SOM DISTILLERIES & BREWERIES LIMITED – Q2 FY26 EARNINGS ANALYSIS

Consumer Staples (Alco-Bev) Sector

1. FINANCIAL PERFORMANCE

Revenue & Profitability

Metric	Q2 FY26	Q2 FY25	YoY Change	H1 FY26	H1 FY25	YoY Change
Total Income (INR Cr)	270.0	291.0	-7.2%	800.1	N/A	N/A
EBITDA (INR Cr)	40.5	35.2	+15.1%	N/A	N/A	+12.5%
EBITDA Margin (%)	15.0%	12.1%	+290 bps	14.0%	12.5%	+150 bps
PBT (INR Cr)	27.4	24.4	+12.3%	85.8	82.0	+4.6%
PBT Margin (%)	10.17%	8.94%	+123 bps	10.73%	10.2%	+53 bps
Net Profit (INR Cr)	19.5	18.2	+7.1%	61.6	N/A	N/A
Net Profit Margin (%)	7.2%	6.3%	+90 bps	7.7%	7.0%	+70 bps

Key Observations:

Volume-Margin Disconnect: Revenue declined 7.2% YoY, yet EBITDA grew 15.1% and gross margin expanded 106 bps to 41.06%, indicating strong operational leverage and cost management.
Gross Profit Margin Expansion: "The gross profit margin expanded to 41.06% in Q2 FY26 from around 40% in the corresponding quarter of last year" — Nakul Sethi, Director (Finance & Strategy). This improvement contradicts the 19% volume decline, suggesting either favorable product mix or substantial cost reductions.
Margin Sustainability Risk: Management acknowledged margin sustainability is contingent on returnable glass bottle (RGB) management: "Let's hope that we continue to post margins like this, let's hope, that's what I can say right now" — Nakul Sethi. This indicates glass procurement cost volatility and supply chain risk.

2. OPERATIONAL DRIVERS

2.1 Sales Volumes & Product Mix

Beer Segment (Core Business)

Metric	Q2 FY26	Comments
Total Beer Volume	36 lakh cases	-19% YoY decline
Primary Driver	Karnataka taxation & market softness	Persisted from Q4 FY25 through Q2 FY26

Detailed Volume Breakdown:

Management commentary: "Overall, the beer volume performance is 36 lakh cases, but the volume has been down by roughly about 19%, mainly driven by underperformance in the state like Karnataka, where we had issues related to the taxation and the beer industry slumping over Q4 of last year. It continued in Q1, and it continues to be the same in Q2 as well." — D. Suryanarayana, COO.

Karnataka Recovery Signals:

Market Share Regain: "So, we have roughly lost about 5%, 5.5% in half 1 of this year vis-a-vis half 1 of last year. But October, we have gained back about 0.5%, right? In November, it looks like we are going to gain back over 1% vis-a-vis the previous quarter." — D. Suryanarayana.
Sunny Beaches Launch (New Brand): "And we also introduced a brand called Sunny Beaches, which has really done well for a brand which is just as old as a month. We have already achieved roughly about 5,000 outlets. Our brand is available in the market, and it has taken share from various brands." — D. Suryanarayana. This mild beer launch is replicating the playbook of Power Cool (created 5M case brand in 1.5-2 years without heavy advertising).

Management Outlook for Volume Recovery:

"We definitely expect a much higher, much better recovery during Q3 and Q4, mainly coming from states like Odisha and Karnataka." — D. Suryanarayana.

IMFL Segment (Premium Focus)

Metric	Q2 FY26	Details
IMFL Volume	4.1 lakh cases	Growth from legacy brands (Black Fort, Milestone)
Realization	INR 939/case	Down from INR 1,038/case (Q2 FY25)
Revenue Contribution	11% of total revenue	Target: 15% within 2-3 years

Product Mix & Premiumization Strategy:

Mahavat Premium Whisky (Rolled Out MP & Delhi)

Status: "we have done the brand called Mahavat, which we have launched in Madhya Pradesh and recently carried it to Delhi as well. And we have plans to put the same brand in the entire Northern India within this quarter or latest by next quarter." — D. Suryanarayana.
Current Contribution: Minimal/insignificant (5 months old in MP).
Rollout Plan: "once we focus into many states, including Madhya Pradesh, Delhi, UP, Rajasthan, et cetera, this brand will start contributing 2% to 3% in the next 1, 2 years, maybe 3% to 4% or 5% in the next 2, 3 years to our overall mix of volume." — D. Suryanarayana.

