OYO Withdraws IPO Plans Amid Refinancing Efforts

OYO, officially known as Oravel Stays Limited, founded in 2013 by Ritesh Agarwal, has emerged as a worldwide player within the hospitality and technology industry. The OYO IPO, which the company recently withdrew, is a significant shift in its financial strategy. The company disrupted the traditional hotel enterprise with the aid of offering standardized and affordable resorts through its platform. OYO's business model includes partnering with hotels and property owners, accommodating and standardized rooms, and offering a continuing booking experience for travelers.

Over the years, OYO, Oravel Stays Ltd multiplied its footprint throughout countries, such as India, China, the USA, and Europe. Its growth trajectory became fueled by great investments from Softbank and other venture capital firms. However, like many startups, OYO confronted demanding situations associated with profitability, scalability, and regulatory compliance.

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IPO Withdrawal and Refinancing

OYO, the Indian budget hotel aggregator, has once again pulled back its initial public offering (IPO) application, drawing considerable interest from market analysts and investors. This is the second instance in almost three years that OYO has taken back its IPO documents, with the most recent retreat happening on May 17, according to filings with SEBI. OYO's initial attempt at going public was in 2021, and aims to reach a valuation of $12 billion. 

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Nevertheless, this effort experienced a setback as SEBI sent back the IPO application in January 2023, requesting further details and explanations. In response to the situation, OYO revised its IPO filing by suggesting a reduced IPO size, demonstrating a more careful strategy due to unstable market conditions.

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OYO's recent decision to pull out stands out, happening at the same time as the IPO plans of other well-known Indian tech companies like Ola Electric, FirstCry, and Swiggy. This trend of companies choosing to go public in India shows the overall growth and dynamic challenges present in the Indian tech industry.

The OYO IPO was eagerly awaited as a public offering of an Indian hospitality technology startup. Nevertheless, the company has recently pulled back its DRHP submission to SEBI and plans to resubmit it after undergoing refinancing. The initial public offering experienced numerous setbacks due to fluctuations in the market and regulatory hurdles.

The OYO's financials are projected to see major shifts as a result of the refinancing. Therefore, in accordance with the current regulations, it is necessary to ensure that its filings are in line with the regulatory body. Since the refinancing decision was in its last phase, it was illogical to proceed with the IPO process given the current financials, the source further mentioned.

Reasons to Withdraw OYO IPO

OYO, backed by Softbank, has withdrawn and postponed its IPO plan due to its primary focus on repaying its existing debts. This involves altering the contractual terms with creditors to secure improved repayment conditions for debts and interests. Therefore, OYO aims to attain improved financial sustainability, reduced interest expenses, and extended debt repayment timelines. It is anticipated that JP Morgan will lead the refinancing efforts with an expected interest rate range of 9 to 10% annually. The company’s chief executive Ritesh Agarwal stated that the action is necessary to show a stronger balance sheet, with the potential for a better valuation, when the OYO IPO is eventually relaunched.

Market Volatility: The global economic conditions along with the uncertainties due to the COVID-19 pandemic also influenced OYO to reconsider its decision with regard to IPO. Market volatility and investor sentiment were key factors in this decision.

Funding and valuation

OYO is in talks with a couple of potential investors for its fresh fundraising round. It is anticipated that this round is to come up with an estimated value of about $2.3 billion, a figure that marks a decline of more than 74% compared to $9 billion it had achieved during the funding round led by Microsoft in 2021.

The funding round is still being finalized in terms of its details. OYO aims to bag about $70-80 million from this new round of funding it is tapping. This fundraising is spearheaded by InCred Wealth, a firm that works under the bracket of wealth management services targeting the Higher Net Worth Individuals (HNIs) at the forefront of this fundraising. They aim to gather a team of investors to back OYO's financial strategy. The main purpose of the capital raised in this round is to primarily refinance some of OYO's existing debt commitments.

As of February, OYO's financial reserves amounted to between $200-250 million, a testament to the company's effective reduction in operational expenses. Initially, OYO had set out to raise $1.2 billion, equivalent to approximately Rs 8,430 crore, through its public offering. Later on, the company revised its plans by suggesting a smaller IPO filing, which was kept confidential and was 40-60% less than the initial amount.

