Oravel Stays Limited has Filed DRHP for an IPO with SEBI on 01.10.2022

Oravel Stays Limited akka OYO has filed DRHP with market regulator SEBI  to launch its IPO to 8430 crore.

The IPO comprises both Offer for Sale (OFS) and Fresh Issue. According to the draft red herring prospectus, the Company will raise 7,000 crore from Fresh Issue and rest via OFS. The number of shares that would be offered or the price band of the offering was revealed in DRHP. 

Business Model of Company 

The Company is a leading, new-age technology platform empowering the large yet highly fragmented global hospitality ecosystem, according to RedSeer. 

The unique business model of the Company helps  Patrons transform fragmented, unbranded and underutilized hospitality assets into branded, digitally-enabled storefronts with higher revenue generation potential and provides the Customers with access to a broad range of high-quality storefronts at compelling price points. As at March 31, 2021, the Company had 157,344 storefronts across more than 35 countries listed on the platform.

The  Patrons of the Company use its platform to manage all mission-critical aspects of their business operations. The comprehensive, full-stack technology suite integrates more than 40 products and services across the digital sign-up and onboarding, revenue management, daily business management and D2C stacks into two flagship Patron applications, Co-OYO and OYO OS. This enables the Patrons to have a significant digital presence across the extensive distribution network. 

The Customers can book storefronts through the Company’s D2C channels on its platform and through indirect channels with third-party OTAs. The OYO mobile application offers a variety of digital tools to guide its Customers throughout their journey, including discovery, seamless booking, pre-stay assistance and cancellations, digital check-ins as well as in-stay and post-stay services.

Who is the Management of the Company?

As on the date of this Draft Red Herring Prospectus, the following is the management of the company:

(i) Ritesh Agarwal is the Founder and Chairman of the Company, which he founded in 2012. He began his career as an entrepreneur, and was accepted to the Thiel Fellowship in 2013. He has been recognized as a young innovator and business leader at multiple global forums including by Bloomberg Businessweek in the Bloomberg 50 List (2019), Financial Times in the Change-makers 30 Most Exciting Young People (2019), FastCompany among The Most Creative People (2018), Forbes India with the Tycoons of Tomorrow Award (2018), GQ in the 50 Most Influential Young Leaders (2016, 2017), Forbes 30 under 30 (2016) and The Economic Times list of 40 under 40 (2016). 

(ii) Aditya Ghosh, is a Non-Executive Nominee Director of the Company. He has completed an advanced management program from Harvard Business School, USA. In the past, he has served as a director at various companies including Interglobe Aviation Limited, Interglobe Luxury Products Private Limited and Interglobe Hotels Private Limited. He also serves as an individual partner in Multiples Private Equity Fund II LLP, designated partner in Homage Advisers LLP (formerly known as A G Business Advisers LLP) and Homage Ventures LLP and a director at Nani Palkhivala Arbitration Centre, and FabIndia Overseas Private Limited. 

Why is the company raising funds via IPO?

The Selling Shareholders will be entitled to their respective portion of the proceeds of the Offer for Sale after deducting their respective proportion of Offer expenses and relevant taxes thereon. The Company will not receive any proceeds from the Offer for Sale and the proceeds received from the Offer for Sale will not form part of the Net Proceeds.

The Company proposes to utilize the Net Proceeds from the Fresh Issue towards funding the following objects:

1. Prepayment or repayment, in part, of certain borrowings availed by certain of its Subsidiaries.
2. Funding  organic and inorganic growth initiatives.
3. General corporate purposes

In addition to the above mentioned Objects, the Company expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges. Further, the Company expects that the listing of the Equity Shares will enhance its visibility and brand image among its Patrons and Customers.

Is there any OFS in the IPO?

The IPO comprises both Offer for Sale (OFS) and Fresh Issue. According to the draft red herring prospectus, the Company will raise 8430 crore of which 7,000 crore from Fresh Issue and rest via OFS. The number of shares that would be offered or the price band of the offering was revealed in DRHP. 

Financials of the company?  

