IPO-Bound OYO Turns EBITDA Positive In Q1 FY23

SUMMARY

OYO saw its EBITDA margins rise to +0.5% in Q1 FY23 from -9% in FY22

The hospitality major reduced its employee benefits expense from INR 4,765.3 Cr in FY20 to INR 1,861.8 Cr in FY22, a decrease of almost 61%

In June, Inc42 exclusively reported that OYO will look to go public around Diwali

IPO-bound hospitality tech major OYO has reported its first EBITDA positive quarter, reporting adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) of INR 7.26 Cr in Q1 FY23. OYO saw its EBITDA margins rise to +0.5% in Q1 FY23 from -9% in FY22.

The hospitality tech major filed an addendum to its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) for its initial public offer (IPO).

The company reported INR 1,939.8 Cr in losses in FY22, down 51% as compared to INR 3,944.8 Cr in FY21 and down 85% as compared to INR 13,123.5 Cr in FY20. The narrowing of losses has prompted OYO to file fresh documents with SEBI.

The development comes three months after Fitch Ratings downgraded OYO parent Oravel Stays’ credit rating from ‘B’ to ‘B Minus’, largely due to profitability concerns. “OYO will likely achieve meaningful EBITDA profit only in the year ending March 2024 (FY24), relative to our previous expectations of FY23,” Fitch had said in June.

The development seems to be driven primarily by OYO, managing to reduce its costs drastically in several departments, showing signs of optimisation.

In FY22, the hospitality tech major notched up INR 690.2 Cr in marketing and promotional expenses, up 27% compared to INR 543.7 Cr in FY21 but down 63% compared to INR 1,879.7 Cr in FY20.

Overall, OYO managed to cut more than four-fifths of its general and administrative (G&A) expenses over the last three fiscal years. G&A expenses include other expenses along with marketing and promotional costs. In FY20, the hospitality unicorn recorded INR 2,948.02 Cr in G&A expenses, while in FY22, the figure stood at INR 515.4 Cr, a decrease of 82%.

The biggest reduction came in a segment dubbed ‘other expenses’, which stood at a whopping INR 4,827.7 Cr in FY20. The other expenses shrunk 75% in two fiscal years.

Similarly, OYO also cut down its employee benefits expenses significantly as well, with a major downfall during FY21. The expense, which stood at INR 4,765.3 Cr in FY20, shrunk to INR 1,861.8 Cr in FY22, a decrease of almost 61%.

It is prudent to mention here that OYO laid off around 300 employees in December 2020, though media reports suggest the number of employees laid off could have been as high as 800.

The number of employees working in OYO came down from close to 10,000 in early 2020 to around 2,000-2,500 post the layoffs per media reports, as the unicorn changed its business model.

As of June 30, 2022, OYO has 1,68,012 storefronts, including 12,668 hotels, 77,898 homes and 77,446 listings. While the Gross Bookings Value and revenue from contracts with customers have not reached pre-pandemic levels, both metrics are up significantly as compared to FY21.

This year, OYO has acquired two Europe-based hospitality startups to increase its footprint there. In May, OYO acquired Croatia-based Direct Booker for $5.5 Mn while in August, it acquired Denmark-based Bornholmske Feriehuse for an undisclosed amount.

The hospitality major received in-principle approval from SEBI for its INR 8,430 Cr ($1.2 Bn) IPO back in January this year. However, OYO has repeatedly delayed the offer citing adverse market conditions, amid talks of it reducing its offer price.

In June, Inc42 exclusively reported that OYO will look to go public around Diwali. It was also reported that the unicorn might reduce its offer size to $800 Mn, a third lower than initially notified.