CASE STUDY

E.I.du Pont de Nemours and Co. : Titanium Dioxide

Group No. 6
1. Guruprasad Kudva 124
2. Victor Sinha 157
3. Basilica Varel 158
4. Sajesh Warrier 160
5. Hema Suchde 163
6. Pradeep Poojari 164
7. Prakash Iyer 165
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 Cash Flow Discount Factor

Expendit
ure

        10% 15.25% 20%

1973 (13.50)              -            (13.50)   0.9091  (12.27)   0.8677  (11.71)   0.8333  (11.25)

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   12.15   0.00   (6.12)

GROWTH STRATEGY

Year Capital Revenue Cash Flow Discount Factor

Expendit
ure

        10% 13.07% 15%

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   16.92   (0.00)   (7.74)

YEAR PAYBACK
MAINTAIN STRATEGY GROWTH STRATEGY
Cash Flow Cum. Cash Flow 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 Demand (NPV 000) Change in
(000) NPV
In Maintain Strategy (NPV 000) 12.2 7.44      4.71 
In Growth Strategy (NPV 000) 16.9 10.96      5.96 
       
NPV Price (NPV 000) Change in
(000) NPV
In Maintain Strategy (NPV 000) 12.2 9.57      2.58 
In Growth Strategy (NPV 000) 16.9 0.88    16.04 
       
Factor NPV Expenditure (NPV Change in
(000) 000) NPV
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
 T
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OTHERS