OBJECTS OF THE OFFER :
The offer comprises of a fresh issue and an offer for sale amounting to ₹84,300 mn Out of the fresh issue component of ₹70,000 mn, Rs24,410.10 mn would be used for repayment/prepayment of certain debt availed by their subsidiaries, ₹29,000 mn would be used for funding their organic and inorganic growth initiatives and the balance amount of the fresh issue is attributable to general corporate purposes. The offer for sale is of ₹14,300 mn and the proceeds would go directly to the selling shareholders.
OYO IPO ANALYSIS
CONSISTENT TRACK RECORD OF FINANCIAL PERFORMANCE:
The company was able to more than double its revenue in FY20, rising from ₹63,297.36 in FY19 to ₹1,31,681.52 mn in FY20. There was a sharp decline in revenues in FY21, which can be attributed to the pandemic related lockdowns in the country. Yet, the company was able to reduce its EBITDA margin loss from (62.9%) in FY20 to (44.0%) in FY21. The company has also reduced its loss from ₹ (1,10,797.88) mn in FY20 to ₹ (41,022.80) mn in FY21
CONSOLIDATED FINANCIAL SUMMARY OF OYO
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|Restated loss from continuing operations
COMPETITIVE ANALYSIS: MARKET PEERS
Softbank -backed Indian hotel chain major OYO has resurfaced with a leaner business. In the run-up to its IPO, let us look at how its peers are valued in the markets.
SCALED FOOTPRINT WITH LEADERSHIP IN CORE GROWTH MARKETS
Oravel Stays Limited has 157,344 storefronts across more than 35 countries listed on their platform. The company has the largest footprint in terms of hotel storefronts in India and SEA and the second-largest footprint in Europe in terms of home storefronts among full stack short-stay accommodation players, according to RedSeer. They derive significant benefits from the scale of their operations in their Core Growth Markets. Their scaled storefront footprint provides more choices to their customers, driving higher engagement with them. With a sizeable Customer base in these markets, they are able to generate a significant share of demand for their Patron storefronts through their D2C channels. These further drives Patron and Customer stickiness, as well as enhanced unit economics for their business. The scale of their business, together with their strong Patron and Customer engagement, enables them to establish strategic partnerships with leading third-party OTAs. Their dynamic pricing algorithms take into account factors relating to the supply and demand for accommodations, weather, seasonality and local trends to calculate optimal prices in real time.
FULL-STACK TECHNOLOGY PLATFORM DRIVING STRONG VALUE PROPOSITION
Oravel Stays Limited’s technology is the foundation of their business. Their comprehensive, full-stack technology suite integrates more than 40 products and services across their digital sign-up and onboarding, revenue management, daily business management and D2C stacks into their two flagship Patron applications, Co-OYO and OYO OS. The company’s proprietary platform is highly differentiated and has been developed largely by their in-house engineering and product and design teams, rather than through an aggregation of products developed by external software vendors. This enables them to rapidly develop modular solutions and add new products to their platform in line with their growth strategies and scale their technology solutions without significant incremental costs. Oravel Stays Limited’s customers use their mobile applications and websites to access their growing selection of storefronts around the world and to enhance their stay experience through their ancillary services. Their end-to-end presence across the value chain and deep integration with their Patrons’ businesses and Customers’ experience help them build a strong understanding of their needs and preferences. The company’s technology platforms have played a significant role in the way acquire new Patrons and Customers, particularly in the COVID-19 era. Discover OYO, a customer acquisition engine funded by Patrons, from which helps their Patrons to increase their revenue by enabling them to optimize unsold inventory and offer discounted rates to new Customers of a particular storefront. In addition, their OYO Wizard loyalty program and “Invite & Earn” referral programs, which are deeply integrated into their D2C stack, facilitate Customer acquisition and retention for Patrons.
