Som Distilleries Q1 FY2026: Why This "Mixed Bag" Report Hides a Brewing Growth Story

Som Distilleries & Breweries (SDBL) has just rolled out its Q1 FY2026 earnings, offering a glimpse into the company’s trajectory amidst evolving market dynamics. As financial analysts, our lens isn’t just on the numbers themselves, but what they reveal about management’s execution and, crucially, what they signal for future earnings. Let’s dive in.

A Mixed Bag of Volumes, But Revenues Tell a Different Story

At first glance, the headline volume figures for Q1 FY2026 might seem a tad flat, with total volumes for the quarter seeing a marginal 0.8% year-on-year dip. This was primarily driven by a 2.5% decline in beer volumes, which the management attributed partly to high excise duty in Karnataka. However, dig a little deeper, and a more encouraging picture emerges.

Here’s the interesting part: Despite the slight volume decline, Som Distilleries’ Total Income actually grew by 3.2% to Rs. 5,301 Million compared to Q1 FY2025. What’s driving this divergence? The answer lies in two key areas: IMFL segment outperformance and improved realizations.

The Indian-Made Foreign Liquor (IMFL) segment proved to be a superstar this quarter, delivering a staggering 58.8% year-on-year volume growth! This phenomenal surge underscores the success of the company’s renewed focus on its IMFL portfolio, strategic brand performance, and effective market execution. Brands like Mahavat whiskey, with its planned expansion into Delhi, are clearly paying dividends.

Furthermore, both beer and IMFL segments witnessed improved realizations per case. Beer realization climbed to Rs. 566 per case (from Rs. 550), largely due to a favorable brand mix, particularly the strong performance of Hunter beer. IMFL realization also improved to Rs. 1,016 per case (from Rs. 974). This indicates effective pricing strategies and a shift towards higher-value products, which is a big positive.

Looking at the full fiscal year FY2025, the company delivered a robust performance, with Total Income growing by 12.5% to Rs. 14,474 Million and total volumes up 9.7%. This consistency highlights management’s capability to drive growth over the medium term.

Operational Efficiency Shines Through: A Margin Story ✨

Beyond the top-line, Som Distilleries demonstrated commendable operational efficiency this quarter. The company’s Gross Profit jumped by 10.2% to Rs. 1,900 Million, with the gross margin expanding to 35.9% from 33.6% in Q1 FY2025. This improvement was largely attributed to stable costs of key raw materials and packaging materials, combined with the higher realizations discussed earlier and a favorable mix of older glass bottles.

This disciplined cost management extended to the operating level. EBITDA surged by 11.1% to Rs. 721 Million, leading to an EBITDA margin of 13.6% (up from 12.6% in Q1 FY2025). This tells us that the company is not only improving its product profitability but also managing its overheads effectively, allowing operating profits to grow significantly faster than revenue.

The expansion in both gross and EBITDA margins indicates a healthy underlying business, capable of extracting more profit from each unit of sale, even in a challenging environment for its core beer segment.

The Capital Cost Connection: Why Profit Growth Lagged

While the operating performance was robust, the bottom line tells a slightly different tale. Net Profit (PAT) increased by a more modest 3.7% to Rs. 421 Million, despite the strong EBITDA growth. This slowdown in PAT growth relative to EBITDA warrants closer inspection.

The key culprits are higher interest expenses and depreciation.

• Interest costs soared by 81.0% year-on-year to Rs. 49 Million.
• Depreciation also jumped significantly by 43.9% year-on-year to Rs. 87 Million.

This is a classic scenario for companies in a growth phase, particularly those undertaking significant capital expenditure. The increased interest expense reflects higher borrowing, while the surge in depreciation is a direct consequence of new assets being added to the books as part of expansion plans.

For a fast-growing company like Som Distilleries, a temporary dip in PAT growth is acceptable if it’s accompanied by strong revenue growth and future growth prospects. In this case, the higher interest and depreciation are a direct outcome of the company’s aggressive expansion strategy, which positions it for future revenue streams.

Fueling Future Growth: CapEx and Financials

Som Distilleries is clearly investing heavily in its future. The company is setting up a substantial Rs. 600 crore greenfield brewery and distillery project in Uttar Pradesh through its subsidiary, “Woodpecker Greenagri.” This significant CapEx is for growth, not just maintenance, and is a clear indicator of management’s conviction in future demand.

The increase in interest costs suggests a portion of this CapEx is likely being financed through debt. Indeed, Gross Debt increased by Rs. 310 Million in the quarter. However, the company’s leverage profile remains healthy.

Interestingly, despite the rise in gross debt, the Net Debt-to-EBITDA ratio actually improved from 0.82x in March 2025 to 0.63x in June 2025. This is a strong positive signal! It indicates that the company’s operating earnings (EBITDA) are growing at a faster pace than its net debt accumulation, making its debt more manageable relative to its ability to generate profits. This aligns with the preferred investment insight of favoring domestic growth themes like infrastructure and capital goods, as the company’s expansion mirrors this broader economic push.

The gestation period for such large-scale projects means that while current quarter PAT might be impacted by financing and depreciation costs, the new capacities are expected to drive significant revenue and earnings growth in the coming years. This is precisely the kind of future earnings visibility markets like to see.

The Road Ahead: What This Means for Investors

Som Distilleries & Breweries, in Q1 FY2026, presents a nuanced picture of a “fast grower” that is strategically investing for the long haul.

Key Takeaways:

• Strategic Shift Paying Off: The massive growth in the IMFL segment is a testament to effective strategic execution and diversification beyond just beer. This provides a crucial hedge against regional beer market headwinds.
• Pricing Power & Efficiency: Improved realizations and strong gross/EBITDA margin expansion indicate healthy operational efficiency and the company’s ability to command better prices for its products, even when volumes are slightly muted.
• Growth at a Cost (Temporarily): The higher interest and depreciation affecting PAT are a direct consequence of significant growth-oriented CapEx. This is a trade-off that should yield substantial returns once the new capacities come online and contribute to the top line.
• Manageable Debt: Despite increasing debt for expansion, the improving Net Debt/EBITDA ratio suggests the company’s financial leverage remains healthy and under control.

Given its aggressive expansion plans, strong performance in its IMFL segment, and healthy operational margins, Som Distilleries appears poised to capitalize on India’s strong domestic consumption trend. In a market where domestic-growth themes are preferred and stock-picking based on valuation comfort and earnings visibility is key, SDBL fits the bill as a company with clear growth drivers and a manageable financial profile. Investors will be keen to track the progress of the Uttar Pradesh project and the continued momentum of the IMFL segment in the upcoming quarters.

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