OYO Mulls Slashing IPO Size By Two-Third Amid Market Volatility

Hospitality major OYO reportedly plans to slash the size of its proposed initial public offering (IPO) amid the prevailing market volatility and plunging valuations of tech companies.

Sources told Bloomberg that OYO plans to sell just a third of the originally planned shares in the IPO. The move could directly impact the amount of fresh capital that the company is expected to raise. 

The report said that the hospitality major is all geared up for the IPO and plans to file its draft red herring proposal (DRHP) as soon as this week. OYO’s current investors are unlikely to offload their shares in the IPO. 

OYO declined to comment on the development. 

The reduced IPO could also be the company’s way to assuage jumpy investors that the startup could still clinch a bumper market listing at its previous valuation. 

However, complicating matters further could be a four-year old development wherein Agarwal picked up a $2 Bn loan, in personal capacity, from Japanese investors, with the tacit support of Masyoshi Son, in 2019

Sources said that while Agarwal is not legally bound to disclose personal debts in the DRHP, the cofounder has reportedly been advised that market regulator SEBI could view it as an investor risk, which could lead to inordinate delays or even a possible rejection of the IPO bid. 

The report, citing sources, said that the cofounder’s debt has exacerbated the ‘urgency’ on the startup’s board, which is dominated by cofounder Agarwal and investor SoftBank, to push through the IPO amid a ‘punishing environment’ for tech listings and high-profile failures by Indian startups in recent months.

In A Quagmire

The hospitality major has been in the middle of a storm ever since the pandemic broke out. As national lockdowns were imposed, people stayed indoors and the booking plummeted while costs continued to mount. However, the rebound in travel and holiday demand post the reopening of hotels provided respite to the company as its bookings improved. 

The company claimed to have reported its first EBITDA positive quarter, with an adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) of INR 7.26 Cr in Q1 FY23.

Earlier in the day, CEO Agarwal was reportedly quoted as saying that the company is on its way to close FY23 with a revenue of more than INR 5,700 Cr as against INR 4,780 Cr in FY22. 

He also said that the company is poised to achieve an EBITDA of nearly INR 800 Cr in FY24. 

However, concerns remain over market volatility and regulatory hurdles. Earlier this year, market regulator SEBI directed the startup to refile DRHP, directing the hospitality major to provide updated financial disclosures for the September quarter of FY23.

Making matters worse is the sharp decline in share prices of many of the listed new-age tech startups. over the last one year. 

OYO has also been dogged by losses and is yet to show profitable numbers. Apprehensions of an impending recession and reduced discretionary spending by customers have also weighed heavily on many of the tech companies, including OYO. 

Backed by marquee names such as SoftBank and Airbnb, the hospitality major has been reportedly eyeing a valuation of $9 Bn. Despite the losses and adverse market conditions, OYO is well placed with the hospitality sector and is one of the biggest players in the hotel booking segment which is projected to reach $7.6 Bn by 2023.