March 20, 2007 / 7:28 PM / 10 years ago

Mexico's Homex focuses on organic growth

<p>Homex CEO David Sanchez-Tembleque from Spain speaks during the Reuters Latam Summit in Mexico City March 20, 2007.Andrew Winning</p>

MEXICO CITY (Reuters) - Homex, one of Mexico's largest homebuilders, plans to focus on organic growth this year but does not rule out acquisitions to expand its business in the rapidly growing sector, the company's chief executive said on Tuesday.

David Sanchez-Tembleque, speaking at the Reuters Latin American Investment Summit in Mexico City, said Homex HXM.N (HOMEX.MX) would sell around 50,000 homes in 2007, up from 43,000 last year.

"We ought to grow to around 50,000," he said. "Our focus is going to be, and is right now, organic growth by opening markets, but I do not rule out growing also by acquiring."

Sanchez-Tembleque reiterated Homex's 2007 guidance for sales growth of between 17 percent and 20 percent.

Helped by economic stability and declining interest rates, Homex and rival homebuilders such as Geo (GEOB.MX), Sare (SAREB.MX), and Ara (ARA.MX) have enjoyed a bonanza in recent years, mainly selling homes for less than $30,000 for poor Mexicans.

Mexican President Felipe Calderon, who took office in December, has vowed to continue a home building drive that his predecessor Vicente Fox started. Calderon wants to see 6 million new homes built in six years.

After half a decade of rapid growth in the sector, many choice building areas on the outskirts of cities have been used up.

"There's plenty of land in Mexico. The problem is finding land with services, where there's transport, a way to arrive, electricity, water," Sanchez-Tembleque said.

ECONOMIES OF SCALE

As a result, companies are building their own infrastructure and are developing projects with greater numbers of houses to improve economies of scale, he said.

Bigger and bigger building projects mean that consolidation in the sector, now made up of around 2,000 players, is likely, Sanchez-Tembleque said. One of the biggest homebuilders, Homex currently has about 7 percent market share.

Homex, which bought smaller competitor Beta in 2005 for $200 million, should improve its EBITDA margin to 24 percent this year from about 23.9 percent at the end of last year, he said.

Homex has just invested $40 million in molds to help it build houses faster and is moving toward more prefabricated construction, he said.

About 90 percent of Homex's homes sold are from its low end, called "social interest" and account for about 85 percent of revenue.

The company expects to increase the proportion of more expensive homes that it builds as current customers mature and want to upgrade to larger houses, he said.

"More expensive housing improves our margins, and for us it's growing faster than cheaper homes by volume. At the same time, cheaper housing sells more quickly," he said.

Homex is considering partnerships with other companies to buy up land for future developments, he said.

Homex's shares closed up 3.21 percent at 99.82 pesos and its American Depositary Receipts were up 0.77 percent at $53.75.

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