OYO, India’s hospitality startup that once aimed for a grand public debut, is reportedly finalizing plans to withdraw its IPO application filed with SEBI (Securities and Exchange Board of India). This unexpected detour throws their public listing aspirations into question, leaving many wondering what went wrong.
OYO Hotels & Homes has been deliberating on this IPO withdrawal for some time, and it appears to be imminent, with all key stakeholders duly informed. Simultaneously, the company has reportedly initiated discussions with private market investors to secure fresh funding over the next six to eight months.
However, OYO, responding to queries by ET, refuted the information, deeming it “inaccurate and unconfirmed by the company representative or our IPO bankers or counsels.”
OYO’s IPO withdrawal plan coincides with recent developments wherein, just a day before, media reports highlighted that the company’s lead bankers and senior executives had engaged with SEBI. The primary objective of this strategic meeting was to expedite the approval process for its IPO. Additionally, OYO informed the regulator about a partial prepayment of $200 million towards the outstanding Term Loan B (TLB) from its financial books. The company’s leadership team utilized this strategic engagement to present a comprehensive overview of Oyo’s financial performance, providing updates covering the last four quarters.
OYO IPO Saga: Hits the Pause Button
In October 2021, OYO took its first step toward an initial public offering (IPO) by submitting a draft application amounting to ₹8,430 crore ($1.2 billion). However, the trajectory took an unexpected turn in September 2022 when SoftBank discreetly devalued Oyo from $3.4 billion to $2.7 billion.
Although this adjustment in OYO’s valuation remained private, the last publicly reported valuation for the hospitality firm stood at over $9 billion. Despite this, the markets regulator Sebi returned Oyo’s initial public offering filing in January 2023, necessitating a recalibration. The SoftBank-backed company was directed to refile its draft red herring prospectus (DRHP) with requisite updates and revisions.
In response, OYO, in April 2023, confidentially pre-filed with Sebi for a significantly reduced IPO size, ranging between 40-60%. This move was part of a broader directive for companies to refile applications with a smaller secondary share sale portion than initially proposed.
Recent reports suggest that OYO is considering withdrawing its IPO application from Sebi. This development raises questions about the factors influencing OYO’s reassessment of its IPO strategy, prompting a closer examination of the challenges the company may be grappling with.
OYO Facing Troubles: What Went Wrong?
OYO’s revenue from operations increased 14.3% YoY to INR 54.64 billion in the fiscal year 2023, ending March 31, 2023, while the losses declined 33.7% YoY to INR 12.87 billion during the same period.
A noteworthy milestone for OYO was achieved in the second quarter of fiscal year 2024, ending September 30, 2023, as the company reported its first profitable quarter. This positive trend persisted into the third quarter of FY24, ending December 31, 2023, where OYO generated a net profit of Rs 30 crore, doubling from the Rs 16 crore reported in the previous quarter.
Despite the recent positive financial indicators, including declining losses and the achievement of profitability in the last two quarters, OYO faces the challenge of convincing potential investors about its sustained profitability in the future. The uncertainty surrounding future profitability could directly impact investor confidence and, subsequently, influence the IPO issue and listing price.
Adding to its challenges, Oravel Stays Limited, the parent company of OYO, had secured a substantial $660 million term loan B in July 2021, with repayment scheduled for late 2025. As of now, the company holds a cash reserve ranging between $200 and $250 million. Even though OYO has shown improvements in operating profitability, the impending repayment obligation in 2025 necessitates strategic financial planning and raises the need for additional funding. In response to these financial dynamics, OYO is actively exploring avenues to secure additional funding.
According to a Bloomberg report on January 25, OYO has entered discussions with the Malaysian sovereign wealth fund Khazanah Nasional Berhad to raise $400 million at a valuation of $6 billion. Talks with at least two other investors are also in the preliminary stages.
In another development, Rajnish Kumar has stepped down from his role as the group strategic advisor at OYO. This decision came after his contract concluded in December 2023. He is concurrently serving as the chairman of the board at BharatPe and holding a position on the advisory council of the troubled edtech company Byju’s.
In addition to OYO’s internal challenges, the funding winter gripping the Indian startup ecosystem for the past two years has added another layer of complexity. The aftermath of the Covid-19 pandemic has resulted in a scarcity of late-stage funding, reflecting investor hesitancy driven by widespread losses and significant layoffs across various startups. The prevailing funding climate has created a challenging environment for companies seeking financial backing, further influencing OYO’s strategic decision to withdraw its IPO application.
OYO’s pause on its IPO journey throws a spotlight on the broader challenges faced by new-age companies seeking public listings. Investors are increasingly demanding sustained profitability and clear paths to sustainable growth. This raises an intriguing question: Will this be a temporary retreat for OYO to regroup and emerge stronger, or a sign of deeper challenges that could alter its trajectory altogether?
