Hansson Private Limited, Inc.
Management of Risk
Nukaraju Maroju (P301413CMG331)
Sachin Kumar (P301413CMG349)
Sujatha B R (P301413CMG374)
Vinay Kumar (P301413CMG382)
Avil Fernandez (P301413CMG303)
Hansson Private Label (HPL) is a manufacturer of personal care products. The company was purchased by Mr Hanson in 1992. The investment represented significant risk for Hanson because a significant portion of his wealth was tied up is a single investment. Over the past sixteen years, Hanson has grown the company at a conservative but persistent fashion. He is now faced with an investment opportunity that promises swift growth, but also accompanies ...view middle of the document...
Investment Proposal is to accommodate request by HPL’s largest retail customer to increase their share of private label manufacturing. HPL needs to determine ROI and also needs to maintain the debt at modest level to contain risk of financial distress in the event the company loses a big customer.
Advantages of Investment Proposal
* Additional capacity will allow HPL to expand relationship with its largest customer (growing sales in US)
* Generate attractive payback
* Expansion will enable HPL’s growth from addition of new customers
* Deter HPL competitors from expanding production capacity in HPL’s personal care sub-segments
Disadvantages of Investment Proposal
* Making investment and incurring associated debt i.e. significantly increasing HPL’s annual fixed costs and increase risk of financial distress should sales fall or cost rises (or both)
* Sales (from HPL’s largest customer) may initially increase. However, demand may disappear at end of 3-yr contract.
How would you describe HPL and its position within the private label personal care industry?
HPL started in 1992 (Purchase of manufacturing assets from Simon Health and Beauty Products). It was purchased by Hansson for $42 million ($25 million equity & $17 million debt) – Hansson’s largest single investment. Hansson believed he was paying significantly less than replacement costs for the assets.
HPL is a company manufactured personal care products (Soaps, Shampoos, Mouthwash, Shaving Cream, Sun Screen and Others) that sold under the brand label of HPL’s retail partners. The company has stable whole sales growth rate and become a successful by efficient manufacturing, good expense management and appropriate customer service.
HPL is better off within the private label industry. Hansson had estimated that HPL had more than a 28% share of $2.4billion in wholesale sales from the manufacturers. That is HPL own a significant part of this market.
Some Facts & Figures about the company
* Conservative expansion of HPL – opening of any new facility only if (>60% capacity utilization)
* Currently, all operating at (>90%) capacity
* Generated $681 million (revenue) in 2007 [28% of total wholesale sales of $2.4 billion]
Using assumptions made by Executive VP of Manufacturing, Robert Gates, estimate the project’s Free Cash Flows FCFs. Are Gates’ projections realistic? If not, what changes might you incorporate?
Particulars | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Revenues | | 84,960 | 93,881 | 1,03,124 | 1,12,700 | 1,22,618 | 1,32,887 | 1,35,545 | 1,38,256 | 1,41,021 | 1,43,841 |
Opearting Cost | | 76,557 | 83,280 | 91,130 | 98,896 | 1,07,286 | 1,15,587 | 1,17,762 | 1,19,992 | 1,22,278 | 1,24,624 |
EBIDTA | | 8,403 | 10,601 | 11,995 | 13,804 | ...