Detailed Narrative
Q3 FY26 Performance Overview and Karnataka Destocking Impact
Sula Vineyards experienced a challenging Q3 FY26, described as the toughest quarter since listing, impacting both revenue and profitability. This was primarily driven by a tactical decision to undertake destocking in Karnataka, the second-largest market, to right-size channel inventory. This action resulted in a INR21 crores decline in Karnataka's revenue compared to Q3 last year. Excluding this impact, Q3 revenues were broadly in line with the prior year, and the company expects improved performance from Q4 onwards.
Market Performance and Premiumization Strategy
Despite challenges, Maharashtra, the largest market, showed consistent single-digit growth, and Telangana, the third-largest market, returned to double-digit growth in Q3 following license renewal. Other markets like UP, Rajasthan, Goa, and CSD also saw healthy double-digit growth, with CSD sales up nearly 40% YoY in 9M FY26. The elite and premium wine segments maintained an 80% share of the portfolio, and 'The Source' range was a standout performer, growing 25% YoY in 9M FY26 (revenue from INR32 crores to INR40 crores) and increasing its share within Own Brands from 8.5% to 11%.
Wine Tourism Business Continues Strong Growth
The Wine Tourism business delivered robust 34% YoY revenue growth in Q3 FY26, marking another record quarter, and contributed over 11% to total revenue. Footfalls increased by more than 15% YoY. The new resort, 'The Haven by Sula', added 50 keys, increasing total room capacity by nearly 50% to 154 keys. Occupancy remained stable at around 80% in Q3, with 'The Source' and 'Beyond' resorts showing higher occupancy when excluding 'The Haven'.
Profitability and Margin Contraction
Gross margins contracted by 270 basis points YoY in Q3 FY26, primarily due to an adverse state mix, with Karnataka's lower contribution (down 900 bps YoY from 20% to 11% of Own Brands revenue). This led to a 40% YoY decline in Q3 EBITDA to INR32 crores from INR53 crores last year, and an 800 basis point contraction in margins. For the first 9 months, EBITDA stood at INR76 crores, down 30% YoY from INR110 crores, with a 650 bps margin contraction.
Capital Allocation and Debt Management
The company recognized a one-time📎 exceptional charge📎 of INR 1.7 crores for impairment of certain York brands. Interest costs increased 4% YoY in Q3. However, net debt declined sequentially by INR36 crores to INR319 crores by December 2025, with a trailing 12-month debt-to-EBITDA ratio of approximately 3x. Annual capex for FY26 and FY27 is expected to moderate📎 to INR20-25 crores, less than half of the INR60 crores incurred last year, with a significant portion allocated to Wine Tourism expansion over the next two years.
India-EU FTA Impact and Domestic Competition
Management provided an update on the India-EU FTA, noting that duty reductions apply only to wines priced above EUR2.5 per 750ml bottle CIF, protecting over 95% of Sula's portfolio (below INR1,600 MRP). The first duty reduction to 75% is expected in about a year. Domestically, intense and 'unsustainable discounting' by other players, particularly in the cheaper wine segment, continues to be a challenge, leading Sula to voluntarily step back from this segment. The recent grape harvest was less, mainly impacting table grapes and lower-priced wines, but Sula's supply for wines above INR800 remains unaffected.