Productivity Program And E Commerce Expansion Will Drive Long Term Market Share Gains

Catalysts

About Genomma Lab Internacional. de

Genomma Lab Internacional. de develops and markets over the counter medicines, personal care products and functional beverages across Mexico, the U.S. Hispanic segment and Latin America.

What are the underlying business or industry changes driving this perspective?

• The MXN 3 billion multi year productivity program, including deeper COGS reductions and 30 percent cuts to administrative costs, frees MXN 1.1 billion to be reinvested in brand building and innovation, supporting a return to top line growth while sustaining EBITDA margins near 24 percent and expanding earnings.
• A robust innovation and relaunch pipeline across skin care, hair care, OTC and Suerox, with cleaner formulations, wider price ladders and over 25 new pharma registrations for 2026 to 2027, is aligned with rising demand for affordable health and wellness products and is expected to support revenue growth and mix driven gross margins.
• Planned expansion of the traditional channel footprint from roughly 730,000 to over 1 million points of sale and deeper penetration of hard discounters and convenience stores positions Genomma to capture growing modern and value retail traffic in Latin America, which is likely to support volume growth and stabilize cash generation.
• Rapidly scaling e commerce, targeted to reach MXN 2 billion in sales by 2027 and supported by influencer driven, AI enhanced digital communication, taps into the structural shift toward online health and beauty purchases, which is expected to increase high margin direct to consumer sales and support overall net margins.
• Integrated manufacturing, the new high efficiency distribution center and a disciplined leverage profile of 1.2 times net debt to EBITDA create a structurally lower cost base and stable balance sheet, giving the company capacity to absorb regulatory or FX volatility while supporting EBITDA margins and free cash flow.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Genomma Lab Internacional. de's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.1% today to 13.8% in 3 years time.
• Analysts expect earnings to reach MX$3.0 billion (and earnings per share of MX$2.99) by about December 2028, up from MX$1.7 billion today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 13.0x on those 2028 earnings, up from 11.1x today. This future PE is greater than the current PE for the MX Pharmaceuticals industry at 11.1x.
• Analysts expect the number of shares outstanding to decline by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.27%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Prolonged weakness in Mexican consumption, combined with weather dependent categories that rely on strong winter cough and cold and summer beverage seasons, could lead to repeated volume shortfalls, limiting the expected recovery in top line growth and constraining revenue and EBITDA expansion.
• Heavy reliance on seasonal inventory loading and aggressive bets on retailers taking large positions in Suerox and OTC brands increases the risk of further customer returns or destocking when seasons disappoint, depressing reported sales, pressuring net margins through higher discounts and write downs and weighing on earnings.
• Exposure to structurally volatile markets such as Argentina and to foreign exchange swings across Latin America means that even healthy local currency growth can be more than offset by hyperinflationary accounting and devaluations, which may continue to erode reported revenue, compress EBITDA margins and dampen net income.
• The multiyear MXN 3 billion productivity and cost cutting program depends on sustained execution in manufacturing, administration and go to market. If savings fail to materialize or quality and service suffer, the company may need to increase spending again, which would undermine its ability to keep EBITDA margins near 24 percent and slow earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of MX$26.8 for Genomma Lab Internacional. de based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$30.0, and the most bearish reporting a price target of just MX$24.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be MX$21.7 billion, earnings will come to MX$3.0 billion, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 14.3%.
  
• Given the current share price of MX$18.77, the analyst price target of MX$26.8 is 30.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.