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Fratelli Vineyards Limited — Q3 FY25 earnings call

Call held 12 Feb 2025

Company page: Fratelli Vineyards share price, financials & guidance record

Management summary

Fratelli Vineyards reported a moderated performance for Q3 & 9M FY25, with EBITDA margins significantly impacted by strategic brand investments and new product launches, despite stable gross margins. The company is focused on long-term growth through vineyard expansion, enhanced production capabilities, and new product and experience-based initiatives like 'Pour Room' and 'Shotgun'. Management anticipates a return to double-digit revenue growth and improved EBITDA margins in the near future as these investments mature.

Highlights

  • EBITDA margin for 9M FY25 dropped to 4.88% from 13.2% in the previous year, primarily due to increased brand investments and new product launches.

  • Gross margins remained stable at 77%-80%, considered best-in-class among winemakers.

  • Management aims for a sustainable EBITDA margin of 10%-12% in the near future.

  • Revenue growth is targeted to return to a normalized 10%-15%, with expectations to exceed this.

  • The company plans to invest 8%-9% of its top-line on brand initiatives.

  • Vineyard expansion includes adding 40 acres by H2 FY25 and another 60 acres by Q2 FY26, targeting a total of 400 acres under contract farming.

  • New initiatives like 'Pour Room' (wine and coffee bars) and 'Shotgun' (canned wine) have been launched to broaden market reach and consumer experience.

Key financials

2 periods

Headline

  • Previous Year EBITDA Margin
    13.2%
  • Current Gross Margin
    77%

9M

  • FY25 EBITDA Margin
    4.9%

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.

Capital allocation

medium confidence
  • Capex Capex disclosed
    • New 50,000 sq. ft. winery building
    • Investments in solar energy ₹10 Mn
    • Adding 40 acres of vineyards by H2 FY25
    • Adding 60 acres of vineyards by Q2 FY26
    • Developing exclusive vineyard resort at Akluj
    Additionally, we have commenced operations at our new 50,000 sq. ft. winery building. This will position us for higher volume growth in the premium category and significantly enhance our production capabilities in the coming quarters, as we ramp up from here. The new winery building and the investments made in solar energy will result in savings of over Rs. 10 million in costs annually. ... we are developing an exclusive vineyard resort at Akluj, Maharashtra. The work on this is in advanced stages of planning and we expect to open in FY27...

Guidance & targets

Profitability

  • Sustainable EBITDA Margin Profitability · near future · High confidence 10%-12%
    We are aiming for around 10%-12% in the near future.

    — Gaurav Sekhri

Revenue

  • Normalized Revenue Growth Revenue · future · High confidence 10%-15%
    But we expect to get back to some sort of normalized growth of between 10%-15%, and we expect to do better than that.

    — Gaurav Sekhri

Marketing

  • Brand Investment as % of Top-line Marketing · ongoing · High confidence 8%-9%
    But we continue to spend about 8%-9% of our top-line on brand investment.

    — Gaurav Sekhri

Capacity

  • Vineyard Expansion (additional acres) Capacity · H2 FY25 · High confidence 40 acres
    To strengthen our world-class wine making business, we are scaling up our production by adding 40 acres of vineyards by H2 FY25 with another 60 acres planned to be planted before Q2 FY26...

    — Gaurav Sekhri

  • Vineyard Expansion (additional acres) Capacity · before Q2 FY26 · High confidence 60 acres

    — Gaurav Sekhri

New Ventures

  • Akluj Vineyard Resort Opening New Ventures · FY27 · High confidence Open
    The work on this is in advanced stages of planning and we expect to open in FY27, as a first of its kind property in India with multiple experiences besides vineyard tourism and luxury stays are being planned.

    — Gaurav Sekhri

What to watch in Q4 FY25

EBITDA Margin Recovery

next quarter / near future
Current 4.88% (9M FY25)
Target Moving towards 10-12%

Why it matters

Crucial for assessing the effectiveness of strategic investments and return to profitability targets.

On EBITDA, our EBITDA margin has dropped from about 13.2% to about 4.88% for the current 9 months... We are aiming for around 10%-12% in the near future.

Risks & concerns

  • Moderated Performance due to External Factors

    medium

    Performance was moderated by a higher number of dry days, transition to new RTMs in key states, and lower urban consumption.

