Som Distilleries & Breweries Limited – Q3 FY26 Analysis

Alco-Beverage Sector Deep Dive

1. FINANCIAL PERFORMANCE

Revenue & Profitability Metrics

Metric	Q3 FY26	Q3 FY25	9M FY26	Change
Total Income	INR 2,542 Mn	—	INR 10,540 Mn	YoY decline noted
EBITDA	INR 231 Mn	—	INR 1,350 Mn	9.1% margin (Q3); 12.9% (9M)
PAT	INR 55 Mn	—	INR 670 Mn	2.2% margin (Q3); 6.4% (9M)

Management Commentary on Financial Pressure:

Diwakaran stated: "Our company posted subdued numbers in Q3 FY26 on account of more-than-expected cold weather conditions in our key markets like Madhya Pradesh, Delhi, which led a volume decline in the beer volumes. The situation was further impacted due to the less-than-expected recovery in Karnataka during the quarter."

Margin Compression Analysis:

The company experienced significant margin deterioration in Q3:

Gross margin pressure: Nakul Sethi explained: "The gross margin was impacted mainly by the share of Hunter going down in the overall sales mix. So if you look at Q2, it was about close to 28% of our total beer sales, and it has gone down to about 19%." Hunter, as the mainline premium beer, commands higher ex-brewery pricing; its decline directly eroded realization.
Raw material inflation: "Plus, there were some cost pressures on quarter-to-quarter where the prices of barley have risen in the range of 5% to 6%. Glass bottles have risen by about 3% to 4%."
EBITDA margin sustainability: 9M EBITDA margin of 12.9% shows operational improvement despite revenue headwinds, indicating cost management gains offset some pressures.

Key Risk Flag: EBITDA declined 24% YoY despite margin expansion in 9M, signaling that volume collapse outpaced cost efficiencies.

2. OPERATIONAL DRIVERS

2.1 Sales Volumes: Case Volume Trends

Q3 FY26 Volume Performance:

Segment	Q3 FY26	Q3 FY25	YoY Change	Comments
Beer (Cases)	35.3 Lakh	—	-24% YoY	Major decline from weather & regulatory headwinds
IMFL (Cases)	5.0 Lakh	~3.4 Lakh (implied)	+46% YoY	Strong premiumization drive; brand mix shift

9M FY26 Cumulative Volumes:

Nakul Sethi reported: "For the nine months of FY26, our IMFL portfolio grew by 55%, reaching a total of 13.1 lakh cases. Our beer volume reached 154.6 lakh cases, down 13% from the same period last year."

Volume Decline Root Causes:

Weather Disruption (Primary): Diwakaran: "The conditions in the market was extremely poor in terms of the consumption occasions and consumption times, etc., basically because of the weather condition. And across markets, the North market has declined very heavily due to cold conditions. The extended rains in the south of India, it extended even till November, December. The rains were continuing, and the cold conditions together have contributed to this thing."
Geographic Weakness:

Madhya Pradesh & Delhi: Severe cold weather impact on Hunter brand (primary regional driver)
Karnataka: Regulatory challenges (overturned mid-Q1 FY26); recovery underway
South India: Extended rainfall through November-December suppressing consumption

Sequential Improvement Signal: Diwakaran noted: "We are seeing an improvement quarter-on-quarter. Like first quarter performance versus second quarter, third quarter, we are improving, and the third quarter is better than second quarter. And even the month of January, it's looking better than the third quarter."

2.2 Product Mix: Premium vs. Popular Segment Dynamics

Premiumization Strategy Bearing Fruit Despite Volume Collapse:

IMFL growth of 46% YoY and 55% 9M demonstrates successful pivot toward premium/prestige categories. However, beer segment sees adverse mix within mainline portfolio.

Hunter Brand Deterioration – Critical Mix Driver:

Nakul Sethi disclosed: "Hunter sells mainly in Madhya Pradesh and Delhi, and each were impacted severely by unusually cold weather this time around." The brand's contribution collapse from 28% (Q2) to 19% (Q3) created significant realization headwind.

Mahavat Brand (Popular Segment) Expansion:

Diwakaran outlined cautious rollout: "Our approach is very, very cautious on any launches. We make sure that wherever we have launched, it works for us, and then we expand to the other markets. So first, now we did MP. MP has reached a reasonable scale in terms of width of distribution, and the volume also is repeating. And we are happy with the progress that we are making in Madhya Pradesh. Delhi, we started in the previous quarter, and there is improvement. But there is still scope for improvement in Delhi, which we are working on. UP is also progressing well."

