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Masayoshi Son-led SoftBank Group, the largest shareholder in the company with over 46% stake, and Oyo’s founder Ritesh Agarwal, who owns around 33% stake in the company— will continue to be promoters even after the initial public offering.
While Agarwal is not selling any of his shares, as ET first reported last week, SoftBank will offload a chunk of its holding in the company through the OFS route. In an offer for sale, existing investors sell their stake, in part or full. Oyo may also consider raising up to Rs 1,400 crore in a pre-IPO round.
Aiming at $12b Valuation
If that happens the size of the fundraise through fresh issuance of shares will be altered accordingly, according to the draft red herring prospectus (DRHP) filed with the Securities and Exchange Board of India (Sebi).
“Our promoters will continue to retain certain significant equity stake in our company after completion of the offer, which will allow them to influence the outcome of certain matters submitted for approval of our shareholders and their interests may differ from those of other shareholders,” the DRHP stated.
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Oyo was last valued at $9.6 billion valuation when it raised strategic investment from Microsoft last month. While it hasn’t disclosed the price band for its share issue, ET has previously reported that it is aiming at a valuation of over $12 billion.
Omni-channel beauty and consumer care products retailer Nykaa is another major startup that will remain promoter-run after its public listing as well.
Stake Sale
Among the shareholders expecting to sell include the SoftBank Group, which is looking to sell shares worth Rs 1,328.5 crore while A1 Holdings, an entity controlled by Singapore's ride-hailing firm Grab, is selling shares worth Rs 51.62 crore. The other two selling shareholders in Oyo’s OFS are China Lodging Holdings (HK) and Global IVY Ventures, which are offloading shares worth Rs 23.12 crore and Rs 26.72 crores, respectively.
Lightspeed Venture Partners, Sequoia Capital and Airbnb are among its other investors but they are not selling any further shares. Both Sequoia and Lightspeed offloaded a large chunk of their holding to founder Agarwal two years back, which boosted the 27-year-old’s holding to over one-third of the company. Agarwal is among those founders whom SoftBank’s Son has worked closely with.
Oyo now joins some of the other top-tier Indian startups such as Paytm, PolicyBazaar, Nykaa and others that have also filed for IPOs in recent weeks.
In July, online food delivery firm Zomato made a stellar debut on the bourses setting the stage for domestic startups to ride on the current IPO wave.
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IPO Proceeds
The net proceeds from the issue will be utilised to finance prepayment or repayment of borrowings made by Oyo’s subsidiaries. This is to the tune of around Rs 2,441 crore. It will also use Rs 2,900 crore for funding its organic and inorganic growth initiatives. The rest of the IPO proceeds will be for general corporate purposes. As of July 31, 2021, Oyo had on a consolidated basis Rs 48,90.5 crore of total outstanding borrowings, the company said in its DRHP.
Oyo has appointed Kotak Mahindra Capital, JP Morgan and Citigroup to manage the public issue.
Oyo’s IPO plans come amid a sharp recovery in the hospitality sector, which was crippled by the Covid-19 pandemic. The company expects a spike in demand in the next two years, according to people in the know. Airbnb’s stellar IPO last year, just after the first wave of the Covid-19 pandemic, is also being seen as a signal of increased bullishness on revival of the travel sector.
After retreating from several global markets due to the pandemic, 90% of Oyo’s overall hotels or “storefronts” are now in India, Southeast Asia and Europe. These are its core markets now. It has also completely done away with the “minimum guarantee” concept for hotel partners, where it used to promise a minimum monthly pay-out regardless of occupancy rates. In total, it had 157,344 storefronts in 35 countries as of FY21.
“A significant portion of our operations are located in our core growth markets, and more than 90% of our revenue was derived from our operations in India and Southeast Asia and Europe for fiscal 2021,” Oyo said in the filing.
Narrowing Losses
The company’s total income fell by nearly 70% to Rs 4,157 crore in FY21 due to the pandemic but it also made progress in cutting down on its losses. Its loss for the same period narrowed to Rs 3,943 crore compared to Rs 13,122 crore a year ago.
For Oyo, one of the main ways to acquire consumers has been through marketing and promotions and it cut down on this vertical as well in FY21. It spent Rs 542.6 crore for marketing and promotions in FY21 compared to Rs 1,879.7 crore a year ago. Oyo said it cut down its employee benefits expenses by 63% to Rs 1,742.1 crore in FY21 as against Rs 4,765.2 crore in FY20.
“This was driven by our various cost optimisation initiatives, including rationalisation of employees, centralisation of key functions in our strategy, revenue management, supply acquisition and corporate support teams from a country level to a regional level, divestment and rationalisation of non-core businesses and increased operational efficiency as a result of automating certain functions such as patron and customer service and support,” it explained.
Oyo fired a significant chunk of its total team to withstand the impact of Covid-19 across the world. As of fiscal 2021, it had 5,130 employees and 70% of them are in India.
Risk Factors
The IPO filing by Oyo comes at a time when it is embroiled in a long-drawn legal battle with Zostel (Zo Rooms), which was once its rival. ET first reported about it earlier this week saying Zostel has sought an interim stay from the Delhi High Court to restrict Oyo from modifying its cap table, including by way of an IPO. The dispute, which dates back to an acquisition in 2015, will be heard next on October 7 as reported by ET. Oyo has mentioned the same in its DRHP as well.
Oyo is also part of an investigation by the Competition Commission of India (CCI), which is still pending and may attract additional penalties. While it does not foresee any material liability coming to the company from this probe, Oyo said ‘there can be no assurance that the CCI will not pass any adverse order against our company in connection with the aforementioned CCI investigation, including the imposition of a penalty which could be up to three times the profit of our company or 10% of the turnover of our company.’
While there is recovery in travel business, Oyo cautioned Covid-19-induced lockdown can again materially and adversely impact its business and the wider travel industry. Oyo said it wasn’t certain as to what extent the pandemic can further affect its operations.