Still Robust Top-Line Growth to Offset Infrastructural Build-Out. Alexander Robarts Joaquin Ley* Alonso Aramburu

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1 Latin American Equity Research New York, July 11, 2006 Company Report Mexico Food GRUMA Still Robust Top-Line Growth to Offset Infrastructural Build-Out BUY Alexander Robarts Joaquin Ley* Alonso Aramburu New York: Santander Investment Securities, Inc. Mexico: Banco Santander Serfin, S.A. New York: Santander Investment Securities, Inc. (212) (5255) (212) (07/07/06) CURRENT PRICE US$11.92/M$32.84 TARGET PRICE: US$14.50/M$39.20 What s Changed Rating: Price Target 2006: EBITDA (US$): Company Statistics Reiterating Buy From US$16.50 to US$ E from 297 Mn to 278 Mn 07E from 325 Mn to 304 Mn 08E Introducing 339 Mn Bloomberg GMK/Grumab 52-Week Range (US$) E P/E Rel to IPC (x) E FV/EBITDA Rel to Food (x) 1.1 IPC (US$) 1,798 3-Yr CAGR (05-08E) 8.3% Market Capitalization (US$ Mn) 1,438 Float (%) 26.0% 3-Mth Avg Daily Vol (US$ Mn) 2.0 Shares Outst (Mn) (ADR 4:1) 483 Net Debt/Equity (x) 0.46 Book Value per ADR (US$) 9.51 Estimates and Valuation Ratios E 2007E 2008E Net Earn (M$) 1,109 1,208 1,378 1,695 Current EPS Net Earn (US$) Current EPADR P/E (x) Adj. P/E (x) a P/Sales (x) P/CE (x) FV/EBITDA (x) Adj. FV/EBITDA (x) a FCF Yield (%) 0.5% -5.7% 1.1% 2.2% Div per ADR (US$) Div Yield (%) 2.5% 2.5% 2.7% 3.3% a Excluding Banorte stake. Sources: Bloomberg, Company Reports, and Santander Investment estimates. Investment Thesis: We are reiterating our Buy rating on Gruma based on recent price increases and ongoing high single-digit volume growth in the U.S. and Venezuela. The joint venture in Venezuela, finalized on April 6, is alleviating competitive pressure and should help to significantly boost profits this year versus In our view, the shares offer a very attractive valuation which, adjusted for EBITDA growth, we believe is also compelling relative to its global food sector peers. We believe the market may be too focused on higher-than-expected infrastructure build-out expenses related to capacity expansion in the U.S. and to several small acquisitions. This hurt margins in 1Q06 and contributed to an underperformance of approximately 15 percentage points YTD relative to the Mexican stock market. However, we expect steady margin improvement going forward. Despite our more conservative earnings estimates, we still expect consolidated 2006 EBITDA to grow 15% in real peso terms (versus no growth in 2005), driven by a very favorable alignment of top-line growth drivers unique within our food and beverage universe. Moreover, Gruma s U.S. assets (55% of 2006E EBITDA, provide a hedge against the risk of sharperthan-expected peso/dollar depreciation this year. In our opinion, these factors have helped the stock s 11-percentage-point price outperformance of (relative to Mexico) over the last two weeks and could support further multiple expansion. Reasons for Changes to Earnings Estimates: Expenses related to infrastructure build-out at Gruma Corp (particularly in 1Q06), as well as higher-than-expected wheat and corn costs in 2007 are likely to continue being partly offset by faster-than-expected EBITDA growth in Venezuela and lower natural gas prices for the rest of the year in the U.S. Thus, we are lowering our consolidated 2006 and 2007 EBITDA estimates by 6.5%. Valuation and Risks to Investment Thesis: Our new year-end 2006 target price of US$14.50 per ADR based on a sum-of-the-parts DCF analysis. This implies a forward target FV/EBITDA multiple of 6.7x, adjusting for its equity stake in Banorte, which is in line with its oneyear average. The shares trade at 1.3 times book value and 5.7x adjusted 2007 FV/EBITDA. Risks include more-than-expected gross margin pressure from packaging and energy costs, stepped-up competition from mom-and-pop tortilla producers, and higher-than-expected wheat price increases. * Employed by a non-us affiliate of Santander Investment Securities, Inc. and is not registered/qualified as a research analyst under NASD rules.

