SoftBank Cuts OYO’s Valuation On Its Books By 20%

Global tech investor SoftBank has reportedly slashed the valuation of its stake in IPO-bound hospitality major OYO by 20% to $2.7 Bn on its books at the end of June quarter.

The Japanese investor benchmarked OYO against peers with similar operations and slashed the valuation from the earlier $3.4 Bn, Bloomberg reported citing sources.

OYO was last pegged at a valuation of $9.6 Bn in 2021 after Microsoft invested $5 Mn in the budget hotel chain.

As per its draft red herring prospectus (DRHP), SoftBank holds nearly 47% stake in OYO, which would have translated to around $4.4 Bn at its 2021 valuation.

The Bloomberg report also said that the hospitality giant is expecting an approval from the Securities and Exchange Board of India soon for its much-awaited public debut, and the startup is eyeing a valuation of $5 Bn for its initial public offering (IPO) early next year.

However, OYO in a statement, called the valuations “patently incorrect” and “highly speculative”.

“We are confident that the above speculations about valuation markdown is patently incorrect. Valuation is an outcome of business performance…We have not decided the exact timing for the IPO and the IPO valuation is also highly speculative,” an OYO spokesperson said in a statement to Inc42. 

Pointing to its financial performance in the June quarter, the spokesperson said that OYO clocked INR 7 Cr adjusted EBITDA profit at 41% gross profit margin, and saw a 45% increase in gross booking value per hotel per month versus last financial year. “These are dramatically improved results and the strong performance trajectory is expected to continue. Hence, there is no rational basis for a markdown.”

The development comes days after OYO filed an addendum to its DRHP with the SEBI. The addendum highlighted the startup’s cost cuts and reduction in loss.

As per the addendum, OYO reported its first EBITDA positive quarter in Q1 FY23, and slashed loss by 51% in FY22 to INR 1,939.8 Cr.

Backed by marquee names such as Sequoia India, Lightspeed Ventures and Airbnb, OYO was hit hard by the pandemic and has not been able to completely recover from it.

Besides, the volatility in global equity markets and tightening monetary policies across the globe have further complicated the matters. Many Indian new-age tech startups have borne the brunt of this as stock prices have tanked by 60% for many firms such as Paytm and Zomato.

SEBI granted an in-principle approval to OYO for its $1.2-Bn IPO in January this year. However, the hospitality player repeatedly delayed listing on bourses amid adverse market conditions. 

In June, Inc42 reported that OYO would go public around Diwali and was mulling to reduce its offer size by $800 Mn. 

Interestingly, SoftBank boss Masayoshi Son, last month, also pointed out that the ongoing funding winter would last longer for unicorn founders who are unwilling to accept a lower valuation to raise funds.