Press "Enter" to skip to content

Oyo IPO details: The DRHP, decoded – Economic Times

Mumbai: Oyo Hotels & Homes
has filed the preliminary documents for a Rs 8,430-crore initial public offering (IPO), joining the rush of homegrown technology unicorns seeking to list on India’s stock exchanges.

According to the draft red herring prospectus (DRHP), the Oyo IPO is going to be a mix of primary and secondary shale sale: Rs 7,000 crore will be raised by issuing fresh stock and the rest via an offer for sale. In an OFS, existing investors sell their stake, in part or full. The company also has the option to raise Rs 1.400 crore in a pre-IPO placement.

A price band for the offering was not disclosed in the draft documents.

The filing of the Oyo DRHP marks a dramatic recovery for a pandemic-marred travel and hospitality industry. The startup has refashioned itself, moving away from a business model that brought financial stress, soured its relationships with hotel owners and invited court battles.

A look at the key Oyo IPO details, as enumerated in the DRHP:

■ Name: Oravel Stays Ltd., which owns the Oyo brand.

ALSO READ TECH NEWSLETTER OF THE DAY

Oyo Hotels & Homes, India’s third-highest-valued private startup, has filed its draft IPO papers with the capital markets regulator. It seeks to raise about $1.2 billion, mainly by issuing new shares.

Read Now

■ The promoters: Founder Ritesh Agarwal and his holding company RA Hospitality Holdings have 33.16% stake in the company. SoftBank Group Corp., by way of SVF India Holdings, has 46.62% shareholding.

Other notable shareholders include:

  • Dinesh Ramamurthi, trustee of Oravel Employee Welfare Trust, with 5.40% stake.
  • Sequoia Capital India with 3.24% stake.
  • Lightspeed Venture Partners with 2.74% stake.
  • Airbnb Inc. with 1.36% stake.

Agarwal does not plan to sell any shares in the Oyo IPO,
as ET had reported earlier, while SoftBank will offload a small stake. The other prominent investors do not intend to sell.

■ Oyo IPO valuation: Since the DRHP didn’t specify the number of shares that would be on offer or the price band, a valuation is difficult to determine at this stage. However, according to a previous ET report, the hotels aggregator
was aiming for a valuation of $12 billion. The company was last valued at $9.6 billion, when it
raised $5 million in strategic capital from Microsoft, making it India’s third most valuable startup.

■ Financial performance: Despite a global pandemic practically shutting down the travel and hospitality industry, Oyo is moving towards profitability. In fiscal ended March 31:

  • Loss narrowed to Rs 3,943 crore from Rs 13,122 crore a year ago.
  • Revenue declined by nearly 70% year-on-year to Rs 4,157 crore.
  • Adjusted gross profit rose to Rs 1,320 crore from Rs 1,280 crore in FY20.
  • Adjusted gross margins rose to 33% in FY21 from 9.7% in FY20.
  • The company spent Rs 542 crore for marketing and promotions.

“Our brand marketing efforts are expensive and may not be cost-effective or successful.” Oyo said in the DRHP. “If our competitors spend increasingly more on brand marketing efforts, we may not be able to maintain and grow traffic to our platform.”

Oyo-6ETtech

■ IPO proceeds: The cash generated by selling shares in the Oyo IPO will be utilised to finance prepayment or repayment of borrowings made by Oyo’s subsidiaries, funding its organic and inorganic growth initiatives, and for general corporate purposes.

■ Risk factors: Oyo also listed these risk factors, among others, in its DRHP.

  • Covid-19: Oyo said that the pandemic and lockdowns have, and are expected to continue to, “materially and adversely impact” its business and the wider travel industry. It said the extent to which Covid-19 will further impact its business is uncertain.
  • No profits: The company said it has incurred net losses in each year since incorporation, and its ability to achieve profitability may be delayed.
  • Growth may slow: It said it may not continue to keep pace with its historical growth rates and may face difficulties in executing its expansion plans and implementing its growth strategies.
  • Zostel case: “Any adverse outcome in legal proceedings involving Zostel may materially and adversely affect our business, reputation, prospects, results of operation and financial condition,” Oyo said.
  • Other pending cases: The DRHP also noted that there is pending litigation against Oyo, its founder, and some of its subsidiaries and directors. “Any adverse decision in such proceedings may render us/them liable to liabilities/penalties and may adversely affect our business, cash flows and reputation,” it said.
  • Brand image: Oyo said that maintaining and enhancing its brand and reputation was critical to its growth, and that negative publicity could hurt its business.
  • Reliance on third parties: It also noted its reliance on third-party distributors, such as online travel agencies, travel management companies and global distribution systems, to market and distribute its partner hotels and said this could also adversely affect its margins and profitability.
  • Third-party liability: Criminal, violent or dangerous acts by patrons, customers or third parties could undermine “the safety or the perception of safety” of its platform and its ability to attract and retain patrons and customers, the company said.
Oyo-7ETtech


■ IPO managers:
Kotak Investment Banking, JPMorgan Chase & Co. and Citigroup Inc. are the global coordinators and bookrunners for the IPO. ICICI Securities, Nomura Holdings Inc. and JM Financial Ltd. are the other bookrunners.

About Oyo: Ritesh Agarwal established Oyo in 2013 after dropping out of college. Now 27, he will be worth billions of dollars if Oyo has a successful listing.

The entrepreneur was part of a rarefied group of SoftBank-backed startup founders coached by Masayoshi Son himself. In 2019, Agarwal
invested $2 billion, mostly borrowed, to triple his stake in the startup and take his ownership to nearly a third.

Oyo-MapETtech

India, Malaysia, Indonesia and Europe account for more than 90% of the hotels listed on Oyo’s platform. The budget lodgings marketplace also offers stays in China, the US and dozens of other countries, though its global expansion was curtailed by the pandemic.

The app has been downloaded 100 million times, according to the filing, making it one of the most-popular travel apps in the world alongside Airbnb and Booking.com. It has more than 9 million users in its loyalty program, generating direct demand from customers.