Genomma Lab Internacional: Pharmaceuticals

The Company

Genomma Lab Internacional (LABB) is one of the leading companies in Latin America focusing on pharmaceutical and personal care products.

The group’s operations go across the supply chain, from design, product development and production to sales and marketing of a broad range of premiumbranded products. Many of these products are leaders in the categories in which they compete in terms of sales volume and market share. The Mexican market comprises 66% of Genomma’s revenues. The business segment covered by the company is over-the-counter (OTC) products, which can be bought without a prescription. Genomma is also considered a strong competitor in the OTC segment, with a market share of 13.3%. Generic medication has just a 5% penetration rate in the Mexican market – one of the lowest in the world – with Genomma selling these products under the “Primer Nivel” brand. The care segment in Mexico, meanwhile, has a market value of $10bn, as per data from AC Nielsen, a market research group, with Genomma holding 5.6% of the market. The company notes that opportunities in the beauty segment are broad, including skin protection and bathing products, cosmetics and perfumes, as well as oral hygiene and care products. Genomma’s main competitors are Unilever, Colgate, Procter and Gamble and L’Oréal.

The company has a sound business model through a combination of a new product development process, targeted marketing, a broad retail distribution network and a low-cost, highly flexible supply-chain operating model. Genomma focuses on markets which are of attractive size and have growth prospects, targeting mass markets whose purchasing patterns respond quickly to their marketing campaigns. Marketing and advertising strategies include detailed client metrics and market analysis that are used to evaluate the probability of success for each product before it is launched. This enables adjustments to be made to the marketing and publicity strategy in a fast and effective way. The company has internal filming and post-production facilities, as well as a design team and production equipment for the development of marketing campaigns, generating time and cost efficiencies. The company is one of the principal advertisers in Mexico, mainly via freeto-air television, and has applied its business model across the Americas, expanding to 15 countries, with markets in Argentina, Colombia, Brazil and the US. The group’s international markets have helped accelerate revenue growth, supported by operations in the Hispanic world and US, and brand acquisitions in Brazil.

Development Strategy

Genomma represents an attractive investment opportunity for 2014. While the slowdown in the Mexican economy and the impact of new taxes could affect personal consumption, we expect revenues to grow 11% year-on-year (y-o-y) to $962m. Considering that the national GDP could grow between 3% and 3.5%, Genomma’s domestic sales could rise slightly above 4%. New acquisitions in Mexico and strategies for managing inventories, combined with the recovery of private consumption, support our forecast. We predict double-digit growth in revenues from the company’s international operations (+20%), supported by Genomma’s recent partnerships with Walmart and Walgreens to distribute its products in the US, and acquisitions and organic growth in Brazil and the rest of Latin America. Recently, the company acquired a seven-brand portfolio from Johnson & Johnson, as well as the rights for a 15-brand package in Brazil, and 30 sanitary registrations of OTC products.

In 2014, we forecast earnings before interest, taxes, depreciation and amortisation (EBITDA) of $247m, a 12.1% y-o-y increase, with an EBITDA margin of 26.6% (+30 bps versus 2013). It is worth noting that in 2013 Genomma adjusted its commercial policies to improve rotation of inventories. In addition, the firm started outsourcing manufacturing processes for its international operations to expand profitability. We estimate that these initiatives could contribute positively to Genomma’s margins starting in 2014. We have a 2014 year-end target price of MXN39.50 ($3.07) for LABB.