The Pakistan Credit Rating Agency Limited
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Ateeb Riaz

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PACRA Maintains Entity Ratings of Lotte Kolson (Pvt) Limited

Rating Type Entity
(27-Dec-19 )
(27-Jun-19 )
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 of South Korea, and expected group support. Promising consumer demand in conjunction with higher production led to growth in revenues in the industry over the years. The Company's revenue growth remained restricted mainly due to government regulations applicable on distributors and impact on its low price items, especially 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. Meanwhile, margins have come under pressure recently owing to increasing raw material costs, aggravated by rupee devaluation. High marketing expenses led to operating loss. The Company's revenues and margins are expected to improve with launch of new products and better off take of existing products. The Company has a moderately leveraged capital structure with long term loan at fixed low rate. Coverages remain weak due to suppressed cash flows. Repayment of long term loan is expected to be paid through internal cash generation. The ratings draw strength from the sponsor's financial strength and demonstrated ability to provide support.
The ratings are dependent on the Company’s ability to improve revenue growth and utilization of new plant. Better margins and maintenance of working capital is essential. Any further deterioration in margins and/or coverages will put pressure on the ratings. Continued support from Lotte Confectionery, technically and financially, is critical for ratings.

About the Entity
Lotte Kolson (Private) Limited was incorporated in March, 1975. The Company was formerly known as KS Sulemanji Esmailiji & Sons (Private) Limited and was acquired by Lotte Corporation 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 of 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.