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 Company leverages the strong brand equity of its flagship brand, “Kolson.” The Company’s products include “Slanty”, “Snackers”, “Bravo”, “Jam Hearts”, “Vermicelli”, and “Lotte Choco Pie”. The Company benefits from the leadership of owners possessing extensive international experience and a demonstrated track record of successful business ventures. The Company maintains a strong governance framework, underpinned by rigorous internal controls and an experienced management team. The internal audit function reports directly to the Board of Directors, ensuring independent oversight and accountability. The confectionery and biscuits market in Pakistan is led by domestic players and marked by strong competition and price sensitivity, with evolving consumer trends fueled by the rise of modern retail outlets in major cities. Consequently, the Company's revenue demonstrated a 7% growth during CY24, primarily attributable to the robust performance of its core product, "Slanty." However, the Company's profitability margins exhibited limited improvement. Gross profit margin increased by 8% due to a reduction in manufacturing expenses. The Company incurred an operating loss of 1.2%, primarily stemming from higher distribution expense. As a result, the Company faced a net loss of 4%. During CY24, the Company's debt coverage metrics exhibited improvement during the period. This positive development was driven by the reduction in overall finance costs, and a substantial 78% increase in FCFO. The stronger FCFO generation provides a greater cushion to meet the Company's financial obligations. The Company's cash conversion cycle remains favorable, indicating efficient management of working capital. The Company maintains a conservative capital structure, providing capacity for additional debt financing. The rating watch is predicated on sustained pressure on the Company's bottom line, evidenced by consistent net losses, and a demonstrated inability to maintain adequate profitability margins. This trend raises concerns regarding the Company's financial sustainability and its capacity to generate sufficient returns. Ratings recognize that the competition is tough and becoming increasingly multi-dimensional. Cognizant of the same, the management is proactively deploying new strategies to fend off the competition and preserving its market position, and improving overall financial performance. The effectiveness and timely implementation of these strategies will be key determinants in resolving the rating watch.
The ratings are dependent on the Company’s ability to improve sales, margins, and profitability. 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.

About the Entity
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 CEO.