Phoenix Mills’ growth hinges on more than retail consumption

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Phoenix Mills' stock rose almost 5% on Thursday after reporting another strong quarterly update. Retail consumption grew 32% year-on-year (y-o-y) to ₹4,727 crore in the June quarter (Q1FY27), comfortably ahead of the Street’s 25% growth expectations, and marking the third consecutive quarter of at least 25% consumption growth.

Most of Phoenix Mills' malls reported double-digit consumption growth. Nomura Research believes that stronger-than-expected traction in newer malls such as Phoenix Mall of Asia, Bengaluru, and Phoenix Mall of the Millennium, Pune, drove the growth beat. Expansion in gross leasable area (GLA) is likely to have helped along consumption growth.

While this signals robust discretionary spending, it does not necessarily translate into equally strong rental income. Around 90% of Phoenix's FY26 rentals were fixed under minimum-guarantee contracts, leaving a small minority tied to revenue-sharing. Monetization of new malls takes time as well, even as consumption growth accelerates from the get-go.

Moreover, much of FY26’s 21% y-o-y consumption growth was driven by higher sales of electronics and jewellery, excluding which, growth would have been slower at 14-15%. This matters for rental income growth because these high-growth categories offer low revenue sharing. Result? Rental income growth has lagged consumption growth for several quarters. Consumption grew 21% y-o-y to ₹16,587 crore in FY26, while rental income saw only 10% growth to ₹2,157 crore.

Some investors had also feared that easing gold prices could dent jewellery sales, which accounted for 16% of FY26 retail consumption. But JP Morgan argues that jewellery stores occupy only 2% of the trading area, implying relatively limited revenue-sharing exposure for Phoenix and, consequently, a lower impact on rental income.

Meanwhile, repositioning and experiential additions, such as the relaunch of Phoenix MarketCity, Pune, as Phoenix Avenue of Stars in Q1FY27, can drive rental revisions. Plus, 36-50% of the portfolio area is up for renewal over 2-3 years, along with an expected 10-25% tenant churn, which can drive further rental upside. Nomura expects 20% year-on-year growth in rental income in Q1. Upcoming malls in Kolkata, Surat, Thane, Coimbatore and Chandigarh should drive growth beyond the current portfolio. Sustained focus on premium grade-A malls insulates Phoenix from e-commerce and quick-commerce competition to an extent.

The company's growth story is also developing new options beyond retail—including office leasing, hotels and residential real estate. Hospitality continued its strong run, with revenue per available room growing 15% y-o-y at St. Regis Mumbai and 23% at Courtyard by Marriott Agra during the quarter, supported by healthy occupancies and double-digit growth in average room rate.

Office occupancy improved to 72% from 70% in March, and 0.2 msf of leased space took the total office GLA to 5 msf. Management targets 9 msf by FY30. New offices had about 62% occupancy in FY26, compared to 83% for mature offices. As newly completed offices start generating rent, and others mature towards higher occupancies, the management expects quarterly office income to double by Q4FY27.

Residential clocked with sales of ₹64 crore on the continued monetization of premium ready inventory. Around 1 msf is expected to be added each year, bringing the residential portfolio to 7 msf by FY30, up from 2.8 msf in March.

That said, after the stock's sharp 36% rally over the last year, it trades at over 40 times estimated FY28 earnings, per Bloomberg. This suggests that execution will need to remain strong to justify further upside.

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