Corporate Finance - Presentation 6c2j1d
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CASE STUDY E.I.du Pont de Nemours and Co. : Titanium Dioxide
Group No. 6 1. Guruprasad Kudva 2. Victor Sinha 157 3. Basilica Varel 158 4. Sajesh Warrier 160 5. Hema Suchde 163 6. Pradeep Poojari 164 7. Prakash Iyer 165
124
Company Background
Diversified manufacturers of fibres, plastics, industrial chemicals and other speciality chemical products. 17th largest manufacturing corporation in the US with reported earnings of $357 million on sales of $4.4 billion Conservatively managed co. as evident from the longstanding AAA bond rating. Tendency to rely on retained earnings to fund its capital expenditure programs. Competed basically on technological innovations and tended to avoid cost competition in commodity market. Was organized in to 10 industrial departments of which pigment department was the second smallest department with sales of approximately $180 million in 1971 and was responsible for TiO2
About the product : Titanium Dioxide
Tio2 is a white chemical agent used in the mfg of paints, paper, synthetic fibers, plastics, ink and synthetic rubber. Acts as a whitening and opacifying agent and has no commercially satisfactory substitute.
Manufacturing Technolgies:
Transition in the Tio2 Market
Following two major events transformed the domestic Tio2 market
Price per ton of rutile ore rose from AUD 65 to AUD 110
Sulfate process plants were forced to make major capital expenditure to comply with newly enacted environmental protection legislation
Competitive advantage to Du Pont
Major production of Tio2 was thru chloride process using ilmenite ore.
Easy access to ilemnite ore
Possessed operational knowledge of ilmenitechloride process making production economically viable.
Exhorbitant price hike in rutile ore had negligible impact on Du Pont
Other players were forced either to shut down or move to chloride ilmenite process due to the transition in Tio2 market
MAINTAIN STRATEGY Year
Capital Revenue Expendit ure
Cash Flow
Discount Factor
10%
1973
(13.50)
- (13.50)
0.9091
(12.27)
1974
(9.27) - (9.27)
0.8264
(7.66) 0.7529
(6.98) 0.6944
(6.44)
1975
(9.55) 5.32
(4.23)
0.7513
(3.18) 0.6532
(2.76) 0.5787
(2.45)
1976
(9.83) 8.17
(1.66)
0.6830
(1.13) 0.5668
(0.94) 0.4823
(0.80)
1977
(11.14)
10.86
(0.28)
0.6209
(0.17) 0.4918
(0.14) 0.4019
(0.11)
1978
(11.47)
13.84
2.37
0.5645
1.34
0.4267
1.01
0.3349
0.79
1979
(12.90)
16.86
3.96
0.5132
2.03
0.3703
1.47
0.2791
1.11
1980
(13.28)
20.40
7.12
0.4665
3.32
0.3213
2.29
0.2326
1.66
1981
(11.40)
24.84
13.44
0.4241
5.70
0.2788
3.75
0.1938
2.60
1982
(17.61)
28.46
10.85
0.3855
4.18
0.2419
2.62
0.1615
1.75
1983
(16.94)
33.79
16.85
0.3505
5.90
0.2099
3.54
0.1346
2.27
1984
(16.20)
38.04
21.84
0.3186
6.96
0.1821
3.98
0.1122
2.45
1985
(17.96)
42.56
24.60
0.2897
7.13
0.1580
3.89
0.0935
2.30
NPV
15.25%
12.15
0.8677
20% (11.71)
0.00
0.8333
(11.25)
(6.12)
GROWTH STRATEGY Year
Capital Revenue Expendit ure
Cash Flow
Discount Factor
10%
1973
(22.50)
- (22.50)
0.9091
(20.45)
0.8844
(19.90)
0.8696
(19.57)
1974
(23.18)
- (23.18)
0.8264
(19.15)
0.7822
(18.13)
0.7561
(17.52)
1975
(23.88)
7.55
(16.33)
0.7513
(12.27)
0.6918
(11.29)
0.6575
(10.73)
1976
(20.64)
10.84
(9.80)
0.6830
(6.69) 0.6118
(5.99) 0.5718
(5.60)
1977
(22.29)
20.48
(1.80)
0.6209
(1.12) 0.5411
(0.98) 0.4972
(0.90)
1978
(33.38)
26.05
(7.33)
0.5645
(4.14) 0.4785
(3.51) 0.4323
(3.17)
1979
(32.25)
30.27
(1.98)
0.5132
(1.02) 0.4232
(0.84) 0.3759
(0.75)