Single Malt Whisky (Premium/Prestige Segment)

Status: "And also, the second one will also come from our efforts on the single malt segment, which is going to bear fruits very soon. And we expect that also to be rolled out in various markets, including key lighthouse markets like Mumbai. It will kind of gather speed by end of this quarter, probably by Q4, we will get into that." — D. Suryanarayana.
Capacity Support: "Like Nakul has said that once the beer thing is set up, we are also focusing on installing the IMFL bottling unit in Uttar Pradesh as well." — D. Suryanarayana.

Realization Decline Analysis:

Management attributed the INR 939/case (down from INR 1,038/case) to temporary product mix: "The mix of within the available brands that we have, not the premium one. The premium one is very small. It's very early for us to discuss about premium brands, although it is very promising for the future, right?" — D. Suryanarayana.
"the lower price mix were in higher demand during the Q2. And therefore, the realization is slightly lower. But all said and done, it's a question of demand and supply." — D. Suryanarayana.

Beer Realization:

INR 607/case (up from INR 531/case, Q2 FY25) — improvement driven by can mix and geographic expansion (MP, Jharkhand).

2.2 Geographic Performance & Regulatory Drivers

State-Wise Analysis

State	Status	Key Driver	Outlook
Karnataka	Distressed	Excise duty hike; market softness	Recovery from Q3 onwards (Sunny Beaches catalyst)
Madhya Pradesh	Stable/Growing	Strong IMFL presence (Mahavat); CSD channel strength	Expansion base
Odisha	Stable	Reasonable IMFL share	Volume recovery expected Q3-Q4
Tamil Nadu	Entry Phase	Market entry 6 months ago; gained 2% aggregate share	Encouraging momentum
Jharkhand	Growth	Contributing to improved realization	Expansion focus
Andhra Pradesh	Pending Entry	Tender approved (Sept-Oct 2025); awaiting official notification	"officially still not heard from them. So, we are waiting for that, and our people are following up on the matter." — D. Suryanarayana
UP (Uttar Pradesh)	Greenfield Investment	Plant capacity 10M cases/annum; operational June 2026	Major revenue driver FY27
Maharashtra/Mumbai	Limited Presence	High route-to-market friction; selective approach	Woodpecker & single malt launch Q4 (airport channels first)

Regulatory Headwinds & Management Commentary:

"We are in an industry where the government plays a very important role." — Nakul Sethi, noting guidance miss drivers include government regulations beyond company control.

Tamil Nadu Success Story:

"In a short period of 6 months, we have gained almost 2% of the overall market. But in the available market, we are close to about 3.5%, 4% available districts of the State of Tamil Nadu." — D. Suryanarayana. Indicates successful market entry strategy replicable in new geographies.

3. COST STRUCTURE & INPUT MATERIAL DYNAMICS

Raw Material & Packaging Costs

Component	Q2 Status	Comment
ENA (Extra Neutral Alcohol)	Stable	Sourced from related party Som Distilleries Pvt Ltd (~INR 20-21 Cr/annum)
Glass Bottles	Inflationary Pressure	RGB (returnable) management driving margin improvement; new glass % critical to COGS
Packaging Materials	Stable	Per management, no significant input cost inflation

Returnable Glass Bottle (RGB) Impact:

Management highlighted this as margin lever: "So, we have done very well in terms of our returnable glass bottle management." — Nakul Sethi. Gross margin expansion despite volume decline was attributed to RGB cost management and favorable can mix adoption.

Future Cost Pressure Risk:

"It's not a question of fixed cost. It's a question of how many new glass bottles, as a total percentage of the bottle used." — Nakul Sethi. This indicates margin sustainability is directly tied to glass procurement strategy and return rates.

"Som Distilleries Private Limited from which we buy ENA, which we use for the blending of IMFL. So, I think, that is about maybe close to about INR 20 crores, INR 21 crores in a year." — Nakul Sethi. This represents controlled input cost exposure.

4. GUIDANCE, OUTLOOK & TARGETS

4.1 Management Commentary on Demand & Regulatory Environment

Current Macro Sentiment:

"Q2 obviously has been subdued a little bit in terms of the consumption as well. Overall, the industry has suffered, many big players like UB have suffered. So, it has been a little tough, but we are overcoming all those issues in Q3 and Q4." — D. Suryanarayana.

