OYO signals profitability turnaround, refinancing talks; poised for potential IPO

In a significant turnaround for Oravel Stays Ltd, the parent company of OYO, recent announcements signal a promising shift in its financial trajectory. After grappling with a major setback earlier this year and a persistent pattern of losses coupled with mounting debt, OYO now assures its investors of an impending profitability milestone.

According to an internal letter written by the founder of OYO Ritesh Agarwal, the company is poised to achieve its first profitable quarter in Q2 FY24. The projected profit after tax (PAT) is expected to exceed Rs 16 crore.

Moreover, reports have emerged this week indicating that OYO is currently in discussions with Apollo Global Management for a refinancing arrangement concerning a substantial $660 million loan.

“OYO is a perfect example of a fly light business model. Low cost and easy expansion are some of the  biggest USPs of such businesses. After many loss making years now, OYO is gearing up for a major milestone, its first-ever profitable quarter in FY24's second quarter. FY23 was quite a success for them, with a 14 per cent boost in revenue, hitting Rs 5,463 crore, and a substantial 38 per cent reduction in losses compared to the previous year,” said VLA Ambala, Research Analyst at Stocks Market Today.

Ambala further said that initiatives like 'Spotless Stays' and 'Super OYO' have already yielded impressive results in terms of enhancing customer satisfaction, thus earning more revenue.

“OYO is also poised for geographical expansion in promising markets across the United States and the United Kingdom. This positive financial trend also aligns neatly with their IPO plans, showing they're agile and ready to adapt to market changes as required,” Ambala added.

Oyo IPO woes

OYO, established in 2013, had previously filed a Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) on September 30, 2020, for an Initial Public Offering (IPO) valued at Rs 8,430 crore. As per the DRHP, the fresh issue size was slated to be Rs 7,000 crore, with the remaining portion allocated for an offer for sale (OFS). An additional opportunity to raise Rs 1,400 crore through a pre-IPO placement was also presented. The book running lead managers overseeing this issue were ICICI Securities, Nomura Financial Advisory and Securities, JM Financial Ltd, and Deutsche Equities India Pvt Ltd. Key stakeholders include Ritesh Agarwal, RA Hospitality Holdings, and SVF India Holdings Ltd.

“It looks like every company who is planning to repay its debt and refinancing is preferring an IPO and many companies have filed IPO under the "Emerging" category. Very soon we could see one more member "OYO" in this list", Ambala added.

OYO, headquartered in Gurugram, is backed by investors like SoftBank, Lightspeed India and Airbnb, among others. Speculations are rife that OYO is gearing up for a stock market listing, anticipated to coincide with the Diwali season, spanning October to November, later this year.

Earlier this year, Bloomberg had reported that OYO was contemplating reducing its IPO size by two-thirds, as tech valuations faced a downturn amid challenging global macroeconomic conditions. However, recent developments suggest a more positive outlook for the company as it strives to deliver on its profitability promise.