Grégoire Blond Credit Risk Analysis II

Grupo Industrial Bimbo S.A. De C.V. 1. How is Grupo Bimbo positioned for NAFTA? Bimbo took a head start for the upcoming liberalization of market subsequent. It realized early on that there was going to be tremendous changes in the competitive environment and that its business needed to evolve in order to remain sustainable. One of the major advantage of Grupo Industrial Bimbo (GIB) is the very high brand awareness it has on its current markets; it serves 80% of the baked goods market. The traditional markets on which GIB is are those which are showing the most growth potential with a rapidly increasing population (1.9% growth compared to 0.8% for the USA) and an evolving shopping pattern increasing the role of supermakets. However, on the new markets that will be opened in NAFTA, it will not benefit from this advantage. The foreign products might benefit from their brand awareness in Latin America, since they benefit from the US cultural influence. Facing competition on is own markets, the only way GIB will be benefiting from NAFTA is by investing in new markets abroad. Those markets don't show a too attractive growth but they have the highest purchasing power and therefore must be exploited. Another solution could be the development of joint venture on the home markets, designed after the one made with Sara Lee; benefiting from the brand awareness, and GIB local know how. Mexico's economy will evolve from from high protectionism to a more liberal and competitive environment when agreeing to the GATT. Farming subsidies will have to be reduced as well as tariffs on imports. Tariffs of 10% would have to decrease by 1% a year over the next 10 years. There will be a loss in subsidies for the farmers however GIB is not in this industry. This is a positive point for GIB since the price of its main input, wheat, will drop thanks to increased competition. The company will have the choice of suppliers and shop for the lowest price available. It seems that Mexico will have to develop more labor intensive crops than wheat is since they have a comparative advantage in labor costs. Therefore, the majority of wheat will most likely be imported from the US or Canada in the coming years, at a lower price than GIB paid on its domestic market. Furthermore, the company's plants are on the cutting edge of technology and therefore can produce at lower price than competitors; a market analyst was even impressed by their installations and declared it wouldn't be easy to compete with them. With lower input costs than before and a lower cost structure than the competition, GIB might be well positioned to compete on the wider scale that is NAFTA. The company also invested highly in managerial formations to ensure that its management will be efficient in a different environment. It invested $1.6 billion over the past 6 years in new manufacturing technologies, in employee training (“best managed firm in Latin America” in 1993). 2. How is Grupo Bimbo positioned to withstand the ensuing country crisis? Please include a brief analysis of the financial statements. Financially, the company was management in a rather conservative way. Therefore it should be in a relatively good position to face the upcoming crisis. Liquidity ratio are satisfying with 1.39 and 0.72 as quick ratio. Leverage ratios are very satisfying: debt to TNW is only 29% and most of it is short term debt. With the crisis, the cost of debt is going to increase dramatically and it is therefore good that GIB has such a conservative debt policy. Profitability is also good (NPAT/sales = 6.7% and gross profit margin = 53.6%)