IMFL Realization Pressure:

Despite volume growth, IMFL realization declined: "For IMFL, realization stood at INR 988 per case, down from INR 1,068 in Q3 FY25, reflecting pricing pressures across the category." Nakul Sethi clarified: "This is a brand adjustment" — indicating product-level mix within IMFL category shifting toward lower-priced variants.

2.3 Geographic & Regulatory Performance

Critical Regulatory Issues by State:

Madhya Pradesh – License Suspension (Bhopal Plant)

Status: Plant currently non-operational.

Nakul Sethi stated: "I would also like to take this opportunity to update you on the recent press release, which was given by us, on the suspension of the license of the Bhopal plant. We have made the required submissions in the MP High Court, and we expect a judgment on the issue in the next 2 to 3 days."

When pressed on operational continuity, Anudeep (investor) asked: "But MP is a very big market for us." Nakul Sethi responded: "You just have to give us another 2, 3 days to solve this."

Crucially: "No, we cannot sell anything as of now." However, "Whatever is there in the shops is being sold. But we can't do any fresh production."

Impact on Q4: Sunil Jain (analyst) pressed: "The peak season will start in the March. So if it extends, then it can have a major impact?" Nakul Sethi: "It'll be resolved very soon, sir. We are just waiting. We had made a petition last week in the MP High Court, and the petition was heard, and the judge has reserved the order. We are expecting the decision within this week."

Plant Utilization (Q3): Bhopal operated at only 56% capacity utilization, indicating pre-suspension underutilization.

Andhra Pradesh – Market Entry (Potential Q4 Upside)

Diwakaran: "So we received a communication from the Andhra government through APBCL, on 23rd of January that they are opening the tender and deciding on it by 10th of February. So 10th of February, they have not opened it. We got the latest update that they are likely to open it this weekend. So if they open it, then our brands are already quoted, and we hope to get the permissions very soon."

Outcome timing: "If they act soon, then we'll be able to supply this quarter itself. Otherwise, for next year, it will be a good revenue for us. We're already in the back end working on establishing our teams and things like that."

Karnataka – Recovery in Progress

Diwakaran: "And also, we have had some challenges in terms of regulatory issues in the state of Karnataka, right, and which was overturned in the middle of the first quarter of this year, and that is also getting recovered in the marketplace."

Tamil Nadu – New Market Showing Early Traction

Diwakaran: "Tamil Nadu, we are already present from April 2025 onwards, and we have been progressing well in that market. In fact, the last quarter was better than the previous quarter in terms of our market share and penetration."

Kerala – Stable Base

Diwakaran: "Kerala, we have been there for last 5, 6 years. I mean, we have been doing a stable business there."

Excise Policy Mix Effect (State-Level Variation):

Nakul Sethi clarified excise duty trajectory: "I had mentioned it in our previous caller also that the excise duty, does not have any role. It depends upon which state you sell, okay. So you should always look at net sales if you are comparing my performance. Gross sales doesn't play any role in how the company performs."

On the 43% → 48% excise ratio increase: "Whatever states impose tax at the time of dispatch, that is the difference between gross sales and net sales, right? So obviously, this is the money which comes back to the company. And this is incurred at the time of primary dispatch in most of the states."

3. COST STRUCTURE & RAW MATERIAL DYNAMICS

3.1 Key Input Cost Pressures

Barley (Primary Grain Input): Nakul Sethi stated: "Barley is an agricultural product which is used as a major raw material." Price inflation: 5-6% QoQ increase.

Glass Bottles (Packaging): Cost rise: 3-4% QoQ increase. Nakul Sethi noted: "Similarly, the prices of glass bottles also vary a lot during the year."

3.2 Inventory Management & Hedging

Seasonal Inventory Policy: Nakul Sethi disclosed: "Beer is a very seasonal industry, right, just like soft drinks. So I mean, if you look at the lean season or when we are planning for the main season, we hold about 3 months of inventory of glass bottles."

This 3-month buffer helped partially mitigate Q3 cost spikes but insufficient to fully offset 5-6% barley inflation and 3-4% glass inflation.

3.3 Pricing Power & Cost Pass-Through Constraints

Industry Structural Limitation:

Nakul Sethi: "We cannot pass on these increases to the consumer because the excise policy is such that the prices are finalized in once a year. You cannot have multiple price increases. And that's the peculiarity of this industry."

