CLSA Wheat prices: Up 50% since June - impact on mayora

•Wheat consists 14% of Mayora's COGS . Higher wheat prices are essentially bad for its biscuit and cereal segment. A 5% price appreciation of wheat affects gross margins by 60 bps, and consequtively affect net profit by a negative 6.5% .To offset the 5% price changes in wheat, Mayora needs to increase its selling price by 1.4% .

•However, Mayora usually keeps 6 to 9 months inventory for its raw materials to smooth out the volatility . Continuous high wheat prices are bad for Mayora, but the magnitude we estimated is not as big as the sensitivity sheet foretells. Selling prices have been stable for the past 12 months, and this gives enough reasons for Mayora to start increasing.

•Paired with stronger currency, we think that Mayora should be able to pass on the part of the costs increases to the consumers within 6 to 9 months time lag . We can potentially see more pronounced margin contraction in the near term due to the time lag in passing on the costs.