1980
(27.68)
42.04
14.37
0.4665
6.70
0.3743
5.38
0.3269
4.70
1981
(25.08)
56.84
31.76
0.4241
13.47
0.3310
10.51
0.2843
9.03
1982
(31.70)
67.31
35.61
0.3855
13.73
0.2928
10.42
0.2472
8.80
1983
(47.19)
81.91
34.72
0.3505
12.17
0.2589
8.99
0.2149
7.46
1984
(33.64)
93.31
59.66
0.3186
19.01
0.2290
13.66
0.1869
11.15
1985
(51.32)
108.90
57.58
0.2897
16.68
0.2025
11.66
0.1625
9.36
NPV
13.07%
16.92
15%
(0.00)
(7.74)
YEAR PAYBACK MAINTAIN STRATEGY
GROWTH STRATEGY
Cash Flow
Cash Flow
Cum. Cash Flow
Cum. Cash Flow
1973
(13.50) (13.50)
(22.50) (22.50)
1974
(9.27) (22.77)
(23.18) (45.68)
1975
(4.23) (27.00)
(16.33) (62.00)
1976
(1.66) (28.66)
(9.80) (71.80)
1977
(0.28) (28.94)
(1.80) (73.60)
1978
2.37
(26.57)
(7.33) (80.93)
1979
3.96
(22.61)
(1.98) (82.91)
1980
7.12
(15.49)
14.37
(68.55)
1981
13.44
(2.04)
31.76
(36.78)
1982
10.85
8.81
35.61
(1.18)
1983
16.85
25.65
34.72
33.55
1984
21.84
47.50
59.66
93.21
1985
24.60
72.10
57.58
150.79
9 Years 3 Months
10 Years 1 Month
Sensitivity Analysis Factor
NPV (000)
Demand (NPV 000) Change in NPV
In Maintain Strategy (NPV 000) 12.2
7.44
4.71
In Growth Strategy (NPV 000) 16.9
10.96
5.96
Price
NPV (000)
(NPV 000) Change in NPV
In Maintain Strategy (NPV 000) 12.2
9.57
2.58
In Growth Strategy (NPV 000) 16.9
0.88
16.04
Factor
Expenditure (NPV Change in 000) NPV
NPV (000)
In Maintain Strategy (NPV 000) 12.2
13.03
(0.88)
In Growth Strategy (NPV 000) 16.9
18.91
(1.99)
Which strategy to go for:
Maintain strategy complimented by competitive advantage
Maintain strategy with reduction in price
Maintain strategy assuming future technological changes
Maintain strategy as there is only one major competitor (NL) to compete
Maintain strategy taking in to consideration the conservative behaviour of Du Pont
Maintain strategy considering the effect on retained earnings
K N A H T OU Y
DU
OTHERS
PO
N
T
Group No. 6 1. Guruprasad Kudva 2. Victor Sinha 157 3. Basilica Varel 158 4. Sajesh Warrier 160 5. Hema Suchde 163 6. Pradeep Poojari 164 7. Prakash Iyer 165
124
Company Background
Diversified manufacturers of fibres, plastics, industrial chemicals and other speciality chemical products. 17th largest manufacturing corporation in the US with reported earnings of $357 million on sales of $4.4 billion Conservatively managed co. as evident from the longstanding AAA bond rating. Tendency to rely on retained earnings to fund its capital expenditure programs. Competed basically on technological innovations and tended to avoid cost competition in commodity market. Was organized in to 10 industrial departments of which pigment department was the second smallest department with sales of approximately $180 million in 1971 and was responsible for TiO2
About the product : Titanium Dioxide
Tio2 is a white chemical agent used in the mfg of paints, paper, synthetic fibers, plastics, ink and synthetic rubber. Acts as a whitening and opacifying agent and has no commercially satisfactory substitute.
Manufacturing Technolgies:
Transition in the Tio2 Market
Following two major events transformed the domestic Tio2 market
Price per ton of rutile ore rose from AUD 65 to AUD 110
Sulfate process plants were forced to make major capital expenditure to comply with newly enacted environmental protection legislation
Competitive advantage to Du Pont
Major production of Tio2 was thru chloride process using ilmenite ore.
Easy access to ilemnite ore
Possessed operational knowledge of ilmenitechloride process making production economically viable.
