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Conglomerates to Watch

Alfa, a prominent manufacturing conglomerate in Mexico:

By 12/31/2018March 1st, 2024No Comments

Alfa S.A.B. de C.V. is a prominent Mexican manufacturing conglomerate listed in Mexico while being a constituent of the stock market index there known as the IPC. Moreover, from its foundation in 1890 in the city of Monterrey located in the prosperous Mexican state of Nuevo León taking the form of a wholly-owned subsidiary focused on packaging belonging to Cervecería Cuauhtémoc S.A., the company took its present form after a restructuring that went into effect in 1936. In fact, the brewing giant was divided into two independent players linked under the same parent company. Accordingly, one of these players comprised the packaging division of the beer company consisting of a glass bottle maker and bottle cap manufacturing company known after the split as Valores Industriales S.A. or VISA. The heir who received managing control of this packaging division was the late Roberto Garza Sada, son of the shareholder exercising control of the beer company back then and patriarch of Mexican industry Isaac Garza Garza. Moreover, a complete spin-off of VISA took place in 1973 when a failed kidnapping attempt took the life of Eugenio Garza Sada, brother of Roberto Garza Sada. Meanwhile, the packaging division by then was a full-fledged industrial manufacturing juggernaut in Mexico having developed from scratch the country’s biggest steelmaker known as Hojalata y Láminas S.A., better known by its acronym as HYLSA. Similarly, the glass maker was spun-off from VISA soon after and taken over by another branch of the now extended family. From here, this huge Mexican conglomerate known nowadays as Alfa, having been renamed shortly after the spin-off of the glass maker, includes vast petrochemical operations including PET plastics and synthetic textile fibers, fabrication of aluminum auto parts such as cylinder heads servicing car assembly plants countrywide as well as the export market around the globe and a very promising frozen food subsidiary. The last is owned in its entirety having gone through expansion outside of Mexico while currently holding 70 food processing plants in 14 countries throughout the world including a fleet of refrigerated trucks numbering close to 1,000 units along with home-grown brands on display in the shelves of supermarkets worldwide. Nevertheless, although flirting with bankruptcy in the early 1980s due a heavy toll on the company’s finances in the form of cash flow generating problems to service a good chunk of debt, the entity stood afloat under the direction of Roberto’s son Bernardo Garza Sada who implemented several measures including downsizing, cost-cutting, restructuring of the debt winning more favorable terms including cancelling part of the latter with new equity in the company and liquidating non-core businesses burning through cash inside the wide portfolio of the conglomerate. Today, Alfa is a very solid manufacturing conglomerate making Mexicans proud after building prominence over decades of existence as a stand-alone and publicly-traded entity including having gone through the “Mexican Peso Crisis” of the early 1990s unscarred.

Furthermore, Alfa’s main subsidiaries engaged in petrochemicals, auto-parts manufacturing and food processing are known as Alpek S.A. de C.V., Nemak S.A. de C.V. and Sigma Alimentos S.A. de C.V. respectively. These three wholly-owned subsidiaries are responsible for at least 80% of systemwide sales consisting of $ 5 billion a year roughly apiece. In addition, there are two new wholly-owned subsidiaries, one of which specializes in offering oil-field services off-shore in the Gulf of Mexico as a contractor. The other new subsidiary owned in its entirety is a telecom carrier offering various services including wireline, long distance, broadband internet and Cable TV. The latter is growing rapidly across the entire territory south of the Rio Grande taking into account that the Mexican government is trying to increase competition nationally by curbing the clout an establishment like América Móvil S.A.B. de C.V. possesses today in the economy of Mexico. Altogether, although the company trades at a low market valuation compared to its previous sister company today widely known as FEMSA, Alfa is strategically positioned as a conglomerate allowing the entity to extract synergies in the future by means of enriching its cash flows from operations through focus on the newest two divisions expanding services that are essential to the economy of Mexico.

To conclude, the company is managed by an experienced team of executives with founding family members holding the top positions. Currently, the board is chaired by Armando Garza Sada, grandson of the late Roberto Garza Sada and nephew of the now deceased Bernardo Garza Sada. A business veteran having experience within the industries in question including an outstanding track-record of many years at Alfa, Armando Garza Sada holds an undergraduate degree in Industrial Engineering from MIT and an MBA from Stanford University. Moreover, the company has excellent prospects in terms of taking advantage of new promising opportunities arising in Mexico being an important contractor for state-owned PEMEX, expansion of current operations organically and incursion in telecom which is an area of great development while gaining competitiveness inside the republic.