Strategic Focus Going Forward:

"Our priorities will continue to be expansion with better portfolio of brands and including premiumization, and innovation will continue to be our focus and delivering better stakeholder value." — D. Suryanarayana.

"we are quite strong in the economy and regular segment in State of Madhya Pradesh and CSD and in State of Odisha, we are quite okay. But in the premium segment is where the opportunity is and that we will continue to focus to harness all the opportunities that are there." — D. Suryanarayana. This signals shift from volume-led to margin-led growth via premiumization.

Investor Skepticism on Guidance:

"What would be your H2 revenue guidance? Also, if you could give a realistic target for the investors as from the last 3 quarters, your words have nowhere been close to the numbers which were given as guidance." — Mukund Agarwal, VMC Advisors.

Management Acknowledgment: "See, the guidance is given based upon our expectations for the quarter, but some things are also beyond our control, including the government regulations." — Nakul Sethi.

4.2 KEY TARGETS & COMMITMENTS

1. Revenue Growth Guidance

Metric	Target Value	Timeframe	Evidence
H2 FY26 Revenue	~INR 800 crores	H2 FY26 (Oct 2025 – Mar 2026)	"we could look at adding another INR 800 crores of revenue for the remaining 6 months." — Nakul Sethi
Full-Year FY26 Revenue	~INR 1,600 crores	FY26	"closing the year like Nakul had said, with around INR 1,600 crores" — D. Suryanarayana (Closing Comments)
Full-Year Performance Narrative	Revenue recovery Q3-Q4 driven by Karnataka & Odisha	FY26	"Q3 and Q4 will be better. Q2 obviously has been subdued a little bit in terms of the consumption as well." — D. Suryanarayana

Analyst Assessment: FY26 guidance of INR 1,600 crores implies H1 revenue of ~INR 800 Cr (consistent with reported total income INR 800.1 Cr). H2 target of INR 800 Cr is slightly optimistic given Q2 softness, but achievable if Karnataka recovers as signaled.

Metric	Target Value	Timeframe	Evidence
Karnataka Market Share Recovery	Regain 1% of lost 5-5.5% share	Q3-Q4 FY26	"In November, it looks like we are going to gain back over 1% vis-a-vis the previous quarter." — D. Suryanarayana
Sunny Beaches Volume Contribution	Scale to millions of cases (implied 5M+ benchmark from Power Cool)	2-3 years	"Like I was explaining about Sunny Beaches is kind of repeating the story done by Power Cool a few years back." & "we created the brand Power Cool in the State of Karnataka, wherein within a matter of 1.5 years or 2 years, we've made that brand into a 5 million cases brand" — D. Suryanarayana
Tamil Nadu Market Share	Grow from 2% overall (3.5-4% in available districts)	Ongoing	"In a short period of 6 months, we have gained almost 2% of the overall market." — D. Suryanarayana

3. Product Mix & Premiumization Targets

Metric	Target Value	Timeframe	Evidence
IMFL Revenue Contribution	15% of total revenue (from current 11%)	2-3 years	"It's quite possible. 15% is possible. Currently, I will not be able to say, but 15% is possible within a matter of 2 to 3 years." — D. Suryanarayana (Analyst: "Can we expect this to go to 15% this year and 20% next year?")
IMFL Long-Term Potential	20% revenue contribution (stretch target)	3-5 years	Implied by aspiration; not explicitly stated with timeline
Mahavat Whisky Geographic Footprint	Roll out to entire Northern India (MP, Delhi, UP, Rajasthan)	Q2 FY26 or latest Q3 FY26	"And we have plans to put the same brand in the entire Northern India within this quarter or latest by next quarter." — D. Suryanarayana
Mahavat Volume Contribution	2-3% of overall volume in 1-2 years; 3-5% in 2-3 years	1-3 years	"this brand will start contributing 2% to 3% in the next 1, 2 years, maybe 3% to 4% or 5% in the next 2, 3 years to our overall mix of volume." — D. Suryanarayana
Single Malt Whisky Launch	Launch in key lighthouse markets (Mumbai); gather speed by Q4 FY26	Q3-Q4 FY26	"It will kind of gather speed by end of this quarter, probably by Q4, we will get into that." — D. Suryanarayana

