/** Title: Sula Vineyards Q1 FY27: Premium mix improves, tourism grows, margins await grape normalization */

Sula Vineyards Q1 FY27: Premium mix improves, tourism grows, margins await grape normalization

Sula Vineyards began FY27 with a modest return to top-line growth, while profitability stayed under pressure from input cost and mix. In Q1 FY27, net revenue from operations rose 3 percent year on year to INR 112.9 crore. Operating EBITDA was INR 16.6 crore and profit after tax was INR 1.0 crore.

Management framed the quarter as a continuation of the recovery seen in late FY26, pointing to six consecutive months of positive sales growth. The key operating theme was clear: the company is leaning further into premiumization in its Own Brands portfolio, and building Wine Tourism as a larger, higher-engagement growth engine.

Growth came from premium wines and wine tourism

Sula’s revenue from operations was INR 120.8 crore in Q1 FY27, up 2 percent year on year. Own Brands revenue grew 2 percent to INR 104.3 crore. Wine Tourism grew 12 percent to INR 15.4 crore, lifting its contribution to total revenue by 120 basis points to 13 percent.

Within Own Brands, the mix continued to shift upwards. Elite and Premium revenue increased 6.2 percent year on year to INR 81.2 crore, while Economy and Popular declined 10.5 percent to INR 23.1 crore. Elite and Premium salience improved to 78 percent of Own Brands sales, up 310 basis points year on year. Management highlighted strong double-digit growth in The Source and RĀSĀ, and also called out high growth from a smaller base in Sula Merlot and Sula Muscat Blanc.

Regional momentum was uneven. Telangana, Haryana, Chandigarh, CSD and Exports delivered strong double-digit growth. Karnataka remained soft, with management stating that the overall wine category saw degrowth in the state, and that the market is expected to improve in the second half of FY27.

Wine Tourism performance was driven more by monetisation than footfalls. Visitor count was 100,600 plus, broadly flat year on year. Spend per day visitor rose 5 percent to INR 1,678, and ARR rose 5 percent to INR 9,493. Occupancy fell to 63 percent from 82 percent last year, which management attributed to a 50 percent increase in room inventory and an extended, hot summer. Excluding the newly launched The Haven, occupancy was stated at 72 percent.

Financial summary

Why margins weakened despite growth

The quarter’s profitability was shaped more by cost and mix than by demand. Gross margin fell 550 basis points year on year to 68.5 percent. Management attributed this to two main drivers.

First was a temporary spike in blended grape cost. As part of a conscious working-capital strategy, the company chose not to source table grapes from the open market during harvest 2026. This shifted procurement heavily toward wine grapes, which management said accounted for nearly 100 percent of grapes procured in harvest 2026 versus about 80 percent in earlier years. The company estimated that this procurement mix shift reduced gross margin by around 150 basis points.

Second was an adverse geographical mix. Faster growth came from markets outside the company’s higher-margin core markets of Maharashtra and Karnataka. This mix was said to reduce gross margin by about 200 basis points. Management added an important qualifier: these markets tend to have lower selling and distribution costs, so the impact at the EBITDA margin level is relatively modest.

Operating costs moved in the right direction. The company cited cost actions that reduced operating expenses by about 3 percent year on year. Employee cost declined 6 percent and other expenses declined 2 percent. Even so, operating EBITDA fell 9 percent year on year, and EBITDA margin fell to 14.7 percent.

Below EBITDA, depreciation increased 12 percent due to the addition of The Haven and associated right-to-use assets under Ind AS 116. Finance costs declined 4 percent, supported by lower average debt and cost of borrowing.

Domaine Rāsā and tourism-led expansion

A major strategic highlight in Q1 FY27 was the completion of the acquisition of the former Chandon estate for INR 20 crore. The 19-acre estate has been renamed Domaine Rāsā. The tasting room, bottle shop and banquet facilities commenced operations from July 2026. Management stated the intent is to build another distinctive wine tourism destination in Nashik, leveraging the success of the flagship Sula campus that welcomed over 300,000 visitors in FY26.

Winery operations at Domaine Rāsā are expected to commence later. The presentation referenced a start from Q4 FY27, while management on the call spoke about commencing production from harvest 2027. What is clear from both documents is the near-term focus on tourism activation, while production ramps later.

The rest of the tourism pipeline is also geared toward the festive season. The amphitheatre expansion at the Sula campus was completed in July 2026. A wine shop at Domaine Dindori is set to open in August 2026. A 5,000 square foot events pavilion is under construction and is targeted to open in time for the festive and wedding season in Q3 FY27. Management expects these additions to support wine tourism revenue in the second half.

On capital efficiency, management reiterated that recent tourism expansion has been relatively asset-light. The Haven was built by partners and is operated by Sula under a management contract, typically with terms of at least 10 years.

Outlook: margin normalization is the key swing factor

The forward narrative for FY27 and FY28 hinges on grape costs and market recovery. Management guided that the higher blended grape cost impact should subside from Q4 FY27 and fully normalize from Q1 FY28 as the grape mix rebalances following harvest 2027. They also indicated a strong probability that table grape prices could moderate meaningfully from harvest 2026 levels, given the state of the monsoon, which could benefit margins for the Popular and Economy portfolio.

On demand, management expects Karnataka to improve in H2 FY27. In channels, Sula stated it has received preliminary approval for five additional listings in CSD, taking the total approved wines to 14 from the current 9 once launched. The company expects to complete the listing process by Q3 FY27 and introduce the new wines in CSD before the end of the year.

Balance sheet commentary remained focused on gradual deleveraging. Net debt at end-June 2026 stood at INR 319 crore versus INR 345 crore a year earlier. The company expects net debt to trend lower by end FY27 versus FY26.

The quarter, in effect, was a trade-off. Growth was supported by premium wines and tourism, but profitability took a temporary hit from procurement and mix choices. The near-term test is whether grape costs normalize on schedule and whether Karnataka demand stabilizes. If both play out, the company’s stated goal of returning to and surpassing last year’s EBITDA margin levels before the end of FY27 becomes the central marker to track.