Exhorbitant price hike in rutile ore had negligible impact on Du Pont
Other players were forced either to shut down or move to chloride ilmenite process due to the transition in Tio2 market
MAINTAIN STRATEGY Year
Capital Revenue Expendit ure
Cash Flow
Discount Factor
10%
1973
(13.50)
- (13.50)
0.9091
(12.27)
1974
(9.27) - (9.27)
0.8264
(7.66) 0.7529
(6.98) 0.6944
(6.44)
1975
(9.55) 5.32
(4.23)
0.7513
(3.18) 0.6532
(2.76) 0.5787
(2.45)
1976
(9.83) 8.17
(1.66)
0.6830
(1.13) 0.5668
(0.94) 0.4823
(0.80)
1977
(11.14)
10.86
(0.28)
0.6209
(0.17) 0.4918
(0.14) 0.4019
(0.11)
1978
(11.47)
13.84
2.37
0.5645
1.34
0.4267
1.01
0.3349
0.79
1979
(12.90)
16.86
3.96
0.5132
2.03
0.3703
1.47
0.2791
1.11
1980
(13.28)
20.40
7.12
0.4665
3.32
0.3213
2.29
0.2326
1.66
1981
(11.40)
24.84
13.44
0.4241
5.70
0.2788
3.75
0.1938
2.60
1982
(17.61)
28.46
10.85
0.3855
4.18
0.2419
2.62
0.1615
1.75
1983
(16.94)
33.79
16.85
0.3505
5.90
0.2099
3.54
0.1346
2.27
1984
(16.20)
38.04
21.84
0.3186
6.96
0.1821
3.98
0.1122
2.45
1985
(17.96)
42.56
24.60
0.2897
7.13
0.1580
3.89
0.0935
2.30
NPV
15.25%
12.15
0.8677
20% (11.71)
0.00
0.8333
(11.25)
(6.12)
GROWTH STRATEGY Year
Capital Revenue Expendit ure
Cash Flow
Discount Factor
10%
1973
(22.50)
- (22.50)
0.9091
(20.45)
0.8844
(19.90)
0.8696
(19.57)
1974
(23.18)
- (23.18)
0.8264
(19.15)
0.7822
(18.13)
0.7561
(17.52)
1975
(23.88)
7.55
(16.33)
0.7513
(12.27)
0.6918
(11.29)
0.6575
(10.73)
1976
(20.64)
10.84
(9.80)
0.6830
(6.69) 0.6118
(5.99) 0.5718
(5.60)
1977
(22.29)
20.48
(1.80)
0.6209
(1.12) 0.5411
(0.98) 0.4972
(0.90)
1978
(33.38)
26.05
(7.33)
0.5645
(4.14) 0.4785
(3.51) 0.4323
(3.17)
1979
(32.25)
30.27
(1.98)
0.5132
(1.02) 0.4232
(0.84) 0.3759
(0.75)
1980
(27.68)
42.04
14.37
0.4665
6.70
0.3743
5.38
0.3269
4.70
1981
(25.08)
56.84
31.76
0.4241
13.47
0.3310
10.51
0.2843
9.03
1982
(31.70)
67.31
35.61
0.3855
13.73
0.2928
10.42
0.2472
8.80
1983
(47.19)
81.91
34.72
0.3505
12.17
0.2589
8.99
0.2149
7.46
1984
(33.64)
93.31
59.66
0.3186
19.01
0.2290
13.66
0.1869
11.15
1985
(51.32)
108.90
57.58
0.2897
16.68
0.2025
11.66
0.1625
9.36
NPV
13.07%
16.92
15%
(0.00)
(7.74)
YEAR PAYBACK MAINTAIN STRATEGY
GROWTH STRATEGY
Cash Flow
Cash Flow
Cum. Cash Flow
Cum. Cash Flow
1973
(13.50) (13.50)
(22.50) (22.50)
1974
(9.27) (22.77)
(23.18) (45.68)
1975
(4.23) (27.00)
(16.33) (62.00)
1976
(1.66) (28.66)
(9.80) (71.80)
1977
(0.28) (28.94)
(1.80) (73.60)
1978
2.37
(26.57)
(7.33) (80.93)
1979
3.96
(22.61)
(1.98) (82.91)
1980
7.12
(15.49)
14.37
(68.55)
1981
13.44
(2.04)
31.76
(36.78)
1982
10.85
8.81
35.61
(1.18)
1983
16.85
25.65
34.72
33.55
1984
21.84
47.50
59.66
93.21
1985
24.60
72.10
57.58
150.79
9 Years 3 Months
10 Years 1 Month
Sensitivity Analysis Factor
NPV (000)
Demand (NPV 000) Change in NPV
In Maintain Strategy (NPV 000) 12.2
7.44
4.71
In Growth Strategy (NPV 000) 16.9
10.96
5.96
Price
NPV (000)
(NPV 000) Change in NPV
In Maintain Strategy (NPV 000) 12.2
9.57
2.58
In Growth Strategy (NPV 000) 16.9
0.88
16.04
Factor
Expenditure (NPV Change in 000) NPV
NPV (000)
In Maintain Strategy (NPV 000) 12.2
13.03
(0.88)
In Growth Strategy (NPV 000) 16.9
18.91
(1.99)
Which strategy to go for:
Maintain strategy complimented by competitive advantage
Maintain strategy with reduction in price
Maintain strategy assuming future technological changes
Maintain strategy as there is only one major competitor (NL) to compete
Maintain strategy taking in to consideration the conservative behaviour of Du Pont
Maintain strategy considering the effect on retained earnings
K N A H T OU Y
DU
OTHERS
PO
N
T
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