IPC Mexico Index Valuation

Report
Jan 2025
Index

Header Contents
1 Introduction
2 Context of the Valuation
3 Approach and Methodology
4 Valuation
5 Sources and Disclaimer
6 Acknowledgments
1. Introduction
1.1 Background
• S&P/BMV IPC index is the index of top 35 leading companies in Mexico in terms of Market Capitalisation
which are listed on the Mexico stock Exchange (MSE).
• The S&P/BMV IPC was launched on October 30, 1978.
• The S&P/BMV IPC is a capitalization-weighted index that tracks the performance of the largest and most liquid stocks
on the Mexican Stock Exchange, the Bolsa Mexicana de Valores (BMV).
• The S&P/BMV IPC operates across various sectors, providing a comprehensive view of the performance of the
Mexican stock market.

1.2 Key Statistics

The Average historical CAGR returns provided by the Index for various periods are:
a) 20 years CAGR Return- 6.76%
b) 15 Years CAGR Return- 3.21%
c) 10 Years CAGR Return-2.03%
d) 5 Years CAGR Return-6.69%
1. Introduction
1.3 Composition of S&P/BMV IPC
• S&P/BMV IPC Index has 35 leading Companies.
• Few Notables Companies are- América Móvil, Grupo Bimbo, Cemex, FEMSA, Banorte, Grupo
México, Walmart de México y Centroamérica , Televisa and so on .
• The index comprises wide range of sectors such as Consumer Discretionary, Consumer Staples,
Energy, Financials, Healthcare, Industrials, Information Technology, Materials,
telecommunications, Utilities.

1.4 Sector-wise contribution to S&P/BMV IPC

Sector Weightage (%) Sector Weightage (%)
Consumer Discretionary 15-20% Industrials 10-15%
Consumer Staples 10-15% Information Technology 5-10%
Energy 5-10% Materials 5-10%
Financials 25-30% Telecommunications 5-10%
Health Care 5-10% Utilities 5-10%
2. Context of the Valuation
• The FY 2023-24 entailed lot of uncertain events posing economic risks to almost all parts of the globe ranging from
tightening Interest rates to Russia-Ukraine crisis, Middle-east crisis ,etc.
• The global uncertainties posed its repercussion on Mexican Equity markets largely where the S&P/BMV IPC appreciated
by 7.57% for the FY 2023-24.
• The top movers on the S&P/BMV IPC are Grupo Bimbo, Cemex, Walmart de México y Centroamérica, América Móvil,
Grupo Financiero Banorte. Whereas, the top losers were Arca Continental, Alsea, Qualitas Controladora.
• The Valuation report aims to determine the valuation of the Index in the above context.
• The Index has been valued considering the dividends paid, buyback yield, Future Earnings Growth, Equity Risk Premium
and Risk- Free Rate (Rating based approach) . The valuation of the index is based on the methodology used by Prof.
Aswath Damodaran (Dean of Valuation- NYU Stern) and his pronouncements on the Discounted Cash Flow approach.
However, certain aspects of the methodology have been modified to suit the Mexican capital markets and general
macroeconomic scenario.
• The Report is prepared using assumptions. Thus, the interpretation of results shall be subjective and based on the users‟
requirements. The report provides a broader idea on whether the S&P/BMV IPC index is Overvalued, Undervalued or
Fairly valued which are derived primarily from the cash flows (Dividends and Buy Backs) in the hands of
investors/shareholders.
• The index’s valuation date shall be “31st December, 2024” and all the data used for the purpose of valuation are till 31st
December, 2024.
3. Approach and Methodology
3.1 Pillars of the Valuation
The Valuation approach used to value the S&P/BMV IPC Index is the Discounted Cash Flow approach. The key pillars being: a.)
Free Cash Flow to Equity (FCFE) b.) Earnings Growth c.) Risk Free Rate and d.)Equity Risk Premium.
3.2 Free Cash Flow to Equity Holders
• Cash flows being one of the key ingredients in DCF valuation implies the extent of the equity holders‟ right on the cash
flows. Cash flows implies Free Cash-Flows to Equity holders i.e. FCFE.
• However, it becomes a laborious task to derive FCFE of all the companies in the index and hence, a convenient and effective
approach has been followed where the Dividend pay-outs and Buybacks are substituted for FCFE.
• The rationale behind the above consideration is that whatever the cash a firm generates, it shall be ultimately paid to the
shareholders in the long run either on liquidation or after the firm has attained maturity in its business verticals either
through dividends or buybacks.
• The dividend yield has been sourced from (statista.com , spglobal.com) Website and since the buybacks in emerging
economies are miniscule, they are not readily available.
• Hence, the Buyback data has been sourced from Prof. Aswath Damodaran’s website which has been consolidated based on
the sectoral buybacks conducted.
• As buybacks do not contribute a big chunk of Cash flows, using the sectoral Buyback yield doesn’t cause a major
fluctuations in the valuation results.
3. Approach and Methodology
3.2 Free Cash Flow to Equity Holders
The below representations provides the insights on % of dividend yield and buyback yield in total yield and average nifty 50
yield over 20,15, 10 and 5 years time frame.

