Oyo Prepares for IPO: A Strategic Move in Hospitality
Oyo, the hospitality startup founded by Ritesh Agarwal, is gearing up to file its Draft Red Herring Prospectus (DRHP) for an Initial Public Offering (IPO) by the end of the first quarter of the next financial year. This marks Oyo’s third attempt at going public after two previously shelved IPO plans. The upcoming public offering is intricately tied to a restructuring of the company’s shareholding structure led by its founder.
Shareholder Restructuring and Investment
As part of the IPO process, there have been significant developments in Oyo’s shareholding structure:
- Early investors, such as Lightspeed Venture Partners, are planning to exit their stakes.
- Peak XV Partners has already sold shares worth INR 660-740 crore (approximately).
- New investors, primarily family offices, are expressing interest in the IPO with the aim of investing now to benefit from the public offering.
Key stakeholders like founder Ritesh Agarwal, SoftBank Group, and High-Net-Worth Individual (HNI) family offices are expected to retain their positions in the ownership structure. Agarwal and SoftBank collectively hold over 75% of Oyo’s parent company, Oravel Stays.
Financial Performance and Valuation
Oyo’s recent financial results have shown a significant turnaround:
- The company reported its first-ever profit after tax of Rs 229 crore in FY24.
- It followed up with a profit of Rs 132 crore in the first quarter of FY25.
These improved financials, along with successful fundraising efforts, have boosted market confidence in the company. However, Oyo’s valuation has seen fluctuations:
- At its peak in 2021, Oyo was valued at INR 74,700 crore (approximately).
- The current valuation stands at approximately INR 33,200 crore (approximately), reflecting the company’s focus on sustainable operations.
The IPO is expected to raise less than INR 8,300 crore (approximately), but the company is likely to command a premium based on ongoing stake sale discussions that align with the $4 billion valuation.
Strategic Moves and Expansion
Oyo has strategically expanded its operations across multiple regions, focusing on:
- India, Southeast Asia, and the United States: These regions have shown consistent growth.
- Europe: Strategic investments have bolstered the company’s performance in this market.
A pivotal move in Oyo’s strategy was the acquisition of G6 Hospitality in the United States. This acquisition is projected to:
- Contribute over Rs 630 crore to EBITDA in its first year of integration.
- Drive Oyo’s overall EBITDA to surpass Rs 2,000 crore by FY26.
Other Relevant Developments
Past IPO Attempts
- Oyo initially filed for an IPO in 2021, but its application was returned in January 2023.
- A revised application for a smaller IPO was subsequently withdrawn in May 2023.
Market Context
Oyo’s IPO plans align with a broader trend among late-stage consumer internet firms, such as Zepto, which are also exploring public market offerings. At least 20 startups are expected to tap into public markets this year.
Conclusion
Oyo’s upcoming IPO is a testament to its strategic growth and financial recovery. With strong support from key stakeholders, innovative expansions, and a renewed focus on profitability, Oyo’s third attempt at going public could solidify its position as a leader in the global hospitality sector. However, the outcome will depend on market conditions and the execution of its strategic plans.
Disclaimer: This news is solely for educational purposes. The securities/investments quoted here are not recommendatory.