2 Still Robust Top-Line Growth to Offset Infrastructural Build-Out Gruma is the largest producer of branded tortillas in the world with operations in the United States, Mexico, Central America, Venezuela, Europe, and Asia. The U.S. assets have the leading tortilla value market share of approximately 17% with the Mission and Guerrero brands. In Mexico, it is the leading producer of corn flour under the Maseca brand. Archer Daniels Midland has a 27% equity stake in the company. Gruma also holds a 10.9% stake in Banorte. Positives Attractive valuation. Recent price increases in U.S. and Venezuela. U.S. tortilla industry volume growth still robust and Gruma market share gains continue. Natural gas prices have fallen significantly. Concerns Capacity expansion and acquisition expenses are affecting EBITDA growth. Grain prices are expected to be higher in ROIC still low but improving. We expect 1Q06 to be the weakest quarter of the year. Installed capacity continues to increase. Strong top-line growth is still expected at Gruma Corp. 2 GRUMA CORP: GROWTH DRIVERS INTACT Gruma Corp continues to generate expansion-related expenses; however, we expect them to dissipate going forward. These expenses, and a spike in natural gas prices, were the main reason for the sharp EBITDA decline year on year in 1Q06. Moreover, price increases in the U.S. and Venezuela were also just being implemented. As such, we expect 1Q06 to be the weakest quarter in terms of EBITDA growth this year, and we look for steadily improving year-on-year growth for the remaining quarters. Nonetheless, the shortfall in EBITDA of 1Q06 has prompted us to be more conservative in our consolidated 2006 EBITDA estimate, and this is the main reason why we are trimming it by 6.5%. The infrastructural build-out expenses at Gruma Corp. mainly encompass additional tortilla and corn flour installed capacity and recent bolt-on acquisitions, underscoring the tortilla industry s rapid growth. The capacity expansion projects were focused mainly on the new plant in Mountain Top, Pennsylvania, which opened late last year, but also included construction costs related to the US$15 million Shanghai plant project, which started earlier this year. The Pennsylvania plant opening involved the setting up of a new go-to-market infrastructure that replaces the previous reliance on products being shipped from plants in the southeast of the country. The new plant is currently operating with four lines, which were opened in the last six months. Two more lines are expected to be opened before year-end 2006, leading to an estimated 18% increase installed tortilla capacity, including new lines in other existing plants, which is on top of a 19% increase in For corn flour, Gruma Corp plans a 12% increase in capacity this year, following a 15% increase in A second area of build-out expenses is related to investments in recent acquisitions, including CHS and La Tapatia in the U.S., as well as a wheat tortilla producer in Australia earlier this year. The purchase amounts have ranged from US$3 million to US$50 million. However, the main challenge has been raising product-quality standards, as well as installing all the capacity needed to launch a full product portfolio compared with the company s original plan to offer a more limited line-up of products. Operating expenses are expected to be reduced by a further US$5 million to US$10 million this year, partly reflecting the goal to maintain a full product offering, but reduce total SKUs by 40% to an estimated 750 by year-end. The CHS and La Tapatia facilities are currently operating with positive EBITDA margins still below Gruma Corp s consolidated margin but are improving. Capacity utilization at CHS, the largest acquisition, is approximately 70% but is steadily climbing. In the coming quarters, and one of the main reasons why we are reiterating our Buy rating on Gruma shares, is that we believe that the fundamental and still robust top-line growth drivers are intact, which should bolster a steady year-on-year improvement in Gruma Corp s EBITDA margins. First, we highlight that Gruma Corp s U.S. assets (55% of total EBITDA) are set to continue to benefit from tortilla industry volume growth, which we estimate will grow 6%-7% for the next few years. Expected ongoing tortilla market share gains at Gruma

