What Oyo's IPO Filing Reveals About Its Business
The parent of Oyo Hotels and Homes has filed for an initial public offering as it looks to turn around after the pandemic disrupted global travel, slamming breaks on the hotel-booking startup's breakneck expansion.
Oravel Stays Ltd. filed the draft prospectus for a Rs 8,430-crore ($1.1 billion) IPO, joining India’s technology unicorns that are seeking a listing on the bourses in a record year for initial share sales.
India’s third-most valued startup plans to raise Rs 7,000 crore by issuing new shares, along with an offer-for-sale of up to Rs 1,430 crore by existing investors, Oyo's draft red herring prospectus showed. BloombergQuint has reviewed a copy .
It’s also in discussions with investors for a Rs 1,400-crore ($193-million) pre-IPO placement.
Bankers to the issue are Kotak Mahindra Capital, Citigroup, JP Morgan, ICICI Securities, Nomura, JM Financial and Deutsche Bank.
Here’s what the filing tells about its business:
Oyo was founded in 2012 as a short-stay accommodation provider for budget travellers.
It claims to have more than 1.57 lakh storefronts across 35 countries on its platform as of March 2021. India, Malaysia, Indonesia and Europe account for more than 90% of the hotels listed on OYO’s platform.
The company relies on hotels, homes, and resorts--called patrons--that list on its platform.
Oyo earns money by selling hotel and home inventory directly to customers on its platform or through online travel aggregators.
It gets an average revenue share of 20-35% of gross booking value (net of discounts and loyalty points).
Oyo also offers a listing-only service to its patrons for a fixed subscription fee.
It has stopped offering minimum guarantees to nearly all its partners and no longer invests in upgrading the standards of the hotels.
Total employees: 5,130 globally, with 70.9% of them based in India.
Its loyalty programme in India has 9.2 million subscribers.
Its app has been downloaded 100 million times, as per filings, and is one of the most popular travel apps alongside Airbnb and Booking.com.
Promoters And Key Shareholders
Founder Ritesh Agarwal, his holding company RA Hospitality Holdings and SoftBank Vision Fund are the promoters of the company, according to the prospectus. SoftBank holds 47% while Agarwal and his holding company have a combined 33% stake in the firm.
Softbank Group and Grab, which invested $100 million in Oyo in 2018, are among key investors selling shares in the offer. China Lodging Holdings, which invested in 2017, and Sunil Munjal of the Hero Group are also divesting stake.
Investors including founder Ritesh Agarwal, Lightspeed Venture Partners, Sequoia Capital, Star Virtue Investment Limited (Didi), Greenoaks Capital, AirBnB, HT Media Ltd. and Microsoft Corp. aren't diluting their shareholding.
Use Of Proceeds
Proceeds of the new issue will be used for two purposes.
About Rs 2,900 crore to fund its organic and inorganic growth.
As much as Rs 2,441 crore will be used to retire debt debt owed by its subsidiaries, including Oravel Stays Singapore Pte., Oravel Hotels LLC, Oyo Hospitality Netherlands BV, Oyo Singapore and OHL.
As of July 2021, the firm had total outstanding borrowings of Rs 4,890.6 crore.
Oyo said its business was materially and adversely affected by the Covid-19 pandemic.
Revenue from contracts with customers declined 69.9% year-on-year to Rs 3,962 crore in FY21.
Gross booking value, too, declined 66.9% over the preceding year to Rs 6,638 crore in FY21 owing to reduction in the number of storefront bookings.
The number of storefronts fell 0.5% over the preceding year to 1,57,344 in FY21.
However, the company said adjusted gross profit and adjusted gross profit margin have improved. Gross profit margin improved from 9.7% in FY20 to 33.2% in FY21.
Oyo's revenue was hit as the travel business dropped to its lowest point amid the Covid-19 pandemic. The company cut expenses and re-strategised its offerings and businesses.
Its loss for the year ended March 2021 narrowed to Rs 3,929 crore from Rs 12,799-crore loss in the preceding year.
Employee benefits expenses fell 63.4% year-on-year to Rs 1,742 crore in FY21, driven by various cost cuts, including layoffs, revenue management, divestment and rationalisation of non-core businesses, among others.
Marketing and promotion expenses were slashed 71% in FY21.
A $1.9-Trillion Opportunity By 2030
The short-stay accommodation market is one of the fastest growing segments in the travel and tourism industry, according to OYO. This segment refers to stays of up to one month, and comprises hotels, homes, guesthouses, bed-and-breakfasts and campsites. And most of the global short-stay accommodation supply is independent, unorganised and fragmented, it said.
According to Oyo's filings:
In the four years through 2019, the total short-stay market grew at an annualised rate of 7.5% to $1.3 trillion (Rs 96.36 lakh crore) in 2019, Oyo said.
After Covid-19 disruption in 2020, it's projected to revive and reach $1.1 trillion (Rs 81.54 lakh crore) in 2021.
It's then expected to grow at an annualised rate of 6.6% between 2021 and 2030 to $1.9 trillion (Rs 140.8 lakh crore).
Of that, Oyo said its addressable market in the regions in which it has a presence is worth $772 billion (Rs 57.22 lakh crore). These markets include India, South East Asia, Western Europe, U.S., China, the Middle East and Africa.
“There's an estimated additional opportunity of approximately $525 billion from the growth of short-stay accommodations across all geographies and $115 billion from the growth of associated ancillary, on-premises non-room customer spending by 2030,” Oyo said.
Oyo has incurred net losses in each year since its incorporation and its ability to generate profits may be delayed.
It may not continue to grow on pace with historical rates and may face difficulties in executing expansion plans and implementing growth strategies. Oyo said its recent expansions have increased the complexity of its business and will continue to place significant strain on its management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions.
Failure to retain retain existing patrons and customers or acquire new patrons and customers in a cost-effective manner could adversely impact its business and financial condition.
The business and activities may be regulated by competition laws of various jurisdictions. "We're currently involved in a matter before the Competition Commission of India and could be subject to penalties, if any such penalties are awarded," the company said.
Oyo is, and after the offer, may remain a “foreign-owned and controlled” company in accordance with the Consolidated FDI Policy and FEMA Non-debt Instruments Rules. As a result, it will be subject to certain foreign investment restrictions, which could limit its ability to attract foreign investors and raise foreign capital.
Any adverse outcome in legal proceedings involving Zostel could materially and adversely affect its business, reputation, prospects, results of operation and financial condition.