Time Frame (Years) Dividend Yield Buyback Yield Total Yield

20 2.28% 0.26% 2.54%
15 2.34% 0.27% 2.61%
10 2.64% 0.30% 2.94%
5 3.42% 0.38% 3.80%

BMV/IPC Historical Dividends and Buybacks

$2,500.00
$2,000.00
$1,500.00
$1,000.00
$500.00
$0.00

Dividend Amount BB Amount

3. Approach and Methodology
3.3 Earnings Growth Average EPS CAGR Earnings Growth %
• Earnings of S&P/BMV IPC Companies are function of Index EPS and 15 Years 13.08%
Index’s price.
• Earnings are computed using P/E ratio formula Where the earnings are 10 Years 12.65%
obtained by dividing Index’s PE Ratio by the price of S&P/BMV IPC . 5 Years 12.18%
• The S&P/BMV IPC PE ratio and the corresponding price levels are sourced 3 Years 12.41%
from (worldperatio.com) website and then earnings are derived.
• The data in (worldperatio.com) website provides data of S&P/BMV IPC
BMV/IPC EPS
prices and PE ratios.
$6,000.00
• EPS CAGR for 3Y, 5Y, 10Y and 15Y were calculated and average of those
$5,000.00
has been considered for the final growth figures.
• For computing future cash flows, Average EPS CAGR 3Y has been $4,000.00

considered over 5Y, 10Y and 15Y as 3Y provides the best representation $3,000.00
of the current market trends along with factoring the slowdown caused $2,000.00
by elections , geopolitical tensions, distressed supply chains and so on. $1,000.00
• However, there has been no significant difference in the growth rates $0.00
between the above mentioned time frames. The same has been depicted
in the table beside.
3. Approach and Methodology
3.4 Risk Free Rate
• Risk free rate implies the guaranteed minimum return that any Investor shall expect for Investing in a
particular country.
• In valuation practice, we consider an economy’s (10Y Government yield-rating based approach) as a Risk-
free rate. But, the most appropriate manner shall be to deduct a country’s default spread to factor in
sovereign default probabilities.
• As the data for Emerging economies like Mexico are not readily available and it is a tedious task to
account for the same and hence Mexico’s (10Y Government Bond Yield-Rating Based Approach) has been
considered as Risk Free rate.
• Given the fact that the Mexico’s 10Y Government Bond Yield has varied largely from ~12% to~9%, for the
purpose of valuation, the latest Risk free rate as on Dec 31, 2024 has been considered to satisfy the twin
objectives of enabling our valuation to be a forward looking one and to depict the general economic
scenario of Mexico’s economy.
• Due to Unavailability of CDS Data we have considered rating based approach for the calculation of Risk-
free rate.
3. Approach and Methodology
3.5 Market Risk Premium

• Market Risk Premium is the additional return that an investor expects over and above the
Risk-Free Rate for investing in a particular market which is usually deemed risky.
• It is a country specific risk/ market specific risk.
• When the Market Risk premium is more, it indicates cautious market stance where the
investors are in a defensive mode and expects usual than higher returns to invest in a market.
• It also implies that the investors are willing to pay lower prices despite the constant cash
flows.
• The data of Market Risk premium for the valuation has been sourced from Prof. Aswath
Damodaran’s website.
• For the purpose of our Valuation, we have considered (mature markets Erp+ Mexico's Default
Spread).
3. Approach and Methodology
3.6 Time Frame for the Valuation report

• The Valuation date for the purpose of the report shall be 31st December, 2024.
• All the averages for the data such as Risk-Free Rate, Market Risk Premium, S&P/BMV
IPC historical returns, EPS Growth, dividend yield have been calculated from FY 1992-
93 to FY 2023-24.
• The valuation assessment has been made by comparing the derived S&P/BMV IPC
value as per Our valuation and the Closing price of S&P/BMV IPC as on 31st
December, 2024.

3.7 Beta

• Beta while valuing index shall be considered to be ‘1’ as we are valuing the
barometer which broadly represents the market.
4. Valuation

Valuing the S&P BMV IPC 52591.45

Key Inputs Assumptions Undervalued

Date 31-12-2024 31-12-2024 The market implied fair
Current BMV/IPC Level 49,765.2 49765.2 value of BMV IPC is
Total Yield 5 Years 3.80% 52592. The BMV IPC is
Expected Growth 3 Years 12.90% currently trading at
Risk Free Rate Latest 7.92%
49766. A 5.68%
Equity Risk Premium Latest 5.79%
Adjustment is Expected
Cost Of Equity 13.71% from this level.
Expected Cumulative PV Factor (Risk- Present Value of Expected
Year Dividends and Free Rate +Equity Risk Dividends and Buybacks
Buybacks Premium)
2022 $2,137.37 0.8795 $1,879.74
2023 $2,413.10 0.7735 $1,866.43
2024 $2,724.40 0.6802 $1,853.21
2025 $3,075.85 0.5982 $1,840.08
2026 $3,472.65 0.5261 $1,827.05
2027 $3,920.63 0.4627 $1,814.11
2028 $4,426.40 0.4069 $1,801.26
2029 $4,997.42 0.3579 $1,788.50
2030 $5,642.10 0.3147 $1,775.83
2031 $6,369.95 0.2768 $1,763.25
2031 - ∞ $1,24,208.90 0.2768 $34,382.01
5. Sources & Disclaimer
5.1 Sources
• Investing.com
• Statista.com
• Spglobal.com
• Worldperatio.com
• Prof. Aswath Damodaran website

5.2 Disclaimer
• The Valuations carried out are based out of good amount of assumptions which are built based on the understanding of
the current scenario in Indian Capital markets.
• The report has been prepared solely for educational purpose and not emanating from the professional in practice.
• The author assumes no liability or responsibility for the losses caused by using this report as an investment advice.
• Although, every endeavour has been made to bring this report as accurate as possible, users should not rely on this report
for investment purposes.

5.3 End Note

I would like to thank the readers for their time dedicated towards reading the report. Feedbacks are always welcome.
Please feel free to get in touch at [email protected] for any questions and/or feedback.
6. Acknowledgment

Report Prepared by- Raj chaurasiya

Guided by- Mr. Parth Verma, Founder- The Valuation School

I would like to extend my gratitude towards Mr. Parth Verma sir for guiding me to prepare the Index
Valuation Report!