The Pakistan Credit Rating Agency Limited
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Shayan Farooq

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PACRA Maintains Entity Ratings of LOTTE Kolson (Pvt.) Limited

Rating Type Entity
(09-Jun-22 )
(09-Jun-21 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect LOTTE Kolson (Pvt.) Limited’s ('LOTTE Kolson' or 'the Company') association with Lotte Corporation, one of the biggest conglomerates in South Korea. The food industry has posted steady growth, owing to growing middle class and stable demand for snacks and confectionery. However, the Company's revenue growth remained meager, as it was supported mainly by 'Slanty'. Utilization of the Company’s state-of-the-art ‘Choco Pie’ plant remains low, though improving, due to slow market pick up of the product despite aggressive marketing campaigns. Business margins dipped on the back of increased raw material costs, which lead to shrinking profits at gross and operational level. The Company is focusing on changing its sales mix to higher margin products, such as pasta, and increasing capacity utilization of new plant through product innovation (change in flavor - grammage). Lately, the Company has tapped into the ketchup segment. However, the segment is quite fragmented and led by established players. The financial risk profile of the Company is characterized by strong working capital management due to cash based sales and a modestly leveraged capital structure with long term loan at fixed rate. However, coverages are still weak as the Company's cashflows are under pressure. The ratings draw comfort from the Sponsor's financial strength, guidance on managing interest rate fluctuation, and demonstrated ability to provide support if needed.
The ratings are dependent on the Company’s ability to improve sales, margins, and profitability. Increasing capacity utilization of the new plant and gaining traction with newly introduced products will be important. However, any further deterioration in margins and/or coverages will adversely impact the ratings. Continued support from Lotte Confectionery, technically and financially, remains imperative to sustain the ratings.

About the Entity
LOTTE Kolson (Private) Limited was incorporated in March, 1975. The Company was fully acquired by Lotte Confectionery in 2014, Primary business activity of the Company involves manufacture and sale of five product categories, namely, i) Snacks, ii) Biscuits, iii) Pasta, iv) Cakes, and v) Gum. The Company has six production facilities concentrated in Karachi, Lahore,, and Islamabad.
Major shareholding (96.5%) lies with Lotte Confectionery, a subsidiary of Lotte Corporation which is one of the biggest conglomerates in South Korea. Remaining shareholding (3.5%) lies with Mr. Dong Bin Shin, Chairman of Lotte Corporation. The Company is headed by Mr. Khayyam Rajpoot, who is the Chief Executive Officer. He is ably supported by a professional management team.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.