PACRA Maintains Entity Ratings of LOTTE Kolson (Pvt.) Limited
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. The Company's revenue growth remained meager, supported mainly by 'Slanty'. Substantial increase in marketing expenses, for brand visibility and awareness, led the operating income and, in turn margins to close in red. Being an FMCG, the Company needs to remain competitive. Furthermore, the ultimate goal is to occupy a notable market share in all its product categories. This further impacts the profitability. However, cost control mechanisms must be devised so as to ensure operational efficiency and achieve sustainable profits. For this, 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). 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 WELLFOOD Co. Ltd., technical and financial, remains imperative to sustain the ratings.
LOTTE Kolson (Pvt.) Limited was incorporated in March, 1975. The Company was fully acquired by LOTTE WELLFOOD Co. Ltd. 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 WELLFOOD Co. Ltd., 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.