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Teji Mandi Explains: Oyo’s trouble heightens, IPO plans under threat

04:34 PM Oct 13, 2021 | Teji Mandi

The IPO pipeline is flooded, and the first big fish to make ‘the entry’ this season is likely to be Oyo Rooms (Oravel Stays). The hospitality startup is aiming to raise Rs 8,430 crore through the public issue. The date and the price band of the IPO continues to be a mystery. Will it receive the bumper opening like Zomato amidst tussle with Zostel?

Everything Lies In The Details

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Founder Ritesh Agarwal owns 33.16% stake, and SoftBank Group has 46.62% shareholding in the startup. Important point to note here is that Agarwal has no plans of selling his stake in the IPO. This hints at Agarwal's confidence in the company’s future. The company expects to raise a fresh issue of shares worth Rs 7,000 crore and the remaining would be offloaded by SoftBank. Oyo’s plan is to gain investor’s interest by presenting its brand reach, business model and massive size. The unicorn was last valued at $9.6 billion, and now it’s aiming to hit $12 billion.

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Let’s have a look at the size of this elephant. Oyo has 1,57,244 properties across 35 countries listed on their platform. Oyo’s major revenue comes from the short-stay accommodations, like furnished homes, hotels etc. All these properties are marketed by Oyo on their platform, which directs the full booking amount towards them, also recognised as revenue. Despite expanding in other countries, the unicorn is currently bleeding due to the loss made during the pandemic.

Financial Losses

To recover from the losses, Oyo has tightened its workforce and marketing spends. The company reported a 70% loss in total income to Rs 4,157 in FY21. The unicorn fired a significant chunk of its workforce to make up for the losses. It also cut down its employee benefits expenses. All these efforts have been taken to withstand the harsh hit from the COVID-19 lockdown. One might wonder, how is the company still sailing through? Well, it’s because Oyo makes only a quarter of its revenue from India. The rest comes from its subsidiaries based in 34 other countries.

Biggest Risks

Of course the financials remain one of the biggest risks, considering the travel industry is still in a recovery mode. Another threat standing in-line is Zostel. The erstwhile rival has requested SEBI to reject Oyo’s DRHP on the grounds that Oyo’s capital structure is not final. According to The Economic Times article, SoftBank’s earnings report in 2016 mentioned that Oyo had acquired Zostel. This calls for an attention by the SEBI, and until the case is resolved, this threat will continue to stand in between Oyo and its IPO.

What’s To Become of The IPO?

It seems that it would take some time for the IPO to get released. If, and when it does, Ritesh Agarwal at the age of 27 would be worth billions of dollars, joining the Ambani and Adani club. All of this still remains under the cover, given there are too many hiccups for Oyo. Ballooning debt, new business model, court case and high valuations, will be considered by the street before subscribing to the IPO. Till then, it’s best not to judge what would happen when it gets listed.

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