Valuation of a Mexican Sugar Mill and Driving Value Factors

This paper includes the methodology used to construct a financial cash flow and perform a valuation using the discounted cash flow analysis for a hypothetical Mexican sugar mill. The objective is to incorporate to the valuation model the most significant variables that are relevant to the sugar production process as well as the operational and financial factors of a common sugar mill which are driven by the current legislation in terms of sugarcane pricing and labor costs. It also includes some macroeconomic variables that determine price for sugar, long term costs and the discount rates. With the financial model determined, we use Monte Carlo simulation in order to obtain a probabilistic distribution for the value of the sugar mill and finally we perform a sensitivity analysis to obtain the main variables that affect the resulting enterprise value. The model is constructed on data available for three sugar mills, but the cost structure will not change among other sugar mills, due to regulation and local market conditions; however, the model could be used for any mill by substituting the variables for each case.