SoftBank holds a significant 46% ownership in OYO, while CEO Ritesh Agarwal owns a 33% stake in the company. Other key investors include Lightspeed and Peak XV Partners. Notably, SoftBank was designated as a promoter in OYO's initial IPO draft.

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OYO Refinancing Plans: Timeline

FY23: OYO posts an adjusted EBITDA of Rs 277 crore making the business operationally profitable.

Q4 FY23: OYO becomes operationally profitable for Quarter ending with nearly Rs 90 crore of surplus cash flow.

Q2 FY24: OYO achieves its maiden profitability with a net PAT of Rs. 16 crore.

Q3 FY24: OYO has generated profit of Rs. 30 crore.

FY24: In total, OYO has reported an adjusted EBITDA of around ~ Rs 888 crore, and an overall profitability of Rs. 99 Crores.

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The company plans to raise up to $450 million by issuing dollar denominated bonds.

Oravel Stays Ltd, the parent company of OYO, has already prepaid ₹1,620 crore of debt through a buyback process in November 2023 - i. e, Q3-FY24, where it repurchased 30% of its Term Loan B which is due in June 2026.

This helps to lower the company’s outstanding loan balance and enhance the debt to equity ratio.

The refinancing extended the repayment timeline to 5 years from the current Term Loan B maturity in 2026.

Successful buyback that will help OYO to slash its annual interest expenses by Rs 225 crore, positively impacting the company’s bottom line.

Financial Performance: OYO Recent Financial Developments

In the town hall meeting, Agarwal told employees that OYO might receive interest from supportive investors for a slight equity round at a valuation of $3-4 billion, or at Rs 38-45 per share, in order to continue decreasing its debt. In FY24, OYO increased its global portfolio by around 5,000 hotels and 6,000 homes.

Hotels averaged a Gross booking value (GBV) of about Rs 3.32 lakh ($4,000) per storefront each month. In the past five years, the company experienced a 29% rise in net losses from FY18 to FY23. However, in comparison to FY22, there has been a 40% decrease in losses in FY23.

In FY24, the gross margins of the travel tech platform increased in FY23 to Rs 2,508 crore ($302 million) from Rs 2,350 crore ($283 million). Sources indicated that there was also an improvement in operating costs, with a decrease from 19% to 14% of GBV between FY23 and FY24. Agarwal stated that enhanced operational performance, consistent gross margins, cost efficiencies, and lowered interest costs due to a $195 million debt prepayment contributed to the profitability in Q3 FY24.

In FY25, OYO’s aim is to increase both revenue and GBV, maintaining the upward trend in profit growth. OYO recently completed a debt repurchase worth $195 million (equivalent to Rs 1,620 crore). The buyback procedure consisted of purchasing back 30% of the Term Loan B that was outstanding and due in June 2026.

CEO Ritesh Agarwal stated that the refinancing will provide the company with the necessary financial stability to weather market uncertainties and invest in growth opportunities. He emphasized that this move aligns with OYO's long-term strategic goals of profitability and sustainable expansion.

The consequences of this decision are substantial. Investors view the withdrawal as a sign that OYO is dedicated to establishing a strong financial base before going public. It additionally indicates that the company is emphasizing long-term stability rather than immediate fundraising requirements. Market analysts believe that if a refinancing is successful, it could result in a better IPO scenario, which enhances investor confidence and the IPO's eventual success.

Conclusion

In the wider market context, OYO's decision shows a careful stance taken by tech companies dealing with unpredictable market conditions and strict regulatory oversight. The company's plan could be a model for other new businesses trying to manage the difficulties of becoming publicly traded in tough economic conditions.

OYO's upcoming IPO has significant potential and has attracted close attention during its IPO journey. The company possesses an extensive range of portfolio, conducting business in more than 80 nations and forming alliances with over 157,000 hotels and homes. This worldwide presence highlights the importance of its initial public offering, opening possibilities for other Indian technology startups considering entering the stock market. OYO Unlisted Shares are currently being traded in the Pre-IPO market for ₹40 per share.

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To sum up, OYO's strategic decisions, such as withdrawing the IPO application and refinancing, demonstrate its commitment to establish a strong market presence. While the company adjusts its finances, stakeholders anxiously anticipate the updated DRHP and OYO's upcoming actions as it moves closer to becoming a major player in the global hospitality industry.