Vale SA (ADR) (VALE), Petroleo Brasileiro Petrobras SA (ADR) (PBR) – Investing in Emerging Markets: Brazil

It’s debt/equity ratio of 68% is relatively higher than the previously mentioned companies, but most of its debt is domestic and isolated from currency fluctuations. Its total long term debt comes to $4.52 billion, most of which is due to its $3.8 billion acquisition of Sadia SA in 2009.

To meet its short term liabilities, Brasil Foods raised $500 million last month by issuing 10 year bonds at an interest rate of 4.135%. It also issued BRL 500 million worth of 5 year domestic bonds last month, with an interest rate of 7.75%, which would be due for maturity by 2018. According to management, this cash would be used mainly for overseas expansions and to boost its overall profitability and revive growth.

Final Words

Over the last 4 years, Brasil Foods’ gross profit margin has improved by 56.4% due to improving efficiency. This has resulted in a 354.3% spike in its quarterly gross profits over the same period. Naturally if Brasil Foods continues to improve its profit margins, its shares would continue to soar. And adding to the delight, the depreciating Brazilian Real is adding to its margins, which is why analysts estimate its annual EPS to grow by 19.1% over the next 5 years.

Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends Petroleo Brasileiro S.A. (ADR). The Motley Fool owns shares of Companhia Vale Ads. Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Investing in Emerging Markets : Brazil originally appeared on Fool.com is written by Piyush Arora.

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