While Oyo plans to go ahead with its initial public offering, the hospitality company is yet to share the current valuation it is looking at. For sure, it would be nowhere close to its original hoped-for valuation of $12 billion.
India-based budget hotel operator and aggegator Oyo updated its draft red herring prospectus with results for the first half of the fiscal year signalling its intent to soon launch its initial public offering.
Oyo looks to launch its initial public offering around the first quarter of 2023, which would be between April and June, said a source close to the company.
Setting in motion the Securities and Exchange Board of India’s approval to its initial public offering, Oyo updated its draft red herring prospectus with results for the first half of the financial year.
The hospitality platform had been permitted to submit updated financials before the regulatory body examined and finally processed the application.
Oyo’s adjusted earnings before interest, taxes, depreciation, and amortization for the second quarter grew eight times from $860,000 in the first quarter to $7 million primarily driven by a 23 percent quarter-on-quarter rise in gross booking value per hotel.
However, the sharp uptick in earnings before interest, taxes, depreciation, and amortization wasn’t enough to make the company profitable at a net level.
The company logged in a net loss of $40 million, even as losses narrowed from $50 million in the first quarter. The company’s addendum doesn’t disclose the quarterly comparison of the financials compared to the same period last year.
In late September, SoftBank Group reportedly cut the valuation of Oyo by more than 20 percent, as a result of which Oyo’s valuation in the private market reportedly dipped to around $6.5 billion.
The company originally planned to raise around $1.16 billion through the initial public offering, seeking a valuation of around $12 billion.
The Crucial Third Quarter
Last month, India’s competition watchdog fined MakeMyTrip Group and Oyo for anti-competitive behavior. The Federation of Hotel & Restaurant Associations of India also said that it has written to the Indian regulatory body to stop Oyo from launching its initial public offering in the wake of a penalty.
Oyo mentioned in the addendum that the company this month filed an appeal against the $20 million fine, in the National Company Law Appellate Tribunal.
The demand has currently been stayed, subject to deposit of 10 percent of the total demand amount, which would come to around $2 million within six weeks from November 22.
Confirming that the company is well on its way to go public provided there are no fluctuations in market conditions, a source close to the company said the ongoing third quarter is crucial.
Having reported two consecutive earnings before interest, taxes, depreciation, and amortization-positive quarters, this quarter would help the market decide if this performance trajectory is sustainable.
Factors Contributing to The Uptick
One of the key reasons for the growing earnings before interest, taxes, depreciation, and amortization is that the company has been able to sustain a gross profit margin of 41 percent.
Oyo has also been able to control its marketing cost, which is growing much slower than its gross booking value.
Its marketing expenses increased 19 percent year-on-year in the first half of the fiscal year to $50 million while its gross booking value grew much stronger at 33 percent during the same period to $615 million.
The Oyo loyalty program, Wizard, has also helped the platform attract repeat customers, which has helped the company keep marketing and promotions under check, said a source.
In the third week of April, Oyo crossed over 800,000 bookings, a record high for the year. Around 20 percent of the bookings were made by Oyo’s Wizard members.
What is Driving Bookings?
While the uptick in performance post Covid has been due to the all-round improvement in the travel sector, Oyo has also witnessed a rise in business travelers, as well as an increase in pilgrimage and cultural travel.
Signifying the rapid rebound in business travel in India, Oyo reported that it has added more than 1,250 corporate accounts between March and June.
This recovery has been led by small and medium enterprises, traditional business houses and conglomerates, start-ups, travel management companies as well as film production houses, which have emerged as a key customer category, according to the company.
“Our Business Accelerator division has serviced over 6,600 corporate clients since January 2021,” the company had reported in June.
Oyo had earlier noted in a report that recovery in business travel has been led by the younger generation, with 43 percent in the 20-24 age bracket, followed by 35 percent in the age group of 25-30.
Booking data for the first nine months of the year highlights a 62 percent uptick in leisure tourism compared to the same period last year, mostly propelled by domestic tourists.
Through its partnerships with sporting competitions in the country, Oyo provided accommodation for around 12,000 participants in the recently concluded National Games and arranged approximately 8,500 room nights for the Khelo India meet.
Vacation Homes Business
As of September 30, Oyo has close to 178,000 storefronts, which includes hotels, homes and listings. The hospitality platform witnessed its homes business grow from a little over 73,000 storefronts on March 31 to almost 80,000 storefronts as of September 30.
Even as the company has been expanding its vacation homes strategy with various acquisitions this year, including Denmark-based Bornholmske Feriehuse and Croatia-headquartered Direct Booker, Oyo’s European homes business showed only a 4 percent increase.
Photo credit: An Oyo Townhouse property. Oyo