FratelliVineyard — Q1 FY26 earnings call

Call held 13 Aug 2025

Management summary

Fratelli Vineyards faced a 15% YoY decline in net sales for its wine business in Q1 FY26, attributed to market disruptions and strategic supply chain adjustments. Despite this, gross margins saw a significant 700 bps improvement. The company is focused on premiumization, with over 70% of sales from premium segments, and is expanding into new categories like RTDs with Shotgun. Strategic investments in capacity, brand building, and a planned hospitality vertical underscore a long-term growth vision, with management targeting 15-20% top-line growth for FY26.

Highlights

  • Net sales for Fratelli Wines declined by approximately 15% YoY in Q1 FY26, reaching ₹36 crores, primarily due to temporary slowdown in urban consumption and supply chain optimization.

  • Gross margins improved by 700 basis points, driven by disciplined cost control and operational efficiency.

  • EBITDA margins were softer due to increased investments in Shotgun RTD and other long-term initiatives.

  • The premium and above segment contributed over 70% of total sales, with luxury labels (SETTE, J'NOON) growing 15% and contributing 6% to the top line.

  • The company launched Shotgun, a crafted wine RTD, in February 2025, which has secured a 5% market share in tracked states and is targeting presence in 15 states by FY26 end.

  • Fratelli Vineyards aims for 15-20% top-line growth for FY26 and expects EBITDA margins to improve by 200-250 bps through cost optimization.

  • Total CAPEX of ₹70 crores was invested from FY23-FY25, with an additional ₹12 crores planned for FY26 for capacity expansion.

  • Plans for a hospitality vertical involve an investment of ₹70-75 crores over the next 2-3 years, initially in Maharashtra.

Key financials

  1. Net Sales (Fratelli Wines) ₹36 Cr -15%YoY
  2. Gross Margin Improvement 700 bps

What they filed

Q1 FY27: revenue up 22.5%, net profit up 36.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue62 58 32 37 46 −26%64 +10%35 +11%45 +22%
EBITDA1 -0 -11 -3 1 +5%-1 −31%-5 +54%0 +110%
Net profit-3 -3 -11 -6 -3 −14%-9 −215%-7 +36%-4 +37%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Premium & Above Segment
    70% Contribution to Total Sales70% Gross Margin
  • Luxury Segment (SETTE & J'NOON)
    15% Growth6% Contribution to Top Line
  • Master Selection Range (Super Premium)
    6% Contribution to Revenues
  • RTD Segment (Shotgun)
    65% Gross Margin5% Market Share (tracked states)

Capital allocation

high confidence
  • Capex ₹12 Cr
    • Capacity expansion for envisaged growth
    • Hospitality vertical (Maharashtra) and own winery (Karnataka) ₹70 Cr
    I am pleased to inform you that the company has invested approximately Rs.70 crores in FY23 to FY25. These investments have gone into fixed assets like expansion of winery building, new state-of-the-art equipment, and vineyards. We have approximately Rs.12 crores of CAPEX planned in FY26 as well, and this will largely complete our CAPEX cycle for capacity expansion required for envisaged growth over the next three to five years. Also, we are at the planning stage for our wine tourism and hospitality vertical. Over the next two to three years, we expect to invest around Rs.100 crores in hospitality in Maharashtra, and we plan to set up our own winery in Karnataka. These investments will not only diversify our growth but also deepen consumer engagement. Our focus remains steadfast in top line growth and margin expansion. (Gaurav Sekhri, page 5) ...Our budget for hospitality is not Rs.100 crores. It is actually we are expecting to not spend more than Rs.70 or rs.75 crores. (Gaurav Sekhri, page 14)
  • Debt Debt disclosed Cost 10%
    Our debt today is approximately Rs.30 to 35-odd crores term debt and our CFO can give you more accurately. And we have approximately Rs.70-odd crores of working capital. And that is where we stand today. (Gaurav Sekhri, page 16) ...We are at around 10%. (Gaurav Sekhri, page 17)

Guidance & targets

Industry Growth

  • Indian Wine Industry Growth Rate Industry Growth · next three to four years · High confidence 15-20%
    We, as Fratelli, are expecting the industry to grow at about 15% to 20% for the next three to four years and we remain firm on that.

    — Aditya Sekhri

Market Presence

  • Shotgun RTD State Presence Market Presence · by the end of FY26 · High confidence 15 states
    We are targeting presence across 15 states for Shotgun by the end of FY26.

Volume

  • Shotgun RTD Cases Sold Volume · by the end of this financial year · Medium confidence >1 lakh cases
    Our endeavor is to do more than 1 lakh cases by the end of this financial year.

