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The Pakistan Credit Rating Agency Limited
Press Release

Date
09-Jun-21

Analyst
Faiqa Qamar
faiqa.qamar@pacra.com
+92-42-35869504
www.pacra.com

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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 (Pvt.) Limited

Rating Type Entity
Current
(09-Jun-21)
Previous
(26-Jun-20)
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - YES

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. Though food industry remained operational since Covid-19 outbreak, however, demand for snacks and confectionery remain low due to closure of schools and malls. The Company's revenue growth remained limited mainly due to government's regulation on unregistered distributors and an overall contraction in demand in snacks segment. 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 improved despite increase in raw material costs leading to 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. The financial profile of the Company is characterized by strong working capital management due to its cash based sales and a moderately leveraged capital structure with long term loan at fixed rate. Loan deferment facility introduced by SBP provide during Covid-19 outbreak provided the necessary respite, however, coverages are still weak as the Company's cashlfows 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 new plant and gaining traction of newly introduced products will be important. Any further deterioration in margins and/or coverages will exert 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.