ICRA Limited, a prominent credit rating agency, has reaffirmed the credit ratings for Sula Vineyards Limited and its material subsidiary, Artisan Spirits Private Limited, while revising the outlook from Stable to Negative. This change affects various fund-based and non-fund based facilities of the company.

Rating Actions

The rating actions taken by ICRA are as follows:

Implications

The revision in outlook from Stable to Negative suggests that ICRA perceives an increased risk in the company's credit profile. While the ratings have been reaffirmed, indicating that the fundamental credit quality remains intact, the negative outlook implies that there may be factors that could put downward pressure on the ratings in the near to medium term.

Recent Developments

In a separate development, Artisan Spirits Private Limited (ASPL), a wholly-owned subsidiary of Sula Vineyards Limited, received a favorable rectification order regarding a previous tax assessment. The order has resulted in the dropping of a significant tax demand:

• Original demand: INR 21,33,54,743
• Dropped amount: INR 21,33,54,743 (comprising tax of INR 9,69,71,770, interest of INR 9,19,99,769, and penalty of INR 2,43,83,204)

This rectification relates to the H Form under the Central Sales Tax Act, 1956, and may have positive implications for the company's financial position.

Investor Considerations

Investors and stakeholders should note that while the core ratings remain unchanged, the negative outlook warrants closer monitoring of Sula Vineyards' financial performance and market conditions. The detailed rationale for the rating action is available on ICRA's website ( https://www.icra.in/ ).

As the wine industry continues to evolve, Sula Vineyards' ability to navigate market challenges and maintain its financial health will be crucial in the coming periods.

Sula Vineyards , India's leading wine producer, has reported a stable revenue of INR 140.00 crores for Q2 FY26, maintaining its market position despite facing temporary disruptions in the Telangana market. The company's performance highlights its resilience in a challenging environment and showcases strong growth in its Wine Tourism segment.

Revenue and Market Performance

Sula Vineyards maintained its revenue at INR 140.00 crores in Q2 FY26, demonstrating stability in a complex market scenario. The company's Own Brands segment saw a 1.5% increase in volume, although value declined by 2.5% due to an unfavorable sales mix. The Elite & Premium brands, which constitute 78% of the portfolio, experienced a 3% decline.

Notably, The Source range continued its robust performance, achieving double-digit growth for multiple consecutive quarters. This premium offering now accounts for 10% of Sula's Own Brands revenue, marking significant progress from the previous year.

Wine Tourism: A Bright Spot

The Wine Tourism business emerged as a standout performer, delivering record 8% growth in Q2 and an impressive 15% growth in H1 FY26. This segment's success was driven by improvements across key metrics:

• Resort occupancy improved by 350 basis points year-over-year to 77%
• Average room revenue increased by 1%
• Visitor footfall rose by 2%, reaching approximately 78,000 guests

Sula Vineyards has expanded its hospitality offerings with the launch of its third resort, 'The Haven by Sula', near York Winery in Nashik. This new 30-key property follows an asset-light model and is expected to contribute significantly to Wine Tourism revenue in H2 FY26.

Market Challenges and Opportunities

While facing temporary disruptions in the Telangana market due to retail license expirations, Sula Vineyards saw strong performance in other regions:

• Eight markets, including Haryana, Uttar Pradesh, and Rajasthan, delivered strong double-digit growth
• The CSD (Canteen Stores Department) segment more than doubled its revenue year-on-year

The company expects improved performance in H2 FY26, driven by the recovery of the Telangana market, higher WIPS (Wine Industry Promotion Subsidy) accruals, and sustained momentum in Wine Tourism.

Financial Outlook

Despite challenges, Sula Vineyards maintains a positive outlook:

• Operating margins are projected to improve by 250 basis points year-on-year in H2 FY26
• Capital expenditure for FY26 and FY27 is expected to be in the range of INR 30.00-35.00 crores annually

Strategic Initiatives

Sula Vineyards is actively pursuing several strategic initiatives to drive growth:

1. Expanding The Source range nationally, with recent entries into key markets like Haryana and Delhi
2. Launching new products, including India's first premium low-alcohol wine, Sula Muscat Blanc
3. Exploring opportunities in the imported wine distribution business in anticipation of reduced import duties
4. Continuing to invest in sustainability, with recent installations of battery energy storage systems

Market Position and Future Outlook

Rajeev Samant, Founder and CEO of Sula Vineyards, expressed confidence in the company's market position, stating, "We believe that Sula has continued to gain market share in the overall wine market in H1 despite having lower S&D spend than our key competitors." The company is well-positioned to benefit from the growing appeal of experiential travel and its differentiated offerings in the Wine Tourism segment.

With its strategic focus on premium brands, expansion into new markets, and continued innovation in product offerings, Sula Vineyards is poised for growth in the coming quarters, reaffirming its status as a leader in the Indian wine industry.