Fitch Upgrades Gruma's IDRs to 'BBB'; Outlook Stable

lunes 9 de noviembre de 2015 16:28 GYT

(The following statement was released by the rating agency) MONTERREY, November 09 (Fitch) Fitch Ratings has upgraded Gruma S.A.B. de C.V.'s (Gruma) ratings as follows: --Long-term foreign currency Issuer Default Rating (IDR) to 'BBB' from 'BBB-'; --Long-term local currency IDR to 'BBB' from 'BBB-'; --USD400 million senior unsecured notes due 2024 to 'BBB' from 'BBB-'. The Rating Outlook is Stable The upgrade reflects Fitch's view that Gruma's improvements in profitability and leverage metrics over the last few years has strengthened its credit profile and decreased its financial and business risks. The upgrade also considers that Gruma will maintain a solid free cash flow (FCF) generation capacity and total debt-to-EBITDA close to 1.5x over the next 18 to 24 months. KEY RATING DRIVERS Sound Business Risk Profile: Gruma's ratings continue to reflect its strong business position as one of the largest producers of corn flour and tortillas in the world with leading brands in most of it markets. The company has a broad distribution network, diversified product lines and proprietary technology that support its long-term growth in the markets where it operates. In addition, Gruma benefits from the geographical diversification of its cash flow generation with approximately 64% of its total revenues and 61% of its total EBITDA coming from Gruma Corp., which has operations in the U.S. and Europe. Low Leverage: Gruma's low leverage ratios are adequate for the current rating category and are expected to remain relatively stable. Fitch is projecting that for 2015 the company's total debt-to-EBITDA will be 1.5x, while its total net debt-to EBITDA will be 1.3x. Fitch also anticipates these ratios could be lower in 2016 in the absence of material acquisitions or investments. For the last 12 months (LTM) as of Sept. 30, 2015, the company's total debt-to-EBITDA and total net debt-to-EBITDA as calculated by Fitch were 1.5x and 1.2x, respectively. As of Sept. 30, 2015, Gruma's total debt was MXN12.7 billion. Solid FCF: Fitch incorporates Gruma's solid FCF generation capacity through the cycle in its ratings. Fitch estimates that in 2015 the company will generate approximately MXN1.4 billion of FCF after covering MXN2.8 billion of capex and MXN780 million of dividend payments. Fitch also projects that in 2016 Gruma will maintain annual cash flow from operations (CFFO) above MXN5 billion which provides flexibility to cover an estimated capex of around MXN3.5 billion and dividends of MXN1.2 billion. For the LTM as of Sept. 30, 2015, the company's CFFO and FCF as per Fitch calculations were close to MXN5.3 billion and MXN2 billion, respectively. Stable Operating Performance: Fitch projects Gruma's revenues to grow on average higher than mid single-digits in 2015-2016 and to maintain its EBITDA margin stable at around 15%. The increase in revenues should mainly be supported a combination of volume growth in the low single-digits across it operations and the positive effect of the weak MXN against the USD coming from the U.S. operations. In terms of profitability, EBITDA margin stability is expected to benefit from better sales mix, internal efficiencies, and favorable raw material costs. For the first nine months ending Sept. 30, 2015, Gruma's revenues increased 16% and had an EBITDA margin expansion of around 40 basis points (bps) to 15.2%, compared to the same period of last year. KEY ASSUMPTIONS Fitch's key assumptions considered in our base rating case include: - Revenue growth of 12% in 2015 and low single digits in 2016; - EBITDA margin around 15% for 2015-2016; - Average annual FCF capacity of close to MXN1.4 billion in 2015-2016; - Total debt-to-EBITDA around 1.5x in the next 18 to 24 months. RATING SENSITIVITIES Positive ratings actions in the mid-term have low probability given this rating upgrade. However, factors that could strengthen the credit quality include: -Larger operational scale; -Maintaining a sustained improvement in profitability margins; -FCF margin above 3%; -Total debt-to-EBITDA below 1.0x; Negative ratings actions could be triggered by the combination of one or more of the following: -An important deterioration of profitability margins; -Negative FCF generation trough the business cycle; -Significant debt-financed acquisitions; -Total debt-to-EBITDA above 2.0x on a sustained basis. LIQUIDITY Adequate Liquidity: Gruma has an adequate liquidity position and a manageable debt maturity profile. As of Sept. 30, 2015, the company had a cash balance of MXN2.5 billion and USD325 million of available committed credit lines due in 2018. This liquidity position combined with its FCF generation is sufficient to face MXN2.1 billion of short-term debt obligations and approximately USD60 million of a contingent payment to Archer-Daniels-Midland due in June 2016. The company's debt amortization for the next three years should be manageable with USD59 million due in 2016, USD35 million due in 2017, and USD172 million due in 2018. Contact: Primary Analyst Rogelio Gonzalez Director +52 8399 9100 Fitch Mexico S.A. de C.V. Prol. Alfonso Reyes 2612 Monterrey, N.L., Mexico Secondary Analyst Johnny Da Silva Director +1-212-908-0367 Committee Chairperson Alberto Moreno Senior Director +52-81-8399-9100 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: Additional information is available on Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=993708 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.