3 Corp support our 8% organic growth estimate in the coming years. We believe that Azteca, Gruma Corp s U.S. corn flour asset, will mirror this growth, as it is the dominant supplier to the industry with an 85% market share. Significant price flexibility is another important top-line growth driver at Gruma Corp. Specifically, we point to the combination of Gruma Corp s 4% tortilla and corn flour price increases in 1Q06 and a second 6% tortilla price increase being implemented currently. These are the first such price increases in almost two years. Moreover, the magnitude of such increases is rare in the food and beverage sector, something that underscores the brand equity at Mission Foods, in our view. So far this year, management believes that its largest competitors have followed the tortilla price increase earlier this year, including Tyson, Casa de Oro, and Bimbo. The main risk is the private labels and mom-and-pop stores, which are more difficult to measure, particularly in the food service channel. With Azteca, we expect the 1Q06 price increase has stuck given its dominant market share position. VENEZUELA: A SIGNIFICANT RECOVERY Gruma closes the JV in Venezuela. A quicker turnaround in Venezuela is expected, helped by corn flour sales. Brand extensions are driving wheat flour sales. We believe that the company s subsidiaries in Venezuela (10% of sales) are on track to post a significant recovery this year, boosted by the recent joint venture (JV) with a local partner that was finalized on April 6. Gruma sold a 40% minority stake in the larger of its two Venezuelan subsidiaries, Monaca, to its local partner for US$65.5 million. This reduced Gruma s ownership in that subsidiary to 55%. At the same time, Gruma purchased an additional 10% (from the same local partner) of its other Venezuelan subsidiary, Demaseca, for an estimated price of US$2.6 million, which brought its ownership to 60%. Payment of the proceeds is expected to occur during the remainder of the year, and the expected gain, if any, will be booked as other income. We increased our 2006 EBITDA estimate for Gruma s assets in Venezuela to US$12 million, up from US$4 million, which compares with a slight loss posted in This partly reflects the suspension of imported wheat tariffs through 3Q06 and accelerating volume growth. Wheat and corn flour industry volume growth is approximately 6% to 7% (1Q06 Gruma Venezuela volume growth was 9%) and is boosting a quick earnings recovery expected in that country. Our recent company visit in Venezuela suggested that this may still be a conservative estimate. The main upside surprise may come from faster-than-expected corn flour industry volume growth at government subsidized points of sale called mercals. Mercals were started as part of President Chavez s populist drive to cater to the D and E classes of the population, which barely make minimum wage, but whose per capita income growth is outpacing other socio-economic classes. Before the JV, the three main suppliers to the government were Polar, Gruma, and its local partner. Now that the local partner has joined Gruma, competition appears to have lessened. We note that the mercals account for an estimated 30% of Gruma s total Venezuelan sales. The majority of Gruma s Venezuelan sales are in the retail channel. In March, there was a 9% price increase in corn flour to 1,400 bolivars a kilo that was followed by all market participants. Wheat flour sales account for a majority of these sales, with supermarkets accounting for 50% of the points of sale. With its flagship Robin Hood brand, Gruma is the second-biggest player in wheat flour segment with an estimated 28% share behind Cargill. However, unlike Cargill, Gruma recently extended its Robin Hood brand to include new higher margin products (launched late in 2005) including pancake and brownie mixes. Also, unlike Cargill, Gruma sells high margin products including condiments, rice, and pastas. We estimate that high margin non-flour sales are 25% of total Gruma sales in Venezuela. In lower margin corn flour, Gruma is also the second-largest player (with a 28% share approximately), and competes with market leader Polar, which also produces and distributes beer and soft drinks. 3

