Sula Vineyards Limited

Sula Vineyards reported a stable revenue of INR 140 crores in Q2 FY26. However, Own Brands volume increased by 1.5% while value declined by 2.5% due to an unfavorable sales mix. The quarter saw significant margin compression, with gross margin contracting by approximately 900 basis points and EBITDA margin declining by 530 basis points year-on-year. This was attributed to an adverse market/product mix, a change in the Wine Tourism sourcing model, and the carryover of higher cost liquid inventory from the previous year.

The Wine Tourism business continued its strong performance, delivering an 8% year-on-year growth in Q2 and 15% in H1, marking another record quarter. Resort occupancy improved by 350 basis points to 77% in Q2. A significant development was the launch of the third resort, 'The Haven by Sula,' adding 30 keys and a convention center. The company plans to add another 20 keys in Q4, increasing its total room capacity by nearly 50% to 154 keys by year-end, up from 104 keys six months prior.

Despite a marginal decline in overall Own Brands value, 'The Source' range remained a star performer, achieving strong double-digit growth and now contributing 10% of the company's own brands revenue. Sula expects 'The Source's' share to double in a couple of years and is expanding its national footprint, including new labels in Haryana and Delhi. The CSD segment also demonstrated robust growth, with sales more than doubling year-on-year, reflecting the benefits of expanded label listings.

Telangana, which represented nearly 15% of Sula's sales last year, experienced significant degrowth in Q2 due to temporary route-to-market disruption^🌐 caused by the expiry of retail licenses and subsequent destocking by retailers. However, management anticipates a strong recovery in H2 FY26, with license auctions expected to conclude soon and new supply transitions commencing in December. Excluding Telangana, Own Brand sales grew by mid-single digits, supported by double-digit growth in eight other states.

Net debt at the end of September 2025 stood at INR 350 crores, up from INR 315 crores last year, resulting in a debt-to-EBITDA ratio of approximately 2.5x. Cash generated from operations post-tax in H1 was positive at INR 4 crores. The company expects its capital expenditure for the current and coming fiscal years to taper down to INR 30-35 crores, which is nearly half of previous levels, indicating a focus on lower capex intensity.

The Maharashtra VAT refund income (WIPS) outstanding balance was INR 80 crores at September end, up from INR 72 crores in March 2025. Sula accrued INR 20 crores in WIPS and received INR 13 crores in H1, with an additional INR 11 crores received in October, bringing the current outstanding to approximately INR 70 crores. Management expects a higher WIPS accrual to contribute to a 250 basis points year-on-year improvement in operating margins in H2 FY26.

With ongoing FTA negotiations potentially leading to reduced minimum import prices and duties for imported wines, Sula is actively exploring expanding its imported wine distribution business. While profitability for imported brands may not match its Own Brands, the company believes its existing sales and distribution network provides a significant advantage to capitalize on this evolving market, having previously stepped back from this segment.