Oyo plans a long stay

Oyo plans a long stay

it’s a bit late to the 2021 IPO party, but it has nonetheless arrived. Oyo Hotels & Homes has filed the paperwork with Sebi for a ₹8,430 crore ($1.1 billion) IPO. while the valuation it seeks is yet to be known, the last estimate was a whopping $9.6 billion by Microsoft. 

a successful listing would see it follow the likes of Zomato, and potentially Paytm and Nykaa, among Indian unicorns to list on the domestic markets.

the nitty-gritties

the offer constitutes the issue of fresh shares worth ₹7,000 crore. the remaining ₹1,430 crore will be an offer for sale from existing investors — mainly SoftBank, which is looking to offload shares worth ₹1,328 crore. 

this comes on the heels of Oyo cutting its losses from ₹12,800 crore in FY20 to ₹3,930 crore in FY21, despite a sharp decline in income due to the pandemic. how? by renegotiating its agreements with stay providers to get rid of minimum guarantees and property upgrade investments in favour of a pure revenue-share model. Its adjusted gross profit, which excludes certain costs, rose from ₹1,280 crore to ₹1,320 crore over the same period.

Oyo claims to currently have a presence in over 35 countries worldwide and more than 157,000 hotels listed on its platform

hurdles ahead

Oyo’s business can, in a way, be described as an amalgamation of Lemon Tree/Ginger Hotels, Booking.com, and AirBnB. they are also its competitors. at a time when travel is yet to resume in a full-fledged manner, they will duke it out for the small portion of the usual market that’s currently active. of course, there are great expectations surrounding revenge travel, and that may bring a bounty to all in the hospitality industry.

but for Oyo to succeed, some conditions may have to be met:

• people will have to travel more than they did pre-pandemic in order to have sufficient occupancy to meet its quest for profitability.
• Oyo’s primary audience is budget travelers who find discounts appealing, but heavy discounts may topple its balance sheet. it will have to find a middle ground.
• the travel recovery will have to begin soon, else the interest payments piling up on the company’s (and founder Ritesh Agarwal’s debt) may become too steep a mountain to climb.

overall, many hospitality companies have come up with innovative and agile maneuvers to emerge from the bruising pandemic with some positives. Oyo is among the most interesting ones, with its fingers in the co-living and co-working pudding as well. can it build on the momentum?