Q4 Pricing Strategy:

Diwakaran: "No, there is no plan to take any price increase. If there is an opportunity that is presenting to us, then we'll look at it. At this point in time, we are not looking at it in Q4. We want to focus on increasing revenues, and that is the first priority, and that will continue to happen."

Implication: Cost pressures will likely persist into FY27 absent material grain/packaging cost deflation or volume-driven operating leverage recovery.

4. GUIDANCE, OUTLOOK & TARGETS

4.1 Management Commentary – Qualitative Outlook

Consumer Demand Recovery Signal:

Diwakaran: "Looking ahead, we are hopeful of reversing this trend by posting encouraging numbers in the Q4 of this year, driven by market share increases in our key markets. We remain focused on navigating the current challenges, while continuing to expand our premium portfolio, execute our strategic market initiatives and drive operational excellence."

Weather & Seasonality Thesis:

Nakul Sethi (to retail investor Nagaraj): "And you should also bear in mind that certain years are tough for the industry. Not every year can be growth years or something like that. So, as a retail investor, you should have patience and have faith in the company."

Competitive Positioning:

On EU-US trade agreement concerns, Diwakaran: "We don't see it as a threat. And you have seen many of these multinationals with themselves in the country with their legacy brands, right? And we are competing with them, and we are the largest Indian beer company. And as a listed beer company, we are the second, right?"

Further: "More the players in the market is better for the business, I mean, because we kind of learn from each other, and it's an opportunity for us to get better and better."

Premiumization Thesis Intact:

Diwakaran on FTA impact: "Maybe overall, if you look at the European markets and American markets, and the FTA thing will probably help the IMFL a little more than beer because beer, it all depends on price and depends on logistics. It depends on how we are able to service the market with the distribution scale, etc. So I don't see a problem with beer at all."

On IMFL upside: "IMFL part of our business today is just about 10% to 15% of our revenue, right, and we have an opportunity to grow there. And we are also in the stages of premiumizing our portfolio. So I see that as an opportunity more than a threat."

4.2 KEY TARGETS & COMMITMENTS

Metric	Target Value	Timeframe	Verbatim Quote	Speaker
FY26 Full-Year Revenue	INR 1,500 crores	FY26 (ends Mar 31, 2026)	"Looking at the scenario right now, I think we would reach close to about INR 1,500 crores by the end of this financial year."	Nakul Sethi (Director-Finance)
Q4 FY26 Revenue (Net)	~INR 450 crores	Q4 FY26 (Jan-Mar 2026)	"On volumes also, we would do well as compared to Q3 because we have to achieve close to about INR 450 crores of sales."	Nakul Sethi
Q4 Revenue Confidence	Management conviction on target	Q4 FY26	"I think we are pretty confident. Otherwise, I would not have told you this number."	Nakul Sethi
UP Greenfield Phase 1 Completion	June 2026	June 2026	"Phase 1 of which is expected to be completed by June of this year."	Nakul Sethi
UP Phase 1 Capacity	1 crore cases/year	Upon commissioning (June 2026)	"Phase 1 entails establishment of a brewery with a capacity of one crore cases."	Nakul Sethi
UP Phase 1 Revenue Generation (80-85% util.)	INR 650-700 crores p.a.	At stabilized operations (post-June 2026)	"And we expect that on an 80% to 85% capacity utilization, that capacity can give us close to about INR 650 crores to INR 700 crores of top line."	Nakul Sethi
UP Phase 2 Investment	INR 200 crores	~1 year post Phase 1 (FY27-28)	"Phase 2 is INR 200 crores. Phase 2 will happen approximately one year after Phase 1."	Nakul Sethi
UP Project Overall Investment	INR 570 crores (Phases 1 & 2)	Phased through 2027	"The Phase 1 investment is about INR 370 crores. Phase 2 is INR 200 crores."	Nakul Sethi
UP Project Funding	100% arranged (debt + equity)	Current	"Sir, that already has been funded." (re: equity gap); "Yes. Everything has been arranged." (debt)	Nakul Sethi
IMFL Volume Growth (9M FY26)	55% YoY growth	9M FY26	"For the nine months of FY26, our IMFL portfolio grew by 55%, reaching a total of 13.1 lakh cases."	Nakul Sethi
Beer Volume (9M FY26)	154.6 lakh cases; -13% YoY	9M FY26	"Our beer volume reached 154.6 lakh cases, down 13% from the same period last year."	Nakul Sethi
IMFL Q3 Volume	5 lakh cases; +46% YoY	Q3 FY26	"Our IMFL segment saw a strong 46% increase, contributing 5 lakh cases."	Diwakaran
Promoter Stake Increase to 51%	Stake increase target	2-3 years (short-to-medium term)	"I think the time frame for increasing it to 51% is short to medium term, maybe in the next 2 to 3 years. And the increase is going to come through preferential issues as and when the capital is required in the company or from open market purchases."	Nakul Sethi
MP Plant License Resolution	Judgment expected	Within 1 week (as of Feb 12, 2026)	"We had made a petition last week in the MP High Court, and the petition was heard, and the judge has reserved the order. We are expecting the decision within this week."	Nakul Sethi
Andhra Pradesh Market Entry	Tender award & supply commencement	Q4 FY26 (if approved quickly) or FY27	"So if they open it, then our brands are already quoted, and we hope to get the permissions very soon. If they act soon, then we'll be able to supply this quarter itself."	Diwakaran
Mahavat Brand Expansion	Launch in Maharashtra, Karnataka	Post-entrenchment in MP, Delhi, UP	"Obviously, the next set of markets will be the big markets like Maharashtra, Karnataka, all these markets. But first, we want to be satisfied with these 3 markets, and then we'll move on."	Diwakaran

