valuation — Is the Price Fair?

This is where many first-time buyers make mistakes. They see a company name they recognise and buy without checking if the current price is reasonable. Here are the two most useful valuation methods for unlisted companies:

Method A: Price-to-Earnings (P/E) Ratio

P/E ratio = Current Price per Share divided by Earnings per Share (EPS)

This tells you how many times you are paying relative to the company's earnings. A P/E of 30 means you are paying Rs. 30 for every Rs. 1 of annual profit.

How to use it for unlisted shares:

Calculate the company's EPS from its MCA filings (Net Profit divided by total shares outstanding).

Find the current unlisted price per share from your platform.

Calculate the implied P/E.

Compare to the P/E of a comparable listed peer. For example, compare NSE's implied P/E to BSE's listed P/E. Apply a 20-30% illiquidity discount — you should be paying less for unlisted than listed, all else equal.

Method B: EV/EBITDA

EV/EBITDA = Enterprise Value divided by EBITDA

Enterprise Value = Market Capitalisation + Total Debt - Cash

EBITDA = Earnings Before Interest, Tax, Depreciation, and Amortisation

EV/EBITDA is more useful than P/E for companies that are growing fast but not yet profitable (like Zepto), or for capital-intensive businesses. It strips out the effects of financing, taxes, and accounting choices.

A lower EV/EBITDA compared to listed peers suggests the unlisted company is relatively cheaper. As with P/E, apply a discount for illiquidity when comparing.

Step 4: Assess the Promoter and Management

The quality of the people running the company matters enormously — especially for unlisted companies where governance standards are less enforced.

Who are the promoters? What is their track record in this or previous businesses?

Has there been any promoter misconduct, litigation, or regulatory action? (Search MCA, court databases, and news archives.)

What is the investor base? Are reputed VCs or PE funds invested? Their presence is a quality signal, but not a guarantee.

Is the management team experienced and stable? High attrition in leadership is a warning sign.

For ESOP sellers — why are employees selling now? Motivated selling by insiders is worth investigating.

Step 5: Understand the IPO or Exit Timeline

For most unlisted share investors, the intended exit is an IPO — when the company lists on NSE or BSE. Understanding the realism of this timeline is critical.

Has the company filed a Draft Red Herring Prospectus (DRHP) with SEBI? If yes, an IPO is imminent.

Has the company made any public statements about an IPO? Check news sources and the company's official communications.

What is the SEBI approval status? Some companies, like NSE, have had IPO plans stalled due to regulatory issues.

If there is no IPO in sight, what is your alternative exit? Can you sell in the unlisted market if needed?

Remember: an IPO is not guaranteed. Companies can stay unlisted indefinitely, get acquired, or face challenges that delay listing plans. Your investment thesis should account for a scenario where the IPO is delayed by 2-3 years.

Step 6: Check for Legal and Regulatory Issues

Search the company's name on the MCA website for any ROC (Registrar of Companies) notices or filings of concern.

Check if the company or its promoters are party to any major litigation (High Court, SEBI, NCLT).

For financial companies (like MSEI), check RBI or SEBI regulatory status.

Ensure the company has filed its annual returns consistently — lapses can indicate governance issues.

Full Due Diligence Checklist

A Note on Information Sources

Here is where to find the information you need for due diligence on any unlisted company:

Key Takeaways

Due diligence is non-negotiable in the unlisted market. There is no analyst doing this for you.

Start with understanding the business before looking at any number.

Use P/E and EV/EBITDA to assess whether the current price is fair — always compare to listed peers with an illiquidity discount.

Research the promoter and management team carefully.

Understand the IPO timeline — and have a backup exit plan if it is delayed.

MCA filings and SEBI's DRHP database are your best free research tools.

A good platform like UnlistedIdeas.com gives you current prices as a starting point, but the research behind the price is always your responsibility.