Sula Vineyards Navigates Q2 FY26 with Strategic Resilience and Growth Initiatives

Sula Vineyards Limited, India's leading wine producer, recently shared its financial results for the second quarter and first half of fiscal year 2026. The company reported a relatively stable revenue from operations of INR 139.7 crores for Q2 FY26. While the quarter presented some challenges, particularly within its 'Own Brands' segment, Sula Vineyards demonstrated strategic resilience, driven by robust growth in its 'Wine Tourism' business and a clear roadmap for future expansion and profitability.

The 'Own Brands' segment experienced a marginal decline in revenue, primarily attributed to a temporary route-to-market disruption in Telangana, a significant market for Sula. This disruption stemmed from the expiry of retail licenses, leading to retailers destocking ahead of new issuances. However, the management expressed confidence in a strong recovery in the latter half of H2 FY26, with supply transitions expected to commence in December. Notably, excluding Telangana, the 'Own Brands' revenue grew mid-single digit year-on-year, with strong double-digit growth observed across eight other states. The 'The Source' range continued its impressive double-digit growth trajectory, now contributing 10% to the total 'Own Brands' revenue, highlighting its success as a key growth driver.

Wine Tourism: A Growth Engine

In contrast to the 'Own Brands' segment, Sula's 'Wine Tourism' business continued its stellar performance, delivering a record Q2 with 7.7% YoY revenue growth and an impressive 14.5% in H1 FY26. This growth was fueled by increased visitor footfalls, a higher average room occupancy of 77% (up 350 basis points YoY), and improved spend per guest. The company's strategic investments in this segment are clearly paying off. The recent launch of 'The Haven by Sula', their third resort near York Winery in Nashik, added 30 keys to their capacity. Further expansion is planned with an additional 20 keys slated to open by March 2026, boosting total room capacity to 154 keys. Additionally, a new tasting room and an expanded restaurant at Domaine Sula in Karnataka are expected to be operational by the end of Q3 FY26, further enhancing the guest experience and driving footfalls.

Strategic Initiatives and Future Outlook

Sula Vineyards is actively pursuing several strategic initiatives to accelerate earnings growth over the next three years (FY25-FY28). In product development, the company continues to launch new products, with three new wines, including Muscat Blanc, slated for FY26. They are also significantly expanding the acreage of the Muscat variety to ensure increased supply for FY27 and beyond, capitalizing on its strong market reception. Market penetration efforts include expanding sales to the CSD segment, with wine listings nearly doubling, and a wider national rollout of 'The Source' and 'RASA' brands.

On the capacity front, Sula is on track to expand its cellar capacity by 1 million liters, reaching a total of 19.2 million liters per annum by the end of FY26. This expansion is being executed with a disciplined approach, at a 33% lower capital expenditure, demonstrating a commitment to financial efficiency. The company is also exploring re-entry into the imported wine distribution business, anticipating potential duty reductions from ongoing FTA negotiations, aiming to leverage its extensive distribution network to capture new market opportunities.

Sustainability and Financial Discipline

Sula Vineyards remains committed to sustainability, with approximately 66% of its annual energy needs met through solar PV capacity. The company plans to install up to 2 MW of Battery Energy Storage by Q3 FY26 to optimize energy usage during peak load times, leading to cost savings. Rainwater harvesting reservoirs at all facilities further underscore their environmental commitment, reducing water usage by over 15% in the last four fiscal years.

From a financial perspective, while gross margins contracted in Q2 due to a mix of factors including market mix changes and high-cost inventory, disciplined cost management led to an 8% YoY reduction in operating costs, mitigating the impact on EBITDA margins. The management expects operating margins to improve by 250 basis points in H2 FY26. Despite an increase in net debt, the debt-to-EBITDA ratio remains comfortable at 2.5x, and the company generated positive INR 4 crores in cash from operations post-tax in H1. The projected lower capital intensity of INR 30-35 crores annually for the current and coming fiscal years is expected to help contain any further increase in debt.

Sula Vineyards is strategically positioned for improved operating performance in the second half of FY26, supported by a favorable urban demand environment and continued healthy traction in wine tourism. The company's proactive approach to market challenges, coupled with its focus on sustainable growth and disciplined capital allocation, reinforces its leadership in the Indian wine industry.