Moody’s Upgrades OYO’s Rating To B2, Maintains Stable Outlook

Global rating agency Moody’s has upgraded the corporate family rating of hospitality giant OYO’s parent, Oravel Stays Limited, to “B2” from “B3” previously. 

The rating agency has maintained a stable outlook for the travel tech major, which has charted a turnaround on the financial front in the past few quarters, Business Standard reported.

Sweta Patodia, assistant vice-president and analyst at Moody’s, attributed the upgrade to OYO’s improved profitability in the recent quarters. She added that the positive numbers have significantly strengthened the startup’s credit metrics.

The development comes close on the heels of the proposed refinancing of OYO’s existing term loan through another lender. As per the report, the deal, once materialised, will likely alleviate the startup’s refinancing risk.

In the same report, Moody’s also assigned a “B2” rating to the proposed $825 Mn senior secured term loan facility to be availed by the hospitality major’s subsidiary, Oravel Stays Singapore Pte. Ltd. The term loan will be fully underwritten by Deutsche Bank.

It is pertinent to note that OYO is finalising a new $825 Mn term loan with a five-year tenure. A big chunk of these funds, along with the $174 Mn raised by OYO between June and August this year, will be utilised to repay existing loans that mature in June 2026. 

While this is expected to ease refinancing pressures for OYO, a part of the proceeds will also be deployed to cover the proposed $525 Mn acquisition of the US-based G6 Hospitality, the parent entity of Motel 6 and Studio 6 brands. 

Moody’s expects OYO’s earnings to further increase upon the successful integration of G6, especially with “cost synergies of $20 Mn to $30 Mn following a seamless integration of corporate and support functions”.

The rating agency also said that the homegrown travel tech major’s acquisition of French rental homes company Checkmyguest (CMG) in July this year will pave the way for the improvement in the earnings before interest, tax, depreciation, and amortisation (EBITDA) to around $134 Mn in the fiscal year 2024-25 (FY25).

Overall, Moody’s reportedly said that “sustained improvement in operating performance” resulted in OYO generating $56 Mn in EBITDA in the first half (H1) of FY25. 

The upgrade from Moody’s comes at a time when OYO has been aggressively expanding its global footprint, bolstering operations in the country and launching a spree of new offerings. The hospitality major claims to offer integrated solutions to its patrons, who operate more than 1.5 Lakh hotel and home storefronts in more than 35 countries spanning India, Europe, and Southeast Asia.

Buoyed by the post-pandemic travel boom, OYO turned profitable in FY24. The travel tech major reported a net profit of INR 229.5 Cr during the year as against a net loss of INR 1,286.5 Cr in FY23. However, revenue from operations declined 1.3% to INR 5,388.7 Cr in FY24 from INR 5,463.9 Cr in FY23. 

OYO founder Ritesh Agarwal recently said that the startup is aiming to triple its net profit to INR 700 Cr in FY25.