Fitch Ratings has affirmed Gruma, S.A.B. de C.V.'s (Gruma) Long-Term Foreign and Local-Currency Issuer Default Ratings (IDR) and unsecured senior notes at 'BBB+'.
Fitch has also affirmed Gruma's National Long-Term rating at 'AAA(mex)' and its National short-term rating at 'F1+(mex)'. The Rating Outlook on the IDRs remains Stable.
Gruma's ratings reflect its strong business position as one of the world's largest producers of tortillas and corn flour, with a portfolio of recognized brands and geographically diversified operations including a strong U.S. presence.
Key Rating Drivers
Sound Business Profile: Gruma's business position is supported by its leading Mission brand in the tortillas and Maseca brand in the corn flour business and value-added products segment. The company has actively introduced new and healthier products across its sales channels to capture changes in consumer preferences. Its broad distribution network, diversified product lines and proprietary technology provide a competitive advantage to continue long-term growth in its main markets.
Geographical Diversification: Gruma's credit profile benefits from geographically diversified operations outside of Mexico that allow it to mitigate business risk and cash flow volatility. As of 2022, the company generates around 57% of revenue and 67% of EBITDA from its U.S. operations, while Europe contributes 8% and 4%, respectively. Fitch views positively the company's potential growth opportunities with the U.S. Hispanic community and the increased popularity of tortillas among global consumers. Its Mexican operations, which are concentrated in corn flour, represent approximately 26% and 25% of consolidated revenue and EBITDA, respectively.
Positive trends in revenues: Fitch projects Gruma's revenues to increase around 10% in 2022 and 6% in 2023. This increase will be driven by richer product sales mix, price increases due to pass-through costs and expenses, and in a lesser extend volume growth. For the first six months as of June 2022, Gruma's revenues increased 18% compared to 2021 due mainly to higher sales prices to upset cost and expenses pressures and higher sales volume in the U.S. and Europe.
Manageable Profitability Pressures: Gruma's EBITDA margin (pre IFRS 16) will face pressures due to higher commodities costs and input prices. Fitch expects that these pressures will be gradually mitigated by Gruma's initiatives related to price increases combined with its active hedging strategies and expenses reduction. Fitch projects that the company's EBITDA margin will be relatively stable at around 14.5% in average for 2022-2023 with EBITDA levels of MXN15.1 billion (USD 757 million) in 2022 and MXN15.9 billion (USD 756 million) in 2023.
Low Leverage: Gruma's leverage is expected to remain stable at low levels in 2022-2023. Fitch projects the company will reach a gross leverage below the 2x range and net leverage between 1.5x-1.3x in the next 12 to 24 months. These metrics incorporate modest debt increase and EBITDA growth of around 11% in 2022. Fitch anticipates that Gruma will continue its organic growth strategy and does not expect any significant investment or acquisitions that could materially impact its credit profile.
Temporal Negative FCF in 2022: Gruma's operations generated consistently positive FCF over the last three years, but negative FCF is likely in 2022 due to higher net working capital requirements related to inventory. Positive FCF should resume in 2023 and going forward. Fitch projects negative FCF to levels around MXN1 billion, based on higher net working capital requirements, capex at around MXN5.8 billion and dividends close to MXN2 billion. FCF is forecast to strengthen in 2023 to levels around MXN3.3 billion as a result of EBITDA growth and lower net working capital requirements.
Derivation Summary
Gruma's rating reflects its solid business position, good profitability and low leverage. It has a weaker position in terms of size and scale and a less diversified portfolio of products and brands when compared with peers in the packaged food industry, which is compensated with lower leverage ratios, higher profitability and better quality of cash flows generated in higher-rated countries.
When compared to peers such as Sigma Alimentos, S.A. de C.V. (BBB/Stable) or Grupo Bimbo, S.A.B. de C.V. (BBB/Stable), Fitch believes Gruma's product diversification and brands are relatively weaker.
However, Gruma has a stronger financial profile, as EBITDA margin is expected to be around 14.5% in average for the next two years, compared to 12% and 10%, of Bimbo and Sigma Alimentos respectively. In terms of leverage, Gruma has more robust financial structure with gross leverage below 2.0x and net leverage at or below 1.5x. These compare with the expectation of Bimbo's gross and net leverage at around 2.0x, and Sigma Alimentos' gross and net leverage around 3.0x and 2.3x, respectively.
Gruma's size and scale is similar to peers such as Flower Foods, Inc. (BBB/Stable), but its profitability and leverage has been stronger over the last three years. When compared to Mondelez International, Inc. (BBB/Stable), its business profile is weaker in terms of scale, product diversification and profitability, but its credit metrics are stronger.
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer Include
Revenue increases around 10% in 2022 and 6% in 2023;
EBITDA margins around 14.5% in average for 2022-2023;
Capex around MXN5.8 billion in 2022 and MXN4.9 billion in 2023;
Dividends of MXN2 billion in 2022 and MXN2.2 billion in 2023;
FCF negative of MXN1 billion in 2022, and FCF positive of MXN3.3 billion in 2023;
Total debt to EBITDA and total net debt to EBITDA close to 1.9x and 1.5x, respectively, by YE 2022.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive rating actions are not likely for Gruma in the mid-term; however, the combination of the following could be positive for its credit quality:
Greater operational scale, product diversification and mix of value-added products;
Improved profitability margins;
FCF/revenue above 3%;
Total debt to EBITDA sustained below 1.5x.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A significant deterioration in profitability margins;
Consistently low or negative FCF through the business cycle;
Significant debt-financed acquisitions;
Total debt to EBITDA sustained above 2.5x.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
Liquidity and Debt Structure
Strong Liquidity: As of June 30,2022 Gruma had MXN4.7 billion of cash and cash equivalents and MXN4.1 billion of short-term debt. The company plans to refinance short term debt maturities in second half of 2022. Gruma's financial flexibility is also supported with committed revolving credit facilities of MXN13 billion (USD650 million) due in 2024, 2026 and 2027. The company's next upcoming significant long-term debt maturities are MXN3 billion on September 2023 and USD400 million on December 2024.
Issuer Profile
Gruma is one of the world's leading tortilla and corn flour producers. With leading brands in most of its markets, GRUMA has operations in the United States, Mexico, Central America, Europe and to a lesser extent, in Asia and Oceania. Gruma has a portfolio of well recognized brands such as Maseca and Mission.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
GRUMA, S.A.B. DE C.V. 