4 Still Robust Top-Line Growth to Offset Infrastructural Build-Out COMMODITY PRICE RISK? While wheat prices are creeping up this year, corn is hedged. Average natural gas prices are declining. Gross margin pressure from commodity price increases is an industry-wide concern, and our recent ranking of the potential negative impact in our food and beverage stock universe (see our May 30 report, Assessing Commodity Risk) puts Gruma in the middle of the pack. For Gruma, on a consolidated basis, the main source of raw material price pressure is wheat in the U.S. this year and the next, and corn prices next year (as 2006 corn prices are already locked in at approximately 4% below 2005 levels). This the main reason why we expect a 2% impact on consolidated cash cost of goods sold (on a stand-alone basis). However, we also believe that the 1Q06 price increases, and the current one (being implemented in tortillas only) should be able to compensate for this margin pressure. Figure 1. Latin American Food and Beverage Sector -- Impact on COGS from Main Commodities (U.S. Dollars in Millions a ) Company 06E Impact on Cash COGS (%) 06E Cash COGS (US$) 06E Impact (US$) Packaging and Raw Materials (% of COGS) Cash COGS Exposure to USD Femsa Beer 6.9% 1, % 33% CCU 4.6% % 20% Coca-Cola Femsa 4.6% 2, % 25% Bimbo 4.1% 2, % 75% Modelo 3.9% 2, % 21% Femsa 3.3% 5, % 17% Andina 2.0% % 20% Gruma 2.0% 1, % 60% AmBev 1.8% 2, % 40% Arca 1.1% % 20% Contal 1.1% % 20% Perdigão -4.1% 1, % 40% Sadia -4.1% 2, % 40% Sector Average 2.1% NM NM 56% 33% NM not meaningful. Sources: Company and Santander Investment estimates. Our analysis also concluded that average natural gas prices, one of Gruma Corp s main inputs, is set to decline by 10% in 2006 versus According to management, Gruma s average price paid in 2005 was approximately US$6.50 per million btu, but during 1Q06, it reached almost US$ Gas accounts for an estimated 9% of Gruma Corp s annual cost of goods sold, and it is typically hedged on a quarterly basis. Currently, the company has locked in an average price for its natural gas at approximately US$7.00 to US$7.50 for 2Q06 and 3Q06, or almost 50% below the 1Q06 price. As such, we expect further alleviation of gross margin pressure in the short term. EARNINGS REVISIONS Owing to the sharp increase in infrastructural build-out expenses in 1Q06 and higher-thanexpected wheat prices, we prefer to be more conservative in our Gruma Corp EBITDA growth assumptions. We expect the Pennsylvania plant related expenses to dissipate in 2Q06, while we expect acquisition related costs will continue until 3Q06. We expect our new lower Gruma Corp. estimates to be partly offset by our higher estimates in Venezuela and Gimsa. Productivity gains at Gimsa, including Argoinsa, should post 14% real peso EBITDA growth this year (up from our previous estimate of 10%). Overall, we are lowering our consolidated EBITDA 2006 and 2007 estimates by 6.5% each year, despite slightly higher top-line estimates. However, this still implies year-on-year 2006 EBITDA growth reaching 15% in real peso terms and an EBITDA margin expansion of 50 basis points (2H06 is helped by easier year-on-year comps). This is a formidable recovery compared with no growth posted in Our new higher net income estimates mainly reflect a lower tax rate and slightly higher equity income from the company s stake in Banorte. 4

5 Figure 2. Gruma Estimates Revisions, 2006E-2008E (U.S. Dollars in Millions a ) 2006E 2007E 2008E Previous Current Change Previous Current Change Introducing Revenue 2,669 2, % 2,782 2, % 3,039 EBITDA (6.4%) (6.5%) 339 Net Income % % 142 EPADR % % 1.17 a Except per share data. Sources: Company reports and Santander Investment estimates. VALUATION Our year-end 2006 target price is US$14.50 per ADR. Our more conservative earnings growth assumptions support a lower year-end 2006 target price of US$14.50 per ADR. Our new target price is based on a sum-of-the-parts DCF analysis, and implies a total return of 22%, which compares with our expectation for 7% upside in the Mexican market over the same period. However, the new target price also implies a year-end 2006 forward 12-month FV/EBITDA multiple of 8.7 times, which is a modest 5% premium to both its one-year average and its current multiple. Also, at our target price, we estimate Gruma (ex-banorte) would trade at 6.7 times forward FV/EBITDA. This compares with the current 2006E multiple of 6.2 times for those assets, and it is generally in line with its one-year average. Most important, the multiple offers an attractive discount to our peer branded and commodity food stocks in the United States. Figure 3. Gruma (ex-banorte) Historical Forward FV/EBITDA Valuation, 3Q E 8.0x 7.0x 1-Year Average 6.4x 6.5x 7.3x 6.0x 3-Year Average 6.1x 6.1x 6.1x 6.2x 5.0x 4.8x 5.1x 5.4x 4.0x 4.4x 4.3x 3.0x 2.0x 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q E Gruma offers attractive