HIGH DEGREE OF ENGAGEMENT WITH THE COMPANY’S PATRON AND CUSTOMER COMMUNITY
Oravel Stays Limited benefits from strong engagement with their Patrons and Customers, leading to healthy retention rates and revenue share retention. Their scaled network of Patrons and Customers and high level of engagement with them provides them with a deep understanding of the markets in which they operate, enabling them to continue to innovate and layer additional solutions to their existing integrated technology stack. The company’s platform is deeply integrated with mission critical functions of their Patrons’ businesses. 96.5% of their hotel Patrons that had updated at least one booking during March 2021 were users of their flagship Patron application, OYO OS. As their Patrons remain with their platform and increase their revenue, the company’s revenue share retention also increases. They generate a significant share of demand through their D2C channels. Strong customer retention also leads to a high share of demand generated from repeat customers and new customers acquired through organic channels. 77.8% of their demand globally and 90.3% of their demand in India was generated from repeat and new organic demand on their D2C channels during Fiscal 2021.
VIRTUOUS FLYWHEEL DRIVEN BY STRONG NETWORK EFFECTS
The scale of Oravel Stays Limited’s business drives a self-reinforcing flywheel underpinned by strong local network effects and operating leverage. They believe that the virtuous cycle created by this flywheel effect enhances their platform stickiness and unit economics for them and their Patrons with increasing scale. A larger Patron base on their platform leads to more choices for their customers. This helps drive a better experience, greater transaction frequency and increased loyalty from their customers. This attracts more customers to their platform, leads to more bookings through their D2C channels and results in lower marketing and promotion expenses for them. Growth in direct demand in turn strengthens their Patron value proposition, attracting more Patrons to their platform and increasing their Patron retention rates. Moreover, the increase in direct demand through their online D2C channels further enhances their unit economics by virtue of a higher revenue share on these channels. They have been able to maintain a high share of direct demand on their platform with increasing scale. Their share of global direct demand on their platform, measured as a percentage of booked nights through their D2C channels, was 74.5% in Fiscal 2020 and 71.2% in Fiscal 2021 globally and 90.9% in Fiscal 2020 and 94.4% in Fiscal 2021 for India.
STRONG AND TRUSTED CONSUMER BRAND The strength of Oravel Stays Limited’s brand is well-recognized by both Patrons and Customers in their Core Growth Markets and helps them to attract both Patrons and Customers to their platform. OYO was identified as the most valuable Travel and Hospitality brand in India and 30th most valuable brand overall in India by a study conducted by Kantar for 2020.
Incurred net losses in each year since incorporation and profitability may be delayed.
An adverse outcome in legal proceeds involving Zostel may materially impact the business.
A decline in the travel and accommodation industries or economic downturn could materially and adversely affect their business
The business and industry in which they participate is highly competitive, locally and globally, and the company may be unable to compete successfully.
We rely on customer traffic to their platform to grow revenue, and if they are unable to increase traffic in a cost-effective manner, it could materially and adversely affect their business.
Despite their scale, our share of TAM (in terms of storefronts) in their Core Growth Markets is less than 1%, This creates significant headroom for them to grow their storefront footprint.
Monetization of their full-stack technology platform by offering their software products as customized technological solutions to hotel storefronts globally.
Future growth markets include United States and China.
Continued Pandemic can have a negative impact on its business.
Any negative publicity can have an adverse impact on their brand and its reputation.
Their levels of indebtedness could adversely affect their financial flexibility and their competitive position.
Failure to deal effectively with fraud, forgery, significant fluctuations in their results, fraudulent activities, fictitious transactions, or illegal transactions would materially and adversely affect their business.
The company has experienced negative cash flows from operating activities in prior years.
STRATEGIES GOING FORWARD:
GROWING PATRON BASE AND STOREFRONT FOOTPRINT GLOBALLY
Despite Oravel Stays Limited’s scale, their share of TAM in their Core Growth Markets is less than 1%. This creates significant headroom for them to grow their storefront footprint. They plan to continue to scale their Patron and Customer base to grow their storefront footprint. In addition to their organic growth strategies, they carefully evaluate inorganic growth opportunities from time to time with the aim of consolidating their presence in certain fragmented markets in which they operate. The company has a successful track record of integrating several small tuck-in acquisitions in the fragmented homes market in Europe. Their acquisition of TUI’s vacation home portfolio in Europe and successful integration of their supply base and team into their OYO Europe portfolio helped them to strengthen their market position in Germany and Austria and deepen their presence across Europe. The company plans to seek opportunities to grow its Patron base and storefront footprint through acquisitions and other strategic initiatives, particularly through potential targets that have high quality storefront supply, coupled with strong local demand, that can benefit from their full-stack technology capabilities to increase their revenue generation potential. They plan to focus on building on their strong foundation in their Core Growth Markets while evaluating strategic opportunities for further growth in their Future Growth Markets. Their Future Growth Markets include the United States and China.