5. KEY INSIGHTS & INVESTMENT IMPLICATIONS

5.1 Volume Recovery Contingent on MP Resolution

The suspension of the Bhopal plant license creates material Q4 execution risk. Management states judgment expected within a week (as of Feb 12), but sustained closure into March (peak season) would materially undermine the INR 450 crore Q4 target.

Critical Question Unresolved: Why was the license suspended, and what is the likelihood of reinstatement?

5.2 FY26 Shows Industry Cyclicality, Not Structural Decline

Management's positioning of Q3 weakness as weather/regulatory-driven (not demand destruction) aligns with:

Sequential improvement through Jan (vs. Q3)
IMFL momentum (55% growth) demonstrating consumer premiumization appetite
Gross & EBITDA margin improvement 9M despite revenue decline

However, the 24% beer volume decline in Q3 and 13% 9M decline suggests market share loss during stress periods.

5.3 UP Expansion: Transformational but Timing-Dependent

The June 2026 Phase 1 commissioning adds material capacity (1 crore cases) and revenue (INR 650-700 crores p.a. at 80-85% utilization) from FY27 onwards. This transforms the company's scale:

Current 9M FY26 beer: 154.6 lakh cases = ~206 lakh cases annualized
UP Phase 1 alone: 100 lakh cases capacity
Combined normalized capacity: ~300 lakh cases

Risk: June commissioning into July-Aug lean season reduces ramp efficiency vs. Oct/Nov main season commissioning.

5.4 Excise & Tax Policy Opacity

Excise duty as % of sales increased 43% → 48% due to geographic mix shifts (higher-tax state exposure). While management clarifies this does not impact net realized pricing, the metric highlights:

State dependency: High exposure to MP (currently suspended), Karnataka (recovering), Tamil Nadu (nascent)
Policy risk: Single-state regulatory action (as with Bhopal) can disproportionately impact financials

5.5 Product Mix Erosion Risk

Hunter brand collapse from 28% → 19% of beer sales due to cold weather reflects concentration risk. If Hunter (high ex-brewery realization) remains pressure, realization headwinds persist even as volumes recover.

6. COMPARATIVE COMPETITIVE CONTEXT

Listed Beer Comparables: Nakul Sethi clarified: "Our peers is United Breweries only, and that is only the listed company which is in the beer segment."

However, the analyst (Rohit) queried why margins are weaker. Nakul Sethi's response: "You have got all your facts wrong because UB is the only listed beer company besides us." UB has maintained/expanded margins despite industry headwinds, suggesting Som's margin compression is not purely industry-driven.

CONCLUSION

Som Distilleries enters Q4 FY26 with momentum indicators mixed: sequential volume recovery, IMFL growth acceleration, and operational cost control offset by critical regulatory risk (MP plant suspension), realization pressure (Hunter mix erosion), and structural pricing constraints (annual excise finalization).

The INR 1,500 crore FY26 target (implying INR 450 crore Q4 net sales) is achievable if MP resolution clears by late February and seasonal demand normalcy returns. However, downside risk to guidance is material if Bhopal remains suspended into March.

UP expansion (INR 650-700 crore p.a. revenue from Phase 1 at June 2026 commissioning) is transformational but represents incremental growth only from FY27 onwards, offering limited near-term multiple relief.

Som Distilleries & Breweries Ltd — Feb2026 Conference Call Summary