📈 Oyo’s Second Attempt at IPO

Oyo is making a second attempt at going public. But why now?

The world has two kinds of people.

The first kind are currently travelling the world.

And the second kind are swiping through their Instagram stories. 

The first kind is absolutely valuable for the economy. 

In fact, they could be a major reason behind Oyo’s comeback.

Yes, Oyo has filed an addendum to its existing Draft Red Herring Prospectus (the document that companies have to submit to the SEBI before their IPOs), submitted to SEBI to reflect its current financials. But is it the right time for the company to enter the markets?

---

🤔 Understanding Oyo’s IPO Filing

Oyo first filed its DRHP in October 2021.

It was set to issue fresh shares worth Rs. 7,000 crores and put up existing shares worth Rs. 1,430 crores for sale (SoftBank, one of Oyo’s early investors, was all set to sell its stake). 

Initially, the timing seemed right. Everyone was betting big on startups.

Also, Oyo had just managed to take control of its losses. From a loss of Rs 13,122.77 crores in FY20 it reduced losses to Rs. 3,943.84 crores in FY21.

But still, a number of factors were against it.

Though people had begun revenge travelling, papers were still full of headlines that claimed business travel was dead.

Business travel accounts for only 21.4% of all travel, but it is what helps a lot of hotels and airlines become profitable.

Those travelling for business purposes usually book first class tickets (that’s why it is called the business class) and five-star hotels unlike the rest of us. 

And Oyo has a major network of corporate clients (approximately 6,600) that it depends on.

So, the headlines didn’t help.

Plus, Oyo had never made any profits, making it a risky bet. So, Oyo wasn’t sure if it would get the $12 billion valuation that it was looking for.

On top of this, Oyo was hit with a case by its rival Zostel and asked SEBI to stop its IPO.

Reasons? Back in 2015, Oyo was planning on acquiring Zostel.

As part of its due diligence, the company apparently acquired Zostel’s data. But the deal fell through. 

However, Zostel now wanted a 7% stake and payments for the data that Oyo had acquired.

And it wasn’t just Zostel that was against Oyo. It has 21 cases registered against it. It has spent around Rs. 1,166 crores in the last three years to fight cases.

All of these factors probably led Oyo to pull the brakes on its IPO.

So, why is Oyo back? 

---

🤨 Oyo Back from the Dead?

Like every movie character going through a rough time, Oyo decided to take a break and reinvent.

And now it is back with a full-blown makeover.

It has halved its losses, increased revenue by 21% and gross book value per hotel by 47%.

And it became EBITDA positive for the first time ever.

That means the company is operationally profitable.

However, the news that the company’s adjusted EBITDA was positive led to some hue and cry and debate on the internet.

While some claim there is no such thing as ‘adjusted EBITDA’, the metric has been used by companies since forever to give people a better idea about operating cashflow.

That is exactly what Oyo seems to have done:

To get to its adjusted EBITDA, it subtracted other income (interest it gets on the money stored in its bank account), added finance costs (interest it pays to others), depreciation costs and share based payment expenses (basically expense made in any case where it has given others stake in exchange of goods and services).

Seems standard to us.

But how did Oyo manage to make such a huge turnaround?

Well, the return of travel helped. However, a lot of change in strategy was also involved.

You see, Oyo had been betting big on China and the US. But a slowdown in China’s economy and the US’ preference for Airbnb meant it wasn’t succeeding.

So, it has now minimised operations there and is focusing on Europe, Malaysia, Indonesia and of course India.

It has also considerably reduced the number of employees it had. (But while employee expenses have gone down, the CEO’s salary has gone up by 350%!). 

Plus, business and luxury travel have also bounced back.

Even giants like ITC and Mukesh Ambani are also betting big on the hotel business. 

While ITC is planning on launching one property every month, Ambani bought a luxury hotel in New York.

So, the time may be right for Oyo to launch its IPO.

But not all is peachy. Travel could be boosted by revenge spending and may go down again.

Plus, Oyo's reliance on third-parties like trip-booking websites also poses a risk. 

And news of an upcoming recession has made the company a little wary. 

So, it is not going public yet. 

Plans are to launch an IPO in 2023.

WIll you be betting on the company when it launches its IPO?

---

⚡In a line: Oyo is taking a second attempt at its IPO and despite a lot of social media debate, it seems the company is now in a much stronger position than before.

💡Quick question: Will Oyo perform better than other last year’s startup listings?

---

Share this with your friends via WhatsApp or Twitter and help us grow! See you tomorrow :)

You can also listen to our stories. Catch it on Spotify, Apple Podcast, Amazon Music, Google Podcasts, Gaana or Jio Saavn.

If you are coming here for the very first time: Don’t forget to join us on WhatsApp to get daily updates! 👇