7 charts that summarize OYO’s commercial health linked to the IPO
Founded in 2013, OYO has so far raised total funding of $ 4.1 billion and seeks to raise $ 1.2 billion through the proposed IPO.
It reported an improvement in its Adjusted EBITDA to -1,744.72 Cr (INR) in the year compared to -8,277.27 Cr in FY20. In fiscal year 2019, the company reported adjusted EBITDA of -2,236.28 Cr.
In the DRHP, OYO said its “substantial amount of indebtedness” could “negatively affect” its financial flexibility and competitive position. As of July 31, 2021, he had Rs 4,890.55 Cr of total outstanding borrowings on a consolidated basis
Hospitality unicorn Oravel Stays, the parent company of OYO, has filed an initial public offering (IPO) of INR Cr 8,430 which will include new shares worth INR Cr 7,000 and a sale offer through which numerous Existing investors are expected to unload their shares, amounting to INR 1,430 Cr.
Here are four highlights before examining the company’s financial health:
- As of March 31, 2021, OYO had 157,344 properties in more than 35 countries, including 17,820 hotels, 59,161 OYO Homes and 80,363 list the windows.
- Hospitality unicorn has raised $ 4.1 billion in funding so far
- SoftBank is the company’s largest shareholder, with 46.62% of the shares.
- OYO recorded INR 4,157.38 of income in FY21 while its expenses amounted to INR 6,936.07.
Struck by the Covid-19 pandemic, OYO’s business has been on a downward trend with declining revenues. Ongoing losses and increasing debt remain the main concerns of the hotel company. To get her business back on track and forge a path to profit, she may need to put in considerable effort to move forward.
OYO saw a 70% drop in revenue in FY21
A review of its Draft Red Herring Flyer (DRHP) shows that the SoftBank-backed hotel startup’s total income fell almost 70% in FY21 to INR 4,157.38. Its total turnover amounted to INR 13,413.26 Cr during the previous financial year.
The drop in income was largely due to lockdowns induced by the pandemic in India and all other markets.
The company, however, recorded a 70% contraction of losses to 3,943.8 Cr INR in FY21 compared to the loss of 13,122.77 Cr INR in FY20, due to a huge drop in spending. Its total expenditure in FY21 was INR 6,936.07 Cr compared to INR 22,800.12 in FY20.
OYO cut employee costs to cut expenses
A reduction in spending on employee benefits has played a crucial role in reducing overall costs. During the pandemic, OYO resorted to several cost-cutting measures, including mass layoffs, time off and pay cuts. Its social charges fell by 63% to INR 1,742.12 Cr in FY21, against INR 4,765.28 Cr in FY20.
Currently, the company has 5,130 employees worldwide, including more than 3,600 in India. OYO had nearly 10,000 employees at the start of 2020, according to reports.
OYO faces weakened gross reservation value amid pandemic
In the hospitality industry, Gross Booking Value (GBV) is a key indicator of the demand that a hotel or business attracts and its revenue streams. Struck by the Covid-19 pandemic, the gross value of OYO reservations plunged 67% to INR 6,638.89 Cr in the last fiscal year, from INR 20,088.37 Cr in FY20.
The GBV of hotels and houses is defined as the amounts payable by customers for reservations, after deducting cancellations and gross of discounts (such as loyalty points and OYO discounts) across all distribution channels, including the OYO website, mobile application, call centers, party OTA third parties and other offline channels.
GBV from listings is the amount of subscription fees paid by clients of its SEO activity to the business to list their storefronts on its platform.
Accumulation of debt can impact OYO
When a company is very indebted, we get a fair idea of its financial situation. OYO’s debt levels have increased over the past two years and the company, in its DRHP, has recognized its “substantial amount of debt” which could “negatively affect” its financial flexibility and competitive position.
As of July 31, 2021, it had INR 4,890.55 Cr of the total outstanding loans on a consolidated basis.
Its debt ratio was -35.14% in FY19, followed by 33.98% in FY20 and 45.70% in FY21. Debt ratios are the financial ratios that compare a business owner’s equity to the debt or funds borrowed by the business.
