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Group 7
Manindra Konda (0181/51)
Kshitij Sharma (0187/51)
N. Prathyusha (0217/51)
Namrata Chauhan (0222/51)
Neharika Nawapet (0231/51)
Introduction
NATL Project
Operational Risk
Revenue risk from reduced price
Measures: The co doesnt seem to have taken adequate measures to
address this grave risk
Recommendation: The co must safeguard its interests and the interests
of the farmers that work with it, by gaining some form of assurance from
the Govt., that the trade protection would not be withdrawn abruptly
Input supply risk due to transportation issues
Measures: The co offered a decent wage offer to encourage more truck
owners for cane transportation to its mills. However, fewer trucks than
intended were gathered
Recommendation: Tie up with either Govt. or other companies to
provide year round work employment to truck owners. The co. could also
look at offering part time opportunities for the truck owners.
Financial Risk
Risk from variable interest rate
The co is not protected against such risks. This risk could have serious
ramifications for the co. because generally the loans extended by banks
have floating interest rates
Measures: Co. doesnt seem to have taken adequate measures acc. to
the case
Recommendation: Enter into interest rate swaps to hedge this risk
Risk from currency mismatch between revenue and repayment
In the aftermath of Asian financial crisis, Vietnam is expected to witness
steep decline in its growth. The currency mismatch is a grave concern, to
which the co is not hedged against
Measures: Co. doesnt seem to have taken adequate measures acc. to
the case
Recommendation: Utilize currency swaps to hedge against this risk
Risk from cash shortfall for debt service
Unanticipated circumstances could cause cash shortfall, in turn leading to
default on debt repayment. The co., according to the case, witnessed this
problem and was forced to look for refinance to finance its Rabobank
Political Risk
FX Shortage
Legal system
Vietnam, being a developing country doesnt boast of a highly developed
legal system. This could be a risk for the co.
Measures: Co. doesnt seem to have taken adequate measures acc. to
the case
Recommendation: The co. can push the Govt. to improve the legal
system, citing economic benefits from higher ease of doing business.
Trade restriction, import export tariffs
Abrupt change in import export tariffs could significantly affect cos
earnings.
RISKS
Increased return because of switching Co. could achieve a monopoly by wiping out
to cane cultivation= USD
its relatively inefficient peers, and then
~31mn(Calculations discussed later) abuse its dominant position.
Better infrastructure
Farmer enjoys indirect benefit of
better infrastructure for swift and
efficient transport of his produce
Truckers:
INCENTIVES
RISKS
30883.70
31429.66
1940.82
13699.72
5875.94
-52036.32
Perpetuity Value
179985.00
31793.52
Has to be environmentally
and socially sound
Quantitative Analysis
1) Crop Economics
Cane (Real NPV in $000s)
22,226.95
(9,203)
31429.66
2) Trucking Economics
Total Revenue/season (in USD)
Total Fuel Cost/Season
Total Labor cost per season
Maintenance cost per season
Depreciation cost per season
Financing Cost
(in
(in
(in
(in
(in
4427.5
USD)
USD)
USD)
USD)
USD)
1312.5
300
666.67
437.5
328.77
1382.07
Profit Margin
31%
196,485
FIRR
17.99%
16,500
FIRR (New)
16.31%
52,324.31
Real EIRR
18.46%
30,883.70
31,429.66
1,940.82
13,699.72
52,036.32
5,875.94
31,793.52
31,793.52
196,485
16,500
179,985.00
211,778.52
Sugar
(The imported sugar and the sugar produced by NATL project are sold at
the same price, Hence, Economic Price= Financial Price)
Cane
(Opportunity cost refers to the NPV from cash crops instead of cane
production )
Truckers- Scenario 1
(Scenario 1: Truckers remain idle in off season)
Truckers- Scenario 2
(Scenario 2: Truckers work as laborers in the off season)
Vietnamese labor
(NATL pays double the wage of what the Vietnamese labor would get
elsewhere)
1.00
-0.41
0.75
0.54
0.50
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