The biggest issue HPL faces are regarding the size of the investment. The company has never made such a large investment in a single project at one go. This would practically stall investments into all other projects in the pipeline for the medium term. Hence, the company is not in a position to afford any failure in this project.
The retail partner is willing to agree to a 3-year contract only. However, with such a large investment, there is a risk of not getting the money back within 3 years. It is possible that the products fail or are rendered obsolete at the end of 3 years.
The company faces a risk of the debt trap. Right now, HPL maintains a highly favorable debt position. For adding new capacity, there are constraints in raising money through equity and almost all the financing will have to be done through debt. This raises the risk exposure of the company enormously.
Hanson manufactures private label products in the personal care space where the competition is very intense. A large number of branded and non-branded companies are vying for a limited shelf space. Hanson already covers 28% of the private label market in personal care space. Therefore, there is a limit to the scope of further acquiring the market share.
The personal care market volumes have increased less than 1% in the past 4 years. The marginal growth (1.7%) has been largely driven by the price increases. However, one of the biggest USPs of private label products has been their low prices as compared to the branded ones.