GROWING GBV PER STOREFRONT
Oravel Stays Limited has demonstrated the ability to generate GBV per storefront per month of ₹444,669 for hotel storefronts and ₹47,926 for home storefronts. Although the company’s business was impacted by COVID-19 during Fiscal 2021, their recent product innovations have been widely adopted by their Patrons and helped improve their GBV per hotel storefront. 41.7% of all storefronts in India, Indonesia and Malaysia on their platform had adopted the Discover OYO function. The company launched their OYO Wizard loyalty program in India, Indonesia and Malaysia, and plan to expand it across all markets in their hotel storefronts segment, with the aim of increasing their share of direct demand through their D2C channels and driving growth in their GBV per storefront. They also plan to implement a loyalty program for their home storefronts segment. They plan to continue to scale initiatives such as their “Invite & Earn” referral program and Discover OYO to drive organic growth and incentivize bookings from new customers. With a growing base of OYO Wizard subscribers, they expect that their overall platform engagement will continue to improve. In addition to increasing their storefront footprint, they plan to continue expanding their number of storefronts in the premium segment of the market, including through their OYO Townhouse, Capital O, Collection O and Pallettes brands, which tend to have comparatively higher GBV per storefront per month.
EXPAND THE COMPANY’S TECHNOLOGY PLATFORM
Oravel Stays Limited has a strong pipeline of products for Patrons that they expect to launch during Fiscal 2022 to further enhance their value proposition to their Patrons. The company entered into a multi-year strategic alliance with Microsoft in September 2021 to co-develop next-generation travel and hospitality products and tech using Microsoft’s cloud and artificial intelligence capabilities. In addition, the company plans to develop enhanced artificial intelligence-based models to provide personalized insights and pricing predictions to drive higher business efficiencies and revenue generation potential for their Patrons. The company also plans to invest in additional features and improvements in their user interface and user experience on their customer platforms to drive direct demand to their D2C channels and higher conversion rates.
CONTINUED FOCUS ON PROFITABLE GROWTH WITH ESTABLISHED UNIT ECONOMICS
Oravel Stays Limited implemented several initiatives that have strengthened their unit economics profile while improving their value proposition for Patrons and Customers. They have also undertaken several measures to rationalize their cost structure. As their platform scales, they strive to gain benefits from the inherent operating leverage and the flywheel effect of their business model, to deliver operating profits. The company plans to pursue additional monetization opportunities, such as advertisements on mobile app and enhanced offerings for paid subscribers of their OYO Wizard loyalty program. They also believe that they can monetize their full-stack technology platform by offering their software products as customized technological solutions to hotel storefronts globally.
ENHANCE COMPANY’S GLOBAL BRAND STRENGTH
Oravel Stays Limited believe that their brand is one of their most important assets and have made substantial investments in building the OYO brand since their inception. They intend to continue making investments in building their brand presence in their Future Growth Markets, as well as further strengthening their brand position in their Core Growth Markets, particularly through targeted marketing campaigns designed to expand their reach among different Customer segments and drive direct demand to their D2C channels. They believe that their Patron and Customer community will continue to play a significant role in promoting their brands through word of mouth and referrals and will continue to invest in building deeper relationships and brand association with their community of Patrons and Customers, including through their loyalty and referral programs.
Disclaimer - The content on this page is made available on the basis of the DRHP (draft red herring prospectus ) filed by Oravel Stays Limited. The final content could change based on the Red Herring Prospectus (RHP) filed