value with strong earnings growth. Sources: Company reports and Santander Investment estimates. Gruma s current 6.2 times 2006E FV/EBITDA multiple (ex-banorte) and its expected 2006 EBITDA growth of 13% in U.S. dollars render Gruma one of the most attractively priced stocks in the food sector, in our view. In fact the only other two stocks that have a similar value and growth profile are Maseca (Gimsa), which is owned by Gruma, and Bimbo (Buy; Current Price: US$3.26; Target Price: US$3.75/M$42.00). Other companies in the sector with similar growth profiles, like Archer Daniels, Nacional de Chocolates (Hold; Current Price: US$5.77; Target Price: US$7.50), General Mills, Kelloggs, and Bunge carry multiples approximately twice the value of Gruma s (ex Banorte). Alternatively, companies with low multiples like Gruma s (ex- Banorte) carry expected negative EBITDA growth rates, as is the case of Sadia (Hold; Current Price: US$2.43; Target Price: US$3.20, Perdigão (Strong Buy; Current Price: US$9.37; Target Price: US$17.95), and Bachoco. Recall that 55% of Gruma s estimated 2006 EBITDA is derived 5

6 Still Robust Top-Line Growth to Offset Infrastructural Build-Out from one of the fastest growing food sectors in the U.S. (tortillas), which is growing at mid-tohigh single digits. As such, the risk profile of Gruma s cash flows is more similar to companies like General Mills and Kellogs than to Bachoco or Perdigão. Figure 4. Food Sector Peer Group E FV/EBITDA Multiple (X-Axis) versus 2006E EBITDA Growth (Y-Axis) Matrix 30% VALUE, GROWTH GROWTH, LOW VALUE ADM 20% Chocolates Gruma 10% Maseca 0% Bimbo Molinos Bunge Kelloggs G. Mills -10% VALUE, LOW GROWTH Sadia LOW VALUE, LOW GROWTH Perdigao -20% -30% Bachoco -40% Tyson 3.0x 5.0x 7.0x 9.0x 11.0x 13.0x 15.0x Gruma s multiple is excluding Banorte. Perdigão estimates are consensus. Sources: Company reports and Santander Investment estimates. We used a sumof-the-parts methodology. We valued Gruma by projecting separate cash flows for Gruma Corp, Gimsa, and other businesses and discounted each one with a country-risk-adjusted WACC to account for the relative risk of each cash flow. Our target equity value for Gimsa assumes that it maintains a forward FV/EBITDA multiple in line with its current multiple. We also value Gruma s 10.9% equity stake in Banorte at US$607 million, which assumes it will perform in line with our estimate for the Mexican market upside of 7% through year-end We note that in our valuation we do not consider Banorte a liquid asset (i.e. part of net debt or cash) because the stake is part of the voting control group and would require approval from other shareholders to be sold. However, we believe the potential monetization of Gruma s Banorte stake over the medium term could be a significant catalyst to unlocking value for Gruma. Our valuation also reflects new higher WACCs owing to a higher Mexico country risk of 120 basis points versus 110 previously and a 5.0% risk-free rate versus 4.5% previously. Figure 5. Gruma DCF Valuation Assumptions, 2006E Gruma Corp Gimsa Venezuela, Molinera, Central America Risk-Free Rate 5.0% 5.0% 5.0% Country Risk 0.00% 1.20% 1.95% Stock Market Risk Premium 5.5% 5.5% 5.5% Beta Cost of Equity 9.0% 9.5% 11.9% Equity as a % of Total Capital 80.0% 80.0% 80.0% Cost of Debt 9.0% 9.0% 9.0% Tax Rate 43.5% 43.5% 43.5% WACC 8.2% 8.6% 10.5% Terminal Value Growth Rate 2.5% 2.5% 2.5% Source: Santander Investment estimates. 6

7 Figure 6. Gruma Sum-of-the-Parts Valuation Summary, at Year End 2006E (U.S. Dollars) Gruma Corp Gimsa Ven., Molinera Central America Banorte Total Firm Value 1, ,036 Firm Value of 10.9% Banorte Stake NM NM NM Total Firm Value 1, ,643 Net Debt 338 (30) Minority Interest Total Equity Value ,749 Shares Outstanding NM NM NM NM 121 Target Price per ADR (US$), Year-end 2006 NA NA NA NA Implied Forward FV/EBITDA Multiple 6.5x 5.0x 16.7x NM 8.7x Implied Forward FV/Sales Multiple 0.7x 0.8x 0.6x NM 0.9x NA not available. NM not meaningful. Source: Santander Investment estimates. Relative multiple analysis supports our target multiple. While we use our DCF analysis for our formal price target construction, we note that a higher consolidated target fair value can be reached using relative peer sectors multiples. Gruma s consolidated EBITDA can be broken down into three business segments. They are: (1) Mission Foods, a U.S. branded food company; (2) Azteca, Gimsa, Molinera, and Central America which are mainly commodity food assets; and (3) Gruma