The Pakistan Credit Rating Agency Limited
Press Release


Silwat Malik

Applicable Criteria

Related Research

This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Lotte Kolson (Private) Limited

Rating Type Entity
(27-Jun-19 )
(31-Dec-18 )
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect the Company’s association with Lotte Corporation, one of the biggest conglomerates in South Korea, and expected group support. Promising consumer sentiment in conjunction with higher production led to growth in revenues in the industry over the years. However, rising inflationary pressures and a stressed economy has curtailed this growth. Ratings draw strength from the Company’s established market presence in the snacks industry and experienced management team. Utilization of the Company’s state-of-the-art ‘Choco pie’ plant remains low due to slow market pick of the product despite aggressive marketing campaigns. Meanwhile, margins have come under pressure recently owing increasing raw material costs, aggravated by rupee devaluation, and intense competition in the market resulting in operating loss. Efficient working capital management provides a breather to financial profile that is otherwise characterized by aggressive leveraging and stretched coverages. Here, timely support from the Group has materialized as per commitment. This would ensure timely payments of debt obligations.
The ratings are dependent on the Company’s ability to improve utilization of new plant, resulting in better margins, while maintaining working capital discipline. Any deterioration in margins and/or coverages will put pressure on the ratings. Continued support from Lotte Corporation, technically and financially, is critical for ratings.

About the Entity
Lotte Kolson (Private) Limited (the Company) was incorporated in March, 1975. The Company was formerly known as KS Sulemanji Esmailiji & Sons (Private) Limited and was fully acquired by Lotte Corporation in 2014. Primary business activity of the Company involves manufacture and sale of five product categories, namely, snacks, biscuits, pasta, cakes and 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 (3.49%) 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 Company has a four member board and lacks representation of independent members.

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.