Is The Phoenix Mills Limited's (NSE:PHOENIXLTD) Recent Stock Performance Tethered To Its Strong Fundamentals?

Most readers would already be aware that Phoenix Mills' (NSE:PHOENIXLTD) stock increased significantly by 10% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Phoenix Mills' ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How To Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Phoenix Mills is:

9.6% = ₹14b ÷ ₹146b (Based on the trailing twelve months to September 2025).

The 'return' is the income the business earned over the last year. That means that for every ₹1 worth of shareholders' equity, the company generated ₹0.10 in profit.

View our latest analysis for Phoenix Mills

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Phoenix Mills' Earnings Growth And 9.6% ROE

At first glance, Phoenix Mills' ROE doesn't look very promising. However, the fact that the company's ROE is higher than the average industry ROE of 7.1%, is definitely interesting. Even more so after seeing Phoenix Mills' exceptional 32% net income growth over the past five years. That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. Therefore, the growth in earnings could also be the result of other factors. For example, it is possible that the broader industry is going through a high growth phase, or that the company has a low payout ratio.

Next, on comparing Phoenix Mills' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 28% over the last few years.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is Phoenix Mills fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Phoenix Mills Efficiently Re-investing Its Profits?

Phoenix Mills has a really low three-year median payout ratio of 8.1%, meaning that it has the remaining 92% left over to reinvest into its business. So it looks like Phoenix Mills is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Moreover, Phoenix Mills is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 7.5% of its profits over the next three years. Regardless, the future ROE for Phoenix Mills is predicted to rise to 13% despite there being not much change expected in its payout ratio.

Summary

Overall, we are quite pleased with Phoenix Mills' performance. Particularly, we like that the company is reinvesting heavily into its business at a moderate rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.