OYO is not going public anytime soon! Oravel Stays, the parent company of OYO Hotels and Homes, has withdrawn its draft IPO prospectus filed with the Securities and Exchange Board of India (SEBI) for the second time, raising questions about its financial health and market readiness.
Oyo’s IPO journey has been marked by uncertainty. In 2021, the company initially filed for a public listing with SEBI, proposing a $1.2 billion issue (around ₹8,430 crore). However, the Gurugram-headquartered OYO withdrew its filing and resubmitted it under SEBI’s confidential filing route in April 2023 with a revised IPO that was 40-60% smaller.
The latest withdrawal in May 2024 marks the second time OYO has pulled the plug on its IPO plans, as confirmed by a disclosure on SEBI’s website. What’s more surprising is that neither of Oyo’s IPO applications received SEBI approval. This raises questions about whether the company felt fully prepared for the public market’s scrutiny.
Earlier, in February, reports had surfaced indicating that OYO might opt out of its IPO and instead raise funds privately.
OYO has raised over $3 billion in equity and debt to date.
What Might Have Gone Wrong?
Oyo’s decision to shelve its IPO plans likely stems from a combination of factors. Firstly, despite a 33.7% YoY decrease, the company reported a significant net loss of INR 12.87 billion in FY23. This financial performance raises doubts about its ability to demonstrate sustained profitability, a crucial factor for potential investors in an IPO.
Additionally, Oyo’s valuation has sharply declined nearly 75% from its peak of $10 billion in 2019. Recent reports indicate that the company is now seeking private funding at a substantially lower valuation of $2.3-$3 billion, signalling investor apprehensions about its financial health and future prospects.
OYO is also reportedly in discussions to secure funding in the range of $80-90 million from its family offices.
“Ritesh Agarwal (founder of OYO) has personally been on calls on this financing, talking to a group of high-net-worth investors,” sources revealed to ETimes.
Furthermore, the broader market environment for tech IPOs, particularly those with unproven profitability, has turned chilly. The recent performance of similar startups might have made OYO wary of a lukewarm reception from public investors.
OYO has also been criticized for its business practices, which have caused significant reputational damage. In 2020, the SoftBank-backed hospitality company laid off approximately 5,000 employees to cut costs, highlighting its struggle to maintain profitability and operational efficiency.
In conclusion, despite OYO’s initial promise and significant backing, the company faces substantial challenges in its quest to go public. The repeated withdrawal of its IPO application, coupled with a steep decline in valuation, underscores the need for OYO to reassess its strategy and address underlying issues. Moving forward, it will be crucial for CEO Ritesh Agarwal and his team to navigate these challenges effectively, restore investor confidence, and sustain the company’s growth trajectory in the ever-evolving hospitality industry.