4. Capacity & Capital Expenditure Targets

Metric	Target Value	Timeframe	Evidence
UP Greenfield Plant Capacity	10 million cases per annum	Operational June 2026	"the UP plant coming up? [Answer:] It is close to about 10 million cases per annum." — Nakul Sethi (in response to Sidhant Daga)
UP Plant Operational Date	June 2026	FY27 (Phase-1 completion)	"So, we expect that by maybe June of next year, we should have the UP plant running." — Nakul Sethi (June 2026); and "By when can we expect the UP plant to start and show revenue on the top line? [Answer:] So, we expect that by maybe June of next year, we should have the UP plant running." — Nakul Sethi
UP Plant Phase-2 (Distillery)	Install IMFL bottling unit & distillery	Post Phase-1 (FY27 onwards)	"Like Nakul has said that once the beer thing is set up, we are also focusing on installing the IMFL bottling unit in Uttar Pradesh as well. That's also going to add to our availability in the State of Uttar Pradesh." — D. Suryanarayana; and "In Phase-2, we are also proposing to set up a distillery at the site to further strengthen the company's production capabilities and product portfolio." — Nakul Sethi (Management Presentation)
Total CapEx for UP Project	INR 350 crores (Phase-1 & 2 combined)	Through FY27	"So, what it seems in your first phase of investment of INR 350 crores" — Mukund Agarwal (analyst question)
Term Debt Raise	INR 200 crores (divided over 6 months)	Next 6 months (Q3-Q4 FY26 + H1 FY27)	"We should be taking about close to about INR 200 crores of term debt." — Nakul Sethi; "No, it will be divided over the next, say, 6 months or so." — Nakul Sethi

5. Existing Plant Capacity Utilization

Plant	Current Utilization (H1 FY26)	Evidence
Bhopal	80%	"For half year, for Bhopal, we are at about 80%" — Nakul Sethi
Woodpecker (Hassan) & Odisha	40% each	"about 40% each for Woodpecker, the Hassan and the Odisha plant" — Nakul Sethi

Implication: Low utilization in Hassan & Odisha suggests excess capacity for volume growth without additional CapEx until UP plant operationalizes.

6. Distribution & Outlet Expansion Targets

Metric	Target Value	Timeframe	Evidence
Sunny Beaches Outlets	5,000 outlets achieved; 4,500 repeating	November 2025 (1 month post-launch)	"We have already achieved roughly about 5,000 outlets. Our brand is available in the market, and it has taken share from various brands. And it has taken share from various brands. And… almost 4,500 outlets have repeated the brand." — D. Suryanarayana
Airport Channel Presence	Delhi T1 & T3 (Tonino outlet); Bangalore T1 & T2 by end-December 2025	Q3 FY26	"we have already placed a brand in T1 and T3 in Delhi, in one of the outlets there, which is called Tonino, it is available. Woodpecker is available there. And we are in close pursuit with Bangalore Airport, both T1 and T2 to make sure our brands should be available by end of December at least." — D. Suryanarayana
Mumbai/Maharashtra Route-to-Market	Woodpecker & single malt entry via strategic partnerships; minimal mass-market presence	Q4 FY26 (next 2-3 months)	"we are trying to create a route to market for ourselves with the launch of single malt and also launch of Woodpecker in Mumbai very soon, maybe in the next 2 to 3 months." — D. Suryanarayana

Metric	Target Value	Timeframe	Evidence
Long-Term IMFL Market Share	5-7% in available markets (following beer playbook of 10% achieved share)	3-5 years	"And we will do all the necessary to make sure that the repeats happen regularly and the volume drop size per outlet is going to go up. End of the day, it is our ambition that like how we are sitting in beer at almost 10% market share in the markets where we are available, in a period of time, starting with 1%, we can even go up to 5%, 7% in the next 3 to 5 years." — D. Suryanarayana

8. Margin Targets

Metric	Target Value	Timeframe	Evidence
EBITDA Margin Sustainability	Sustain current levels (~15%)	Ongoing	"Let's hope that we continue to post margins like this, let's hope, that's what I can say right now." — Nakul Sethi (reflecting uncertainty due to RGB volatility)
Other Cost Ratio	21-23% of sales (vs. 21% current quarter; 24% prior year Q2)	H2 FY26 onwards	"So, I think it's fair to assume that they will be in the region of about 21% to 23%. That's how it varies." — Nakul Sethi