“We have substantial debt, which requires significant interest and principal payments,” the company said in its DHRP. OYO noted that its debts could have significant effects on its business and make it more difficult for the company to meet its current and future debts.
“Our debt instruments contain restrictions that impact our business and expose us to risks that could materially and adversely affect our liquidity and financial condition. If we need additional funding to support our business, this additional funding may not be available on reasonable terms, if at all, ”he said in his HRD.
Among other adverse possibilities, high debt can also increase its vulnerability to adverse changes in prevailing economic, industrial and competitive conditions, including fluctuations in exchange rates.
This would require OYO to reserve a substantial portion of its operating cash flow to service its debt, thereby reducing the availability of cash flow to fund working capital and other operating and growth expenses.
According to the DRHP submitted to the capital market regulator SEBI, Oravel Stays plans to use nearly 2,441 Cr INR of its net proceeds from the IPO to repay part of the loans taken out by its subsidiaries.
Too many lawsuits can hamper OYO
Over the years, the IPO-linked startup has faced several controversies and lawsuits. Its IPO shows that the company, its subsidiaries and its promoters are involved in 65 legal cases.
Although OYO has qualified the amounts involved in several cases as “unquantifiable”, according to its DRHP, the total amount involved in the ongoing cases amounts to INR 347.52 Cr. These include 15 lawsuits involving the company, 16 against its directors and 34 concerning the subsidiaries of Oravel.
Of the 15 lawsuits involving the company, 14 were filed against it and one was filed by the startup. Among these 14, four relate to material disputes, two relate to actions of statutory bodies or regulatory authorities and eight relate to taxation.
At the date of filing the DRHP file, there had been no criminal proceedings against the technology-backed hotel start-up.
In addition, 16 lawsuits are also pending against the directors of the SoftBank-backed startup, and these mainly involve cases against founder and CEO Ritesh Agarwal.
OYO Adjusted Gross Profit Improves Due to Global Portfolio Streamlining
Amid all the gloom in the hospitality unicorn, there are a few bright spots for the business with improved Adjusted Gross Margin and EDITDA. OYO has been able to improve its adjusted gross margin over the past two years, another indicator of a company’s consistent performance. Its adjusted gross profit for FY21 was 1,313.67 Cr against INR 1,277.18C for FY20.
In fact, adjusted gross profit in FY20 more than doubled from INR 575.4 Cr in FY19.
OYO’s DRHP said its adjusted gross profit margin (adjusted gross profit as a percentage of revenue) from contracts with customers increased from 9.7% in FY20 to 33.2% in during fiscal year 21. The company attributed it to several factors.
First, streamlining its global portfolio with a focus on profitable sourcing in its core growth markets. Second, a significant decrease in the number of establishments that came with minimum guarantees or fixed payment commitments. It went from 14.7% on March 31, 2019 to 0.1% on March 31, 2021.
Improved OYO adjusted EBITDA
EBITDA, or earnings before interest, taxes, depreciation, and amortization, is an important indicator of financial performance because it measures profitability. Adjusted EBITDA is all about the standardization of EBITDA by removing anomalies. The result can be compared more accurately and easily to the EBITDA of other companies or the industry as a whole.
Although the income of the Gurugram-based unicorn fell in FY21, it reported an improvement in its Adjusted EBITDA to -1,744.72 Cr (INR) during the fiscal year. compared to -8,277.27 Cr in FY20. In fiscal year 2019, the company reported adjusted EBITDA of -2,236.28 Cr.
An in-depth analysis of its DRHP shows that since its creation in 2013, the rapid expansion of its activity and its footprint has also been accompanied by huge losses, lack of profitability and growing debt. The IPO could result in a positive change in its flow of funds.
With the proceeds of the IPO, he plans to reduce his debt levels and also achieve business growth, which depends on a successful listing.
Streamlining and streamlining its business and operations and finding better ways to generate revenue can increase profitability.