As per the financial statements, in FY22, the total revenue of the Company increased 18% to Rs. 4905 crore as against Rs. 4157 crore in the previous financial year. The total expenses of the Company have almost remained the same. The total expenses of the Company stood at Rs. 6984 crore as against Rs.  6937 crore in the previous financial year. The Loss Before Tax of the Company dropped 48% to Rs. 2117 as against Rs. 4035 crore in the previous financial year. 

In FY22, the total assets of the Company have increased 4% to Rs. 8452 crore as against Rs. 8762 crore in the previous financial year.  The total equity and liabilities of the Company have also increased 4% to Rs. 8452 crore as against Rs. 8762 crore in the previous financial year. 

In FY22, the net cash used in operating activities of the Company was Rs. 921 crore as against Rs. 2432 crore in the previous financial year. The net cash used in investing activities of the Company was Rs. 711 crore  as against Rs. 1705 crore cash generated in the previous financial year. The net generated from financial activities of the Company was Rs. 703 crore as against Rs. 477 crore in the previous financial year. The cash and cash equivalents at the end of the year of the Company was Rs. 1430 crore as against Rs. 2261 crore in the previous financial year. 

Risk in The IPO

COVID-19 and Such Events 

In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus (COVID-19) a pandemic. In an attempt to limit the spread of the virus, governments of many countries, including in the Core Growth Markets and other countries where the Company operates in, have taken preventive or protective actions and have imposed various restrictions, including emergency declarations at the central, federal, state, and local levels, hotel, school and business closings, quarantines, “shelter at home” orders, restrictions on travel, limitations on social or public gatherings. The novel coronavirus (COVID-19) pandemic and the measures taken by governments to curb its spread have materially and adversely impacted, and are expected to continue to materially and adversely impact, the travel industry and the business, results of operations, financial condition and cash flows. 

Company is in Loss Since its Inception

The Company incurred restated losses for the year of ₹23,645.32 million, ₹131,227.77 million and ₹39,438.44 million for Fiscals 2019, 2020 and 2021, respectively. Historically, the Company has invested significantly in efforts to grow its platform and network, expanded its solutions and offerings, introduced new technology products, increased its marketing spend, hired additional employees and enhanced its platform. Beginning in the second quarter of 2020, in order to mitigate the economic impact of the COVID-19 pandemic on the business, the Company significantly reduced its fixed and variable costs, including reducing its employee benefits expenses and marketing and promotion expenses.  

Failure in Retaining Existing Patrons and Customers 

The growth of the Company’s business and revenue is dependent on its ability to continue to grow platform by retaining its existing Patrons and adding new Patrons in a cost-effective manner, including in new markets and by increasing the volume of bookings processed on the platform. The increase in storefronts on the platform attracts more Customers to its platform, which typically attracts more Patrons to its platform. If the Company fails to retain its existing Patrons or Customers, the value of the platform would be diminished. For instance, there are ongoing dispute resolution proceedings with its former and present Patrons on matters relating to renegotiation and termination of contracts due to force majeure, reconciliation issues, removal of minimum guarantees and fixed payout commitments from the Company, and other matters. 

Brand and Reputation is Critical to the Company’s Growth

Maintaining and enhancing the brand and reputation is critical to the Company’s growth, and negative publicity could damage the brand and thereby harm the ability to compete effectively, and could materially and adversely affect the business, results of operations and financial condition. Maintaining and enhancing the brand and reputation are critical to the ability to attract Patrons, Customers and employees, to compete effectively, to preserve and deepen the engagement of the existing Patrons, Customers and employees. The Company is heavily dependent on the perceptions of the Patrons and Customers to help make word-of-mouth recommendations that contribute to organic growth.

There is Pending Litigation Against our Company

There is pending litigation against the Company, certain of its Subsidiaries and Directors and Promoter. Any adverse decision in such proceedings may render the Company liable to liabilities/penalties and may adversely affect its business, cash flows and reputation. As of the date of this Draft Red Herring Prospectus, certain legal proceedings involving the Company, certain of its Subsidiaries and Directors and Promoter 1 are pending at different levels of adjudication before various courts, tribunals and authorities.