Venezuela, which is mostly a branded Latin American food company. Assigning peer sector multiple comparables to Gruma s three different business segments (weighted by EBITDA contribution) suggests that Gruma should be trading at a 2006 FV/EBITDA of 9.8 times even after applying a 20% discount to Gruma Corp s branded U.S. food multiple and Gimsa s commodity multiple. However, this analysis does not assign any value to Gruma s 10.9% equity stake in Banorte. As such, the 9.4 times can be compared with the current Gruma (ex-banorte) multiple of 6.2 times and would imply a consolidated target fair value of over US$20.00 per ADR. Figure 6. Gruma Comparative Food Sector Valuations as of July 7, 2006 (U.S. Dollars in Millions) Market Capitalization 2006E FV/EBITDA 2007E FV/EBITDA 2006E P/E 2007E P/E Price/Book Gruma 1, x 7.6x 13.3x 12.3x 1.3x Gruma (ex-banorte) NM 6.2x 5.7x 14.3x 13.2x NM Branded Food Latam Bachoco x 3.0x 8.1x 6.6x 0.9x Bimbo 3, x 5.3x 12.1x 10.5x 2.3x Chocolates 2, x 9.5x 21.9x 19.8x 1.6x Molinos x 6.9x 11.8x 9.6x 0.8x Perdigão a 1, x 5.1x 10.2x 9.2x 2.2x Sadia 1, x 4.5x 7.6x 8.1x 1.6x Average 1, x 5.7x 11.9x 10.6x 1.6x Commodity Food Archer Daniels 28, x 10.6x 23.1x 17.9x 3.1x Bunge 6, x 7.9x 13.8x 11.8x 1.4x Cosan 4, x 9.9x 99.2x 41.7x 6.6x Gimsa x 4.6x 9.9x 9.4x 0.9x Iansa x 4.9x 11.8x 6.2x 1.7x Average 7, x 7.6x 31.5x 17.4x 2.7x Branded Food U.S. Flowers 1, x 9.2x 23.0x 20.1x 3.1x General Mills 18, x 12.9x 17.5x 17.0x 3.3x Kelloggs 18, x 10.4x 19.0x 17.4x 9.7x Tyson 5, x 6.7x NM 16.3x 1.1x Average 11, x 9.8x 19.8x 17.7x 4.3x Total Average 6, x 7.4x 20.6x 14.8x 2.7x NA Not available. NM Not Meaningful. Sources: Bloomberg and Santander Investment. a Multiples use consensus estimates. 7

8 Still Robust Top-Line Growth to Offset Infrastructural Build-Out RISKS TO INVESTMENT THESIS Higher-than-expected gross margin pressure from packaging and energy costs. Energy costs, including packaging costs (PET), which are influenced by higher oil prices, account for approximately 17% of cost of sales. A higher-than-expected increase in energy, namely natural gas, could have a negative impact on the company s gross margin going forward. Stepped-up competition from mom-and-pop tortilla producers in the U.S. The U.S. tortilla industry is very fragmented and given the strong growth of the market, new small competitors have been entering the industry. An unexpected downturn in volume growth in Venezuela. Gruma s operations in Venezuela face some political risk, although the recent JV should help to minimize it. Higher-than-expected start-up expenses and/or acquisition costs with future transactions. Gruma Corp. is increasing its U.S. installed capacity and its international presence at a rapid pace, which may create higher than normal non-operating start-up and acquisition costs. Will Argoinsa have to be sold? Mexico s anti-trust office has denied the legality of Gruma s Agroinsa acquisition in 3Q05. In May 2006, Gruma took this debate to the higher level court and filed an injunction in a federal court. We estimate Agroinsa accounts for 1.7% of Gruma s consolidated EBITDA. Figure 8. Gruma Macroeconomic and Volume Assumptions, E E 2007E 2008E Macroeconomic Assumptions Mexico Real GDP Growth Year-End Exchange Rate Inflation 5.2% 3.2% 3.6% 3.7% 3.5% Venezuela Real GDP Growth Year-End Exchange Rate 1,920 2,150 2,150 2,350 2,350 Inflation 19.2% 14.5% 13.4% 12.1% 10.0% Volume Assumptions Volume ('000 of Metric Tons) Gruma Corp 1,088 1,275 1,384 1,502 1,630 Gimsa 1,445 1,582 1,721 1,799 1,880 Venezuela Molinera de Mexico Central America Total Volume 3,620 3,955 4,263 4,493 4,739 Volume Growth Gruma Corp 11.6% 17.2% 8.6% 8.5% 8.5% Gimsa 3.6% 9.5% 8.8% 4.5% 4.5% Venezuela -2.5% -5.0% 5.8% 3.0% 3.0% Molinera de Mexico -20.2% 3.3% 1.9% 3.0% 3.0% Central America 6.9% 15.6% 16.0% 3.0% 3.0% Total Volume -0.2% 9.3% 7.8% 5.4% 5.5% Sources: Company reports and Santander Investment estimates. 8

9 Figure 9. Gruma Operating Assumptions by Segment, E (Nominal Mexican Pesos in Millions) E 2007E 2008E Gruma Corp Net Sales 12,683 14,089 16,530 18,384 20,445 Operating Income 1,293 1,194 1,240 1,481 1,739 EBITDA 1,768 1,709 1,824 2,102 2,374 EBITDA Margin 13.9% 12.1% 11.0% 11.4% 11.6% Gimsa Net Sales 5,787 6,537 7,194 7,796 8,444 Operating Income ,074 EBITDA ,118 1,239 1,372 EBITDA Margin 12.2% 14.5% 15.5% 15.9% 16.2% Venezuela Net Sales 3,300 2,708 2,982 3,185 3,395 Operating Income 184 (76) EBITDA 274 (1) EBITDA Margin 8.3% 0.0% 4.8% 6.3% 7.3% Molinera de Mexico Net Sales 1,885 1,880 1,995 2,131 2,272 Operating Income (19) (126) (93) (88) (78) EBITDA 47 (57) (24) (15) (5) EBITDA Margin 2.5% -3.0% -1.2% -0.7% -0.2% Central America Net Sales 1,226 1,334 1,462 1,561 1,664 Operating Income 19 (2) (9) (4) 2 EBITDA EBITDA Margin 6.1% 3.7% 2.9% 3.1% 3.5% Sources: Company reports and Santander Investment estimates. 9