9. Andhra Pradesh Entry

Metric	Target Value	Timeframe	Evidence
Andhra Pradesh Market Entry	Tender participation; awaiting official notification	Pending notification (as of Nov 17, 2025)	"Andhra, we have participated in the tender. And end of September, beginning of October, they have sent a notification saying that the Government has approved it, but we have officially still not heard from them." — D. Suryanarayana

10. Advertising & Promotion Spend

Metric	Target Value	Timeframe	Evidence
Current A&P Spend	2-3% of revenue (point-of-sale focused)	Ongoing	"If you ask me what is the percentage today, it will be roughly in the range of about 2% to 3%." — D. Suryanarayana
Future A&P Spend	Increase for Woodpecker, Mahavat & single malt	FY26-FY27 onwards	"brands like Woodpecker and Mahavat, as and when we are going to put in single malt, we will require a lot more investment, right, which we are prepared to invest, right? So, therefore, it will increase the percentage of our marketing spend on the overall revenue" — D. Suryanarayana
A&P Strategy	Channel-led (point-of-sale) + large consumption occasions + selective digital/social media	Ongoing	"Our strategy is completely dependent on what we do in the channel." and "we are also active in relevant social media channels with our relevant brands, and it's a seasonal thing" — D. Suryanarayana

4.3 Summary of Forward-Looking Targets & Risk Assessment

Key Takeaways:

Volume Recovery Contingent on State Normalization: Management's H2 FY26 outlook hinges on Karnataka excise stabilization and Odisha growth. No absolute volume guidance provided; relative to H1, management expects "much better" Q3-Q4 but provided no percentage target.
IMFL Premiumization is Long-Cycle: 15% revenue contribution within 2-3 years requires successful rollout across Northern India and Mumbai. Single malt & Mahavat are in seeding phase; contribution immaterial in FY26.
UP Plant as Game-Changer: INR 350 crores investment operationalizing June 2026 with 10M case capacity expected to unlock neighboring state demand and UP market. However, no revenue guidance provided for FY27.
Guidance Credibility Issue: Management acknowledged miss on prior guidance: "from the last 3 quarters, your words have nowhere been close to the numbers which were given as guidance." — Analyst. Management attributed this to regulatory/government policy unpredictability.
Margin Sustainability at Risk: RGB cost volatility and new glass mix management create earnings volatility. Gross margin of 41% is "hopeful" not "sustainable" per Sethi.
Capacity Headroom: Current utilization (80% Bhopal; 40% Hassan/Odisha) allows 20-30% volume growth without new CapEx until UP plant arrives in FY27.

RISK FACTORS & REGULATORY HEADWINDS

State-Wise Regulatory Risk

Karnataka Taxation Regime: Excise duty increases drove 5-5.5% market share loss in H1 FY26. Recovery contingent on tax stabilization.
Maharashtra Market Friction: "very very tough route to market and very very very tough channel behavior" — D. Suryanarayana. Selective approach necessary.
Andhra Pradesh Uncertainty: Tender approved but official notification pending (as of Nov 17, 2025). Entry timeline uncertain.

Input Cost & Margin Volatility

RGB Management Risk: Margin expansion driven by returnable bottle cost control; sustainability not assured.
ENA Sourcing: Related-party transaction (~INR 20-21 Cr/annum) with Som Distilleries Pvt Ltd concentrates supply risk.

Execution Risk (Capital Projects)

UP Plant Timing: June 2026 completion assumed for Phase-1. Delays would push revenue realization to FY27-FY28.
Integration Risk: Distillery Phase-2 adds complexity to site; phasing and execution clarity limited.

CONCLUSION: INVESTMENT THESIS

Som Distilleries is navigating a cyclical downturn in beer volumes (driven by state-level excise policy) while executing a strategic pivot toward premiumization and geographic diversification. Near-term (FY26-FY27) upside hinges on:

Karnataka volume recovery (early signs in Oct-Nov 2025)
UP plant operationalization (June 2026) unlocking North India
IMFL brand traction (Mahavat, single malt) in premium segment

Medium-term (FY27-FY28) catalysts include full-year UP plant contribution and IMFL mix-shift toward 15%+ revenue share. However, guidance credibility concerns and regulatory policy unpredictability warrant cautious valuation.

Management's Commitment to Stakeholder Value: "we are a company which is focused and hands-on with what's happening in the market, and we will continue to deliver better results and better value for the money that you are investing in our company." — D. Suryanarayana (Closing Remarks).

Som Distilleries & Breweries Ltd — Nov2025 Conference Call Summary