Mexican Home Builders Focus on Organic Growth
 Emily Chasan - Reuters
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May 07, 2010
 |  | Geo expects sales growth of 8 percent to 11 percent in 2010, while Homex is forecasting revenue growth of 12 percent to 14 percent |  | | |
Mexico City - Mexico's two leading home builders see strong signs of recovery due to millions of Mexicans eager for quality housing, but they don't expect consolidation in the sector in the near term.
Top executives from Corporacion Geo SAB de CV and Desarrolladora Homex SAB de CV said at the Reuters Latin American Investment Summit in Mexico City this week that they see few worthwhile acquisition opportunities and will focus on expanding their businesses from within.
"Today, we believe that there isn't enough value in buying another business," Gerardo de Nicolas, chief executive of Homex, said at the summit on Wednesday. "We prefer to grow organically, buy land ourselves, and transfer our culture to any new branches that we open. For the moment, we're not interested in buying any company."
Because of tighter lending standards, Mexico's home builders escaped much of the credit and subprime mortgage problems that hit developed countries over the past few years. But they have faced difficult economic conditions stemming from the country's recession. Executives said this week the worst is over for Mexico's estimated $20 billion homebuilding market and they expect their companies to expand.
"After a difficult year ... we are seeing recovery in the sector," Luis Orvananos, founder, chairman and chief executive of Geo, said on Tuesday, noting that the roughly 800,000 mortgages granted annually in Mexico are allowing home builders to meet consumer demand.
After falling into its worst recession since the 1930s, Mexico's economy is expected to grow 4 percent this year. By contrast, home builders expect a much bigger expansion.
Geo expects sales growth of 8 percent to 11 percent in 2010, while Homex is forecasting revenue growth of 12 percent to 14 percent.
DEMAND SEEN RISING
Homex made its last big Mexican acquisition in 2005, a $194 million deal for Casas Beta. It said this week it is focused on growing its operations abroad and in Mexico, where it sees substantial demand as Mexico's young population grows.
"Also in Mexico today, there are about 23 million houses for some 107 million people. Many of these houses need to be rehabilitated, or reconstructed, or converted into housing with better construction quality," de Nicolas said.
Last week, Geo said its first-quarter net profit surged 52.5 percent from a year earlier, helped by a sharp increase in revenue. Homex reported a 2.5 percent drop in first-quarter net profit, partly due to new accounting rules.
Geo's Orvananos said he does not see much room for consolidation in the industry.
"Each business has its own method and approach," he said. "Each one of the companies operates in their own community, especially the medium and small companies. They are family-run, domestic businesses and none of them like to have someone else getting involved in their business."
Geo and Homex compete with firms like Sare, Urbi and Ara. While the sector is still seeing slightly sluggish demand, an early sign of a recovery in deal-making came last October, when private equity firms Southern Cross Group and Mexico Evercore Partners agreed to buy a controlling interest in privately held Mexican home builder Javer.
Geo is the only Mexican home builder whose shares have risen this year, up about 8 percent. |
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