10 Still Robust Top-Line Growth to Offset Infrastructural Build-Out FINANCIAL STATEMENTS Figure 10. Gruma Income Statement, Balance Sheet, and CF Statement, E (U.S. Dollars in Millions) Income Statement 2005 % 2006E % 2007E % 2008E % Sales 2, % 2, % 2, % 3, % Cost of Sales (1,639) -65.3% (1,764) -65.2% (1,827) -64.9% (1,960) -64.5% Gross Profit % % % 1, % Oper. And Adm. Expenses (722) -28.8% (763) -28.2% (785) -27.9% (843) -27.7% Operating Profit % % % % EBITDA % % % % Net Interest Expense (49) -1.9% (43) -1.6% (48) -1.7% (49) -1.6% Monetary Gain/Loss % % % % FX Gain/Loss (5) -0.2% (13) -0.5% (14) -0.5% (4) -0.1% Other Income (Expenses) (19) -0.8% (6) -0.2% (9) -0.3% (9) -0.3% Profit before Taxes % % % % Tax Provision (45) -1.8% (63) -2.3% (65) -2.3% (84) -2.8% Equity Income % % % % Minority Interest (13) -0.5% (11) -0.4% (13) -0.5% (16) -0.5% Majority Net Profit % % % % Balance Sheet 2005E % 2006E % 2007E % 2008E % Assets 2, % 2, % 2, % 2, % Current Assets % % % % Cash and Equivalents % % % % Accounts Receivable % % % % Inventories % % % % Other Short-Term Assets % % % % Fixed Assets 1, % 1, % 1, % 1, % Goodwill % % % % Other Assets % % % % Liabilities 1, % 1, % 1, % 1, % Current Liabilities % % % % Suppliers % % % % Short-Term Loans % % % % Other ST Liabilities % % % % Long-Term Loans % % % % Other Liabilities % % % % Majority Net Worth 1, % 1, % 1, % 1, % Net Worth 1, % 1, % 1, % 1, % Minority Interest % % % % Net Debt % % % % Cash Flow Statement 2005E % 2006E % 2007E % 2008E % Net Earnings Non-Cash Items Changes in Working Capital 26 (22) (16) (22) Dividends (34) (37) (39) (47) Stock Issuances & Derivatives Minority Interest and Other Change in Debt 37 (1) (4) (2) Capital Expenditures and Investm. (198) (262) (185) (212) Free Cash Flow 8 (82) Change in Cash (21) 48 (32) (13) Beginning of Year Cash End of Year Cash Sources: Company reports and Santander Investment estimates. 10

11 Figure 11. Gruma Income Statement, Balance Sheet, and CF Statement, E (Millions of Nominal Mexican Pesos) Income Statement 2005 % 2006E % 2007E % 2008E % Sales 26, % 30, % 33, % 36, % Cost of Sales (17,427) -65.3% (19,762) -65.2% (21,556) -64.9% (23,468) -64.5% Gross Profit 9, % 10, % 11, % 12, % Oper. And Adm. Expenses (7,679) -28.8% (8,550) -28.2% (9,266) -27.9% (10,095) -27.7% Operating Profit 1, % 2, % 2, % 2, % EBITDA 2, % 3, % 3, % 4, % Net Interest Expense (518) -1.9% (476) -1.6% (565) -1.7% (581) -1.6% Monetary Gain/Loss % % % % FX Gain/Loss (51) -0.2% (141) -0.5% (169) -0.5% (47) -0.1% Other Income (Expenses) (207) -0.8% (72) -0.2% (105) -0.3% (105) -0.3% Profit before Taxes 1, % 1, % 1, % 2, % Tax Provision (479) -1.8% (708) -2.3% (763) -2.3% (1,005) -2.8% Equity Income % % % % Minority Interest (141) -0.5% (128) -0.4% (153) -0.5% (188) -0.5% Majority Net Profit 1, % 1, % 1, % 1, % Balance Sheet 2005E % 2006E % 2007E % 2008E % Assets 26, % 30, % 32, % 34, % Current Assets 8, % 9, % 9, % 10, % Cash and Equivalents % % % % Accounts Receivable 3, % 3, % 4, % 4, % Inventories 3, % 4, % 4, % 4, % Other Short-Term Assets % % % % Fixed Assets 14, % 16, % 17, % 18, % Goodwill % % % 1, % Other Assets 3, % 4, % 4, % 5, % Liabilities 11, % 12, % 13, % 14, % Current Liabilities 4, % 4, % 5, % 5, % Suppliers 1, % 1, % 2, % 2, % Short-Term Loans % % % % Other ST Liabilities 1, % 2, % 2, % 2, % Long-Term Loans 6, % 6, % 6, % 6, % Other Liabilities 1, % 1, % 1, % 2, % Majority Net Worth 11, % 13, % 15, % 16, % Net Worth 14, % 17, % 19, % 20, % Minority Interest 3, % 3, % 4, % 4, % Net Debt 6, % 6, % 6, % 6, % Cash Flow Statement 2005E % 2006E % 2007E % 2008E % Net Earnings 1,250 1,336 1,531 1,883 Non-Cash Items ,079 Changes in Working Capital 273 (250) (189) (263) Dividends (361) (410) (459) (565) Stock Issuances & Derivatives 40 1, Minority Interest and Other Change in Debt 392 (7) (51) (25) Capital Expenditures and Investm. (2,108) (2,931) (2,179) (2,533) Free Cash Flow 82 (922) Change in Cash (223) 533 (377) (157) Beginning of Year Cash End of Year Cash Sources: Company reports and Santander Investment estimates. 11

