Bloomberg News

Lala Buoyed by IPO Seeks Americas M&A to Add to Mexico Milk Gain

December 05, 2013

Grupo Lala Products

An employee organizes Grupo Lala SAB brand sour cream displayed for sale at a supermarket in Mexico City. Photographer: Susana Gonzalez/Bloomberg

Grupo Lala SAB (LALAB), Mexico’s biggest dairy producer, is seeking to expand with more factory capacity at home and potential acquisitions across the Americas following its initial public offering, its chairman said.

Flush with cash after raising 14.1 billion pesos ($1.08 billion) in October in Mexico’s largest IPO this year, Lala may venture into new Central American countries to complement operations in Guatemala and a planned plant in Nicaragua, Chairman Eduardo Tricio said.

“This is a time when Lala can grow more quickly,” Tricio, 50, said in an interview yesterday at Lala’s Mexico City offices. “Having a public vehicle with the shares gives you an acquisition currency if it’s necessary in the future, if a valuable opportunity comes along.”

Founded as a dairy collective in 1949, Lala has broadened its lineup in recent decades to include yogurt and cheese while also boosting its share of Mexico’s milk market to more than 50 percent. Tricio said the Torreon, Mexico-based company is now also studying deals in the U.S. and South America, and will invest more than $200 million to boost Mexico output next year.

New purchases would build on more than a decade of rapid growth in which acquisitions, such as brands like Nutrileche and Los Volcanes, helped push revenue to 40.3 billion pesos in 2012 from 8.9 billion pesos in 2000, Tricio said.

“We were a business that was 99 percent fresh milk in a one-liter carton,” he said. “Now the main focus is on our brands. That’s where we see a lot of potential.”

Sales Gains

Excluding potential acquisitions, sales may rise about 10 percent annually in the next two to three years led by higher-margin products such as cheese and yogurt, Tricio said. According to JPMorgan Chase & Co., Lala may achieve 9 percent compound annual sales growth through 2016.

Earnings before interest, taxes, depreciation and amortization, a profit measure known as Ebitda, may advance at a 12 percent annual pace in the next three years while net income climbs at a 19 percent rate, Alan Alanis, a JPMorgan Chase analyst in New York, said in a Nov. 25 report. He rates the stock as overweight and predicts the shares will reach 34 pesos by December 2014. The New York-based bank also led Lala’s IPO.

Lala fell 0.3 percent to 28.93 pesos at 11:21 a.m. in Mexico City, or 5.2 percent higher than its IPO price of 27.50 pesos.

Dairy producers have a chance to raise Mexico’s per capita consumption of milk and related products, which trails the Latin American average, Tricio said. They will get a boost from Mexico’s new sugary drinks tax of one peso per liter, narrowing the price gap between dairy products and soft drinks when it takes effect next year, he said.

Nutrition Focus

Mexico is the world’s largest per capita consumer of Coca-Cola Co. (KO:US) products, according to data compiled by the Atlanta-based soft-drink maker.

“There’s a lot to do there for our industry,” said Tricio. “People today are very sensitive to everything that has to do with obesity, with nutrition, with wellbeing.”

Lala controls more than half of Mexico’s milk market, up from 37 percent in 2003, according to company reports citing research by A.C. Nielsen. The rest of the market is controlled by closely held Ganaderos Productores de Leche Pura SA and smaller producers including one owned by a juicemaker belonging to Coca-Cola and Mexican bottlers of the soft drink, according to Lala.

Tricio said Lala would spend “a little more than $200 million” to expand its Mexican output of products such as yogurt and cheese at plants in the states of Coahuila and Guanajuato next year. It is also planning to buy more trucks to cut outsourcing of plant-to-warehouse distribution.

“Our strategy is clearly focused on Mexico and Central America,” Tricio said. “We’re very optimistic about Mexico, we think there’s a large growth potential.”

To contact the reporter on this story: Brendan Case in Mexico City at bcase4@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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