Alicorp 'BBB-' Ratings Affirmed, Off Watch Negative On Likely Rapid Deleveraging After Recent Acquisition, Outlook Stable

  • On Jan. 31, 2019, Peru-based packaged food maker Alicorp announced the acquisition of Intradevco, a personal and home care products company, for $490.4 million through a $500 million bridge loan.
  • Although the transaction was 100% debt financed, we believe Alicorp will integrate Intradevco rapidly, improving profitability and credit metrics gradually.
  • On March 13, 2019, S&P Global Ratings affirmed its 'BBB-' long-term issuer credit rating on Alicorp and removed it from CreditWatch, where we placed it with negative implications on Feb. 4, 2019.
  • The stable outlook reflects our expectation that Alicorp will successfully integrate Intradevco. We believe that its top-line growth and improving margins will support its deleveraging for the next two years, with debt to EBITDA below 2.5x in the next 12 months and close to 2.0x for the next 24 months.
MEXICO CITY (S&P Global Ratings) March 13, 2019—S&P Global Ratings took rating 
actions described above. The rating affirmation reflects our view that Alicorp 
will be able to successfully integrate Intradevco into its business while 
maintaining its leverage metrics in line with our expectations, with debt to 
EBITDA trending towards 2.0x and a discretionary cash flow close to zero in 
the next 12 months. Alicorp expects to sell non-core assets for about $120 
million, which the company will use for debt prepayment. Alicorp has a long 
track record of engaging in M&A activity, mostly debt financed, while 
sustaining its capital structure. We believe the plan for the integration of 
Intradevco is in line with past acquisitions.

We believe the transaction represents an opportunity for Alicorp to strengthen 
its operations in the home care division while it enters the personal care 
segment. The company will benefit from Intradevco's leading brands such as 
Sapolio, Avala, and Dento. Therefore, the acquisition will represent an 
additional barrier for new entrants into the Peruvian market, given that 
Alicorp will increase its scale of operations. We expect the integration of 
Intradevco to provide certain benefits in terms of economies of scale and 
potential synergies. These factors, along with Intradevco's higher margins, 
should increase Alicorp's EBITDA margins to 13.5%-14.5% in the next two years, 
in line with the average for the global consumer products sector.

Our rating on Alicorp continues to reflect its leading position in Peru and 
improving market shares in other Latin American countries, strong brand 
recognition of its portfolio of products, successful growth strategy through 
the launch of new products and formats, and somewhat diverse production 
facilities. However, the company's revenue and EBITDA remain smaller than 
those of its global rated peers. In addition, Alicorp has a limited geographic 
diversification and moderate exposure to economies with a high-risk operating 
environment, such as Argentina, Bolivia, and Ecuador, along with exposure to 
raw material price fluctuations and foreign currency volatility. Nevertheless, 
Alicorp continues to use its hedging strategy to offset increases in the 
prices of raw materials and foreign exchange fluctuations.

We will continue monitoring Alicorp's growth strategy, including further 
potential acquisitions, and new production capacity. Another acquisition in 
the near term that results in further significant incremental debt and/or cash 
reduction could pressure the ratings.