    Management acknowledged

  • Overall AlcoBev Industry Slowdown

    medium

    The entire AlcoBev industry grew only about 2% this year, impacting the company's category.

    Management acknowledged

Q&A highlights

4 direct
Gross Margin vs. EBITDA Margin Performance Direct
On EBITDA, our EBITDA margin has dropped from about 13.2% to about 4.88% for the current 9 months and that is largely because the company has increased its brand investments and generally expenses in line with some new product launches, new initiatives, and many of those things will only begin to show its rewards in the coming quarters. And lastly, I think you mentioned something about drought, etc. There is no such concern, just to clarify.

Clarifies the reason for the significant drop in EBITDA margin (strategic investments) while confirming gross margin stability, addressing a key analyst concern.

Asked by Surya Narayan Nayak

Sustainable EBITDA Margin and Revenue Growth Outlook Direct
We are aiming for around 10%-12% in the near future. ... But we expect to get back to some sort of normalized growth of between 10%-15%, and we expect to do better than that.

Provides specific forward-looking targets for key profitability and growth metrics, indicating management's confidence in future recovery.

Asked by Surya Narayan Nayak

Canned Wine ('Shotgun') Strategy and Performance Direct
The Can business is really to make wine more approachable to consumers. We have seen in the past; there's a lot of formality around drinking wine. Do I have the right glass, etc. Our aim of putting wine in a Can was to remove that formality, make it more accessible, more approachable, where you can consume it in any setting without any of those established preconceived notions around wine. ... gross margins, packaging is only one part. There's also the kind of liquid and the price point that you're wishing to achieve all play a role in that. So, it is comparable to our bottles business. It is, in fact, probably a few percentage points lower than our bottle business. But, we hope it will be a far larger volume business.

Explains the strategic rationale behind the new canned wine product, its target audience, initial market reception, and its margin profile relative to bottled wines.

Asked by Saurabh Shroff

Regulatory Environment and Brand Investment Strategy Direct
Firstly, in regards to regulations, all states are more or less very similar. What you have observed in Maharashtra, other states are not too different. ... And point two, I think wine, for it to be better understood and communicated, I think it will require a sustained form of investments and brand initiatives. I believe we see this at least for another 1-1.5 years. ... But we continue to spend about 8%-9% of our top-line on brand investment.

Clarifies the regulatory landscape across states and reiterates the company's commitment to sustained brand investments for category development, providing context for current expenses.

Asked by Saurabh Shroff

2 min read 5 chapters

Detailed narrative

Q3 & 9M FY25 Performance Overview

Fratelli Vineyards experienced a moderated performance in Q3 & 9M FY25. The company's EBITDA margin for the nine-month period dropped significantly to 4.88% from 13.2% in the previous year. This decline is attributed to increased brand investments and expenses related to new product launches. Despite this, gross margins remained robust and stable at 77%-80%, which management considers best-in-class within the industry.

Strategic Investments and Capacity Expansion

The company is making substantial investments for future growth. A new 50,000 sq. ft. winery building has commenced operations, and investments in solar energy are expected to yield annual savings of over Rs. 10 million. Vineyard expansion is underway, with 40 acres to be added by H2 FY25 and another 60 acres by Q2 FY26, aiming for a total of 400 acres under contract farming. These initiatives are designed to enhance production capabilities and support higher volume growth in the premium category.

New Product and Experience Initiatives

Fratelli Vineyards launched 'Pour Room', a new brand for wine and coffee bars in collaboration with Blue Tokai, with the first outlet opening in Bangalore to an encouraging response. The company also soft-launched 'Shotgun', an accessible wine-based RTD drink, which is seen as a category-broadening initiative. These ventures aim to make wine more approachable and expand consumer touchpoints, particularly targeting younger demographics.

Outlook and Growth Targets

Management is optimistic about returning to a normalized revenue growth rate of 10%-15% in the future, with expectations to exceed this. They are targeting a sustainable EBITDA margin of 10%-12% in the near term. The company plans to continue investing 8%-9% of its top-line in brand initiatives for the next 1-1.5 years to build the wine category and strengthen its market position.

Market and Regulatory Environment

The AlcoBev industry experienced a flat year, with overall growth around 2%, impacting the company's performance. Factors like a higher number of dry days, transition to new route-to-market strategies, and lower urban consumption also contributed to moderated results. Management noted that wine regulations are largely similar across states, requiring sustained investment for brand communication and market development.

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