OYO Investors May See 770% Returns from its IPO

As OYO awaits approval for its Rs. 8,430 crores Initial Public Offering, its early investors may stand to receive huge returns from their investment. However, many early and recent investors such as Sequoia, Lightspeed Ventures, Microsoft, Airbnb and the founder Ritesh Aggarwal do not plan to offload any shares.

At the time of Microsoft’s US$5 million investment in the budget hotel chain, the company was valued at US$9.6 billion. Hence, A1 Holdings Inc, Softbank’s SVF India Holdings Limited, Global Ivy Ventures LLP and China Lodging Holdings Limited may see returns of 72%, 213%, 515% and 770%, respectively.

Now let us take a detailed look into the company and its upcoming IPO.

Know About the Company – OYO

OYO is a new-age technology platform providing a network of branded hotels for customers. The company’s hotels are designed to offer a standardised lodging experience at budget prices. These offer a host of amenities like free breakfast, a ‘refer and earn’ facility, and holiday packages etc., at a reasonable budget.

OYO provides a full-stack technology for entrepreneurs and small businesses in the hospitality sector. Using the company’s services, these hotels can increase their earnings, ease their operations and get access to a larger pool of customers. Over 157,000 storefronts are currently using OYO’s platform to offer affordable accommodation for guests.

One of India’s most valuable startups, OYO has started expanding aggressively even outside the country. It has built a presence in over 35 countries in South East Asia, Europe and the US in recent years. Today, OYO’s mobile app has over 100 million downloads.

OYO’s Upcoming IPO at a Glance

In October 2021, India’s popular hotel chain OYO Rooms filed DRHP (draft red herring prospectus) for an IPO worth Rs. 8,430 crores. Of this, Rs. 7,000 crores will be a fresh issuance while Rs. 1,430 crores will be an OFS (offer for sale) by existing investors. Once the market regulator SEBI gives the go-ahead, OYO will announce the opening date of the public issue.

SVF India Holdings (Cayman) Limited, its largest shareholder and SoftBank Vision’s subsidiary, has a 46.62% stake in the company. It plans to offload 2% of its existing stake worth Rs. 1,328 crores via the IPO. The following is the list of all the major stakeholders of OYO participating in the IPO:

• SVF India Holdings- 2,96,58,40,000 shares
• China Lodging Holdings- 5,16,40,000 shares
• Global Ivy Ventures- 5,96,40,000 shares
• A1 Holdings-11,52,40,000 shares

The objectives of OYO’s upcoming IPO are:

• To make prepayment or repayment of a portion of borrowings availed by the company’s subsidiaries
• Provide funds for organic and inorganic growth initiatives
• Other general corporate purposes

Bottom Line

Many of the new-age companies in India are going public this year, and OYO is no exception. The company’s strengths include a strong and trustable brand image, a large network of storefronts in many countries and a full-stack technology offering value for patrons and customers alike.

On the other hand, the COVID-19 had a dreadful impact on OYO’s business models. At one point, its business was down 60% due to lockdowns across several countries.

Following its DRHP filings, it has also witnessed a few hiccups. Zostel and the industry body Federation of Hotel & Restaurant Association of India (FHRAI) have approached SEBI and asked to suspend the IPO.

Frequently Asked Questions

1. Who are the investment bankers for the upcoming OYO IPO?

So far, OYO has appointed Kotak Mahindra Capital, Citi and JP Morgan as book-running lead managers (BLRM) for the IPO.

2. How did the Covid-19 pandemic impact OYO’s business?

The COVID-19  pandemic seriously disrupted OYO’s business as lockdowns across the world forced hotels to close their doors. Moreover, the company had to change its business model, resulting in major disagreements with partner hotels.

3. Is OYO a profitable company?

No, the hospitality startup has incurred net losses every year since 2012. However, its losses in FY21 at Rs. 3,943.84 crores were much lower than Rs. 13,122.78 crores in FY20.

Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.