Motilal Oswal downgrades Phoenix Mills to neutral from buy despite strong Q1 results; here's why

livemint.com:

Phoenix Mills reported strong June quarter numbers on Tuesday, brokerage firm Motilal Oswal Financial Services has downgraded the stock to a 'neutral' from a 'buy' and fixed the target price of ₹1,845, implying a 10 per cent upside potential. Motilal downgraded the stock because of the recent sharp gains in stock prices in the last one year. The stock has jumped over 33 per cent against a nearly 24 per cent gain in the BSE Realty index and a 12 per cent gain in the equity benchmark Sensex in the last one year.

The brokerage firm believes Phoenix Mills' growth trajectory remains intact, but the current valuations indicate that near-term growth is priced in. "With a 30 per cent run-up in the stock price since our initiation, we believe a large part of earnings growth over the next two years is already priced in and see limited upside potential in the near term. Hence, we downgrade Phoenix Mills to neutral," said Motilal Oswal.

The brokerage firm, however, underscored that Phoenix Mills' Q1FY24 earnings were above its estimates. "In Q1FY24, Phoenix Mills reported revenue of ₹810 crore, up 41 per cent year-on-year (YoY) and 11 per cent quarter-on-quarter (QoQ) and 5 per cent above our estimate. Growth was driven by strong performances in the retail and hospitality verticals," Motilal Oswal said.

"EBITDA grew by 52 per cent YoY to ₹490 crore (9 per cent beat), which was higher than revenue growth as margin expanded by nearly 450bp YoY and nearly 170bp QoQ to 60.7 per cent. PAT was up 50 per cent YoY at ₹240 crore which was 20 per cent above our estimate, with a margin of nearly 30 per cent, up 150bp YoY," Motilal Oswal said. After the Q1 numbers, the brokerage firm raised its FY24E and FY25E PAT estimates for Phoenix Mills by