    — Aditya Sekhri

Profitability

  • EBITDA Margin Improvement Profitability · Medium confidence 200-250 bps
    But certainly, we expect it to improve about maybe 200-250 bps to EBITDA.

    — Gaurav Sekhri

Product Mix

  • Overall Premium Mix (including RTD) Product Mix · Medium confidence 65%
    But considering Shotgun is a product in which our focus will be there, therefore, as a whole, in terms of our overall top line, it may drop to about 65%.

    — Aditya Sekhri

  • Bottles Business Premium Mix Product Mix · next five years · High confidence >70%
    But when it comes to our bottles business, I definitely believe our mix will be 70%-plus at least for the next five years from premium and above brands. ...But if we look at our bottles business as a whole, it should remain above 70%.

    — Aditya Sekhri

Revenue

  • Top Line Growth Revenue · FY26 · High confidence 15-20%
    See, we are firm this year that we will deliver 15% to 20% top line growth and there are still three quarters which are left.

    — Aditya Sekhri

WIPS Benefit

  • WIPS Benefit Growth WIPS Benefit · FY26 · Medium confidence 15-20%
    But like we are projecting around 15% to 20% growth for the top line. So, I mean, similar may be expected in that segment also.

    — Rajesh Garg

What to watch in Q2 FY26

Q2 FY26 Revenue Recovery

next quarter (Q2 FY26)
Current 15% YoY decline in Q1 FY26, with a dip in June
Target Recovery in sales, as expected by management

Why it matters

Management indicated Q2 onwards would show recovery, making it a key indicator of demand stabilization and effectiveness of strategic initiatives.

But as due to the changes that happened in Maharashtra, there was a dip in sales in June, which impacted us. But Q2 onwards, you will be seeing that recovery. (Aditya Sekhri, page 11)

Risks & concerns

  • Maharashtra excise duty hike on spirits

    medium

    Caused temporary disruption in wine sales, though wine excise duties remained unchanged.

    Management acknowledged

  • Competition from imported wines due to FTAs (e.g., UK-India)

    medium

    Management believes the segment up to ₹2000-2500 (where Fratelli operates) is well-protected even with FTAs, as impact is mainly on higher-priced wines.

    Analyst downplayed

  • Lower Return on Equity (ROE) for wine business

    low

    Wine business is patient capital, with lower ROE than spirits due to long gestation periods and capital intensity, but benefits from high entry barriers.

    Analyst acknowledged

Q&A highlights

7 direct
Revenue decline in Q1 FY26 Direct
So, Q1 last year versus current year, there was about a 15% dip in net sales if you compare Q1 last year versus this year. On a QoQ basis, we are 13% above, the previous quarter that just got concluded which is Q4 of FY25.

Clarified the actual YoY revenue decline for Fratelli Wines, correcting an analyst's potentially misleading comparison with the pre-merger Holdco numbers.

Asked by Deepesh Sancheti

Hospitality vertical revenue contribution and timeline Partial
And regarding the revenue contribution from hospitality, etc., it is a bit premature to talk about that today, because we are at least two years away from that happening.

Management indicated that the hospitality vertical is a long-term play and revenue contribution is not expected for at least two years, providing a timeline for investor expectations.

Asked by Karan Kamdar

EBITDA margin differential between premium and RTD products Direct
Our gross margins for our premium and above brands are north of 70%. And they have remained so for the last three years. In the RTD segment, the gross margins are relatively lower. We are operating between 65% to 70% gross margin in the RTD segment.

Provided specific gross margin figures for key product segments (premium vs. RTD), which is crucial for understanding profitability drivers and future mix impact.

Asked by Chetan

Decline in promoter holding Direct
Firstly, the 73.81-old per cent that you saw was the promoter holding prior to the reverse merger of Fratelli into the business. Since the time Fratelli has become the holdco and 100% subsidiary of the listed entity, the promoter holding is consistent at just a shade below 58%.

Addressed a concern about promoter shareholding dilution, clarifying it was due to a corporate restructuring (reverse merger) and is now stable.

Asked by Manan Gandhi

Strategic rationale for wine-based RTD (Shotgun) Direct
Firstly, wine-based RTD, as it suggests, it is wine liquid. And we have better expertise than anybody else in the country we would like to believe in, in the making of wine and the vineyards, etc., So, that clearly gives us a competitive advantage. Secondly, our rationale of getting into wine RTDs is to have one fast-moving product within our portfolio, which expands us as a business beyond just the traditional wine consumption area, #1. #2, it opens many new tier two, tier three markets for us, increases our touch points, because there are many small, small, retailers as you can imagine maybe in interior Maharashtra, interior Haryana, interior UP, where the sale of traditional bottled wine is possibly only, maybe five or 10 cases over two or three months.

