OYO Facing Bankruptcy?
This is the real David vs. Goliath story - a small creditor has challenged a Unicorn. Read on.
Rakesh Yadav, owner of a 21-room hotel in Gurgaon, who is owed Rs. 16 lakh by OYO has pulled the mats from beneath the grounds of the unicorn. How?
You see, OYO Hotels and Homes Pvt Ltd (a.k.a OYO Rooms) has not repaid Rakesh's dues. So, like any other mad creditor would, he has requested the National Company Law Tribunal (NCLT) to, well, shut down the company.
But, can the fate of a company so big depend on a creditor so small?
Yes and No.
A default of Rs. 1 crore for 10 days is all that it takes to shake a company. The creditor can go to NCLT, to initiate the "insolvency" process of a company.
But, then how can a Rs. 16 lakh claim of Rakesh Yadav be admitted?
Because OYO has been defaulting on his claims since June 2019. At that time the threshold to file a complaint was just Rs. 1 lakh.
The increased default limit (Rs. 1 crore) applies for defaults made after 25 March 2020 (reduced as a lot of companies would be exposed to the risk of insolvency because of the pandemic).
However, not all is lost for OYO...
It can challenge the order, so it has gone ahead and filed an appeal with NCLAT. OYO founder, Ritesh Agarwal, has spoken out on Twitter.
But the timing of this payment is everything.
If made after the NCLT order, it will open the doors for ALL the creditors to submit their claims. And then, shit will hit the fan! But, it’s still unknown if this payment was made before or after NCLT issued the order.
To make matters worse, OYO has already had its fair share of backlash from other Indian hoteliers for not paying its dues. The only way out for OYO, it seems, is if NCLAT accepts its plea.
But, how the hell did a "unicorn" end up in this mess?
OYO, already bearing the brunt of 35% losses on revenue in 2019, had announced mass layoffs even before the onset of the pandemic.
To top it off, the big fat Indian wedding has fallen slim and short of customers over the past year, and it would come off as no surprise that Weddingz.in - a wedding planning company (one of OYO’s subsidiaries) - was severely hit.
OYO Hotels and Homes was the third-largest contributor (~15% in 2019) to OYO Group revenues, and the largest contributor amongst their Indian subsidiaries (before weddingz.in became big).
So it goes without saying that whilst the potential of OHHPL going out of business might not lead to OYO’s death per se, it’ll still be a major disruptor for the Indian hospitality sector.
Still, are we panicking for no reason?!
Back in December 2020, founder Ritesh Agarwal had made claims to employees about the company going public. He also mentioned recently that business in India has climbed and the company is making gross margins close to pre-pandemic figures (14.7% in 2019 - not bad at all).
But for a private company that isn’t required to publish its financials until up to a year later, who knows how good these claims really are?
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