12 Still Robust Top-Line Growth to Offset Infrastructural Build-Out IMPORTANT DISCLOSURES Gruma 12-Month Relative Performance (U.S. Dollars) IPC Gruma J-05 A-05 O-05 N-05 J-06 F-06 A-06 M-06 J-06 Sources: Bloomberg and Santander Investment. 12

13 Key to Investment Codes IMPORTANT DISCLOSURES (CONTINUED) Rating Definition % of Companies Covered with This Rating % of Companies Provided Investment Banking Services in the Past 12 Months Strong Buy Expected to outperform the local market more than 15%. Buy Expected to outperform the local market 5%-15% % 83.33% Hold Expected to perform within a range of 5% above or below the local market % 12.50% Underperform Expected to underperform the local market 5%-15%. Sell Expected to underperform the local market more than 15% % 4.17% The numbers above reflect our Latin American universe. For a discussion, if applicable, of the valuation methods used to determine the price targets included in this report and the risks to achieving these targets, please refer to the latest published research on these stocks. Research is available through your sales representative and other electronic systems. Target prices are 2006 year-end unless otherwise specified. Recommendations are based on a total return basis (expected share price appreciation + prospective dividend yield) unless otherwise specified. Stock price charts and rating histories for companies discussed in this report are also available by written request to Santander Investment Securities Inc., 45 East 53 rd Street, 17 th Floor (Attn: Research Disclosures), New York, NY USA. Ratings are established when the firm sets a target price and/or when maintaining or reiterating the rating. Ratings may not coincide with the above methodology due to price volatility. Management reserves the right to maintain or to modify ratings on any specific stock and will disclose this in the report when it occurs. Valuation methodologies vary from stock to stock, analyst to analyst, and country to country. Any investment in Latin American equities is, by its nature, risky. A full discussion of valuation methodology and risks related to achieving the target price of the subject security is included in the body of this report. The benchmark used for establishing Argentina recommendations is our forecast of the year-end Argentina IFCI index. For the Andean countries, our benchmark is the simple average of the country risk of each country plus the 10 year U.S. T-Bond yield plus 5.5% of equity risk premium. For additional information about our rating methodology, please call (212) This report has been prepared by Santander Investment Securities Inc. ( SIS ) (a subsidiary of Santander Investment S.A., which is wholly owned by Banco Santander Central Hispano, S.A. ("Santander"), on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for information purposes only. This document must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities). Any decision by the recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should take into account the content of the related prospectus filed with and available from the entity governing the related market and the company issuing the security. This report is issued in Spain by Santander Central Hispano Bolsa, Sociedad de Valores, S.A. (SCH Bolsa), and in the United Kingdom by Santander Central Hispano S.A., London Branch (Santander London), which is regulated by the Financial Services Authority in the conduct of investment business in the UK. This report is not being issued to private customers. SCHI, Santander London, and SCH Bolsa are members of Grupo Santander. The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Alexander Robarts, Joaquin Ley, and Alonso Aramburu. Grupo Santander receives non-investment banking revenue from the subject company. The information contained herein has been compiled from sources believed to be reliable, but, although all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading, we make no representation that it is accurate or complete and it should not be relied upon as such. All opinions and estimates included herein constitute our judgment as at the date of this report and are subject to change without notice. Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any transaction in any security discussed herein should contact and place orders in the United States with SIS, which, without in any way limiting the foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this report and its dissemination in the United States by Santander Investment Securities Inc. All Rights Reserved. 2006