Management articulated a clear strategic rationale for entering the RTD segment, highlighting competitive advantages and market expansion opportunities in Tier 2/3 cities.

Asked by Deepesh Sancheti

Capital requirement for achieving ₹500 crores revenue Direct
So, I am just kind of interpreting the answer that till Rs.500 crores or so, we do not need any additional capital, but maybe to hit maybe Rs.700, 800 crores or beyond Rs.500 crores, we will need capital? Yes, yes, you can assume that.

Provided clarity on capital needs, indicating that current investments are sufficient for growth up to ₹500 crores in revenue, but additional capital might be required beyond that.

Asked by Amit Mehendale

ROE of wine business compared to other alcohol segments Direct
See, the ROE per se overall, in wine business, my assessment also today at least is the same, will be probably a little lower than the spirits business. This is a patient capital business where long-term value is being created. The positive of a wine business is worth mentioning here as well, is that the very strong entry barrier of time.

Management acknowledged that wine business ROE might be lower than spirits due to its capital-intensive and long-gestation nature, but emphasized the strong entry barrier as a positive.

Asked by Amit Mehendale

Cost optimization initiatives and EBITDA margin expansion Direct
So, we have various initiatives underway. We had mentioned already about solar. We implemented solar energy in our facilities and that will result in savings. We have already given an estimate of that. We are also working on operational efficiency at the vineyard level, in the winery level, even supply chain optimization. So, all of those things will result in savings. We are working towards a plan.

Detailed the specific cost optimization efforts, including solar energy and operational efficiencies across the value chain, which are expected to drive future EBITDA margin improvement.

Asked by Shyam Garg

3 min read 6 chapters

Detailed narrative

Q1 FY26 Performance and Market Dynamics

Fratelli Vineyards reported a 15% YoY decline in net sales for its wine business in Q1 FY26, with revenue at ₹36 crores. This was attributed to a temporary slowdown in urban consumption and deliberate supply chain optimization. Despite the revenue dip, gross margins improved by 700 basis points due to effective cost control. The company noted that the Maharashtra excise duty hike on spirits caused temporary disruption in wine sales, although wine excise duties remained unchanged, which is beneficial for the wine business.

Strategic Growth Initiatives: Premiumization and RTDs

The company's premium and above segment continues to be a strong focus, contributing over 70% of total sales and maintaining gross margins north of 70%. Luxury labels like SETTE and J'NOON grew 15% in Q1 FY26, now accounting for 6% of the top line. A significant new initiative is the launch of Shotgun, a crafted wine RTD in February 2025, which has already secured a 5% market share in tracked states and is targeted for presence in 15 states by FY26 end. This RTD offering aims to deepen penetration in Tier-2 and Tier-3 cities and cater to evolving consumer preferences.

Capacity Expansion and Infrastructure Investments

Fratelli Vineyards invested ₹70 crores in CAPEX from FY23 to FY25, with an additional ₹12 crores planned for FY26 to complete its capacity expansion cycle. The company now boasts a 5.4 million litres winery capacity and a new 47,000 square feet facility in Akluj, Maharashtra. These investments are aimed at building a strong foundation for scalable and sustainable growth, ensuring consistency and quality from vineyards to bottling.

Capital Allocation and Funding Strategy

The company's current term debt stands at approximately ₹30-35 crores, with working capital around ₹70 crores. The cost of debt is approximately 10%. Management stated that existing capital is sufficient for growth up to ₹500 crores in revenue, with additional capital potentially needed beyond ₹700-800 crores. Plans for a hospitality vertical involve an investment of ₹70-75 crores over the next 2-3 years, primarily in Maharashtra, which is seen as a brand-building and consumer engagement strategy.

Outlook and Profitability Targets

Fratelli Vineyards is targeting a 15-20% top-line growth for FY26, expecting a recovery from Q2 onwards after a dip in June. The company anticipates an improvement of 200-250 basis points in EBITDA margins through various cost optimization initiatives, including the implementation of 520 kW of solar capacity (meeting 50% of electricity needs and saving ₹50 lakhs annually) and operational efficiencies across the value chain. The overall product mix is expected to shift, with premium segments (including RTD) potentially comprising around 65% of the top line, while the bottled wine premium mix is projected to remain above 70% for the next five years.

Market Perception and Innovation

Management acknowledged the perception that imported wines are superior but believes that the quality of Indian wines, particularly Fratelli's offerings, will overcome this. The company continues to innovate, with products like TILT (wine in a can) and the recently launched peach-flavored Mosso wine, catering to younger, lifestyle-driven consumers and expanding market reach. They are actively collaborating with wine-based influencers and have grown their Instagram followers to 62,000, indicating strong engagement.

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