In a landmark announcement, Ritesh Agarwal, CEO of OYO, revealed that the company has achieved its first annual profit of Rs 100 crore for the fiscal year 2023-24. This achievement marks eight consecutive quarters of positive EBITDA and a robust cash balance of Rs 1,000 crore. While these figures are provisional pending the submission of audited financial statements, the positive trajectory has already garnered significant attention and optimism within the industry.
Financial Milestones and Fitch’s Credit Rating Upgrade
OYO’s impressive financial performance has led Fitch Ratings to upgrade its credit rating. This upgrade is attributed to improved performance and strong cash flows, showcasing OYO’s financial stability and growth potential. For the fiscal year 2023-24, OYO reported revenue of approximately $700 million (Rs 5,800 crore), a stark contrast to the previous year’s net loss of Rs 1,287 crore. This turnaround highlights OYO’s effective management strategies and resilience in a competitive market.
Sustained EBITDA Growth
A critical factor behind Fitch’s rating upgrade is OYO’s sustained EBITDA growth. For FY24, the company’s provisional EBITDA reached around USD 105 million, with projections indicating a rise to USD 135 million in FY25. This growth is driven by substantial cost savings in staffing and marketing and a stable revenue stream. Enhanced profitability has allowed OYO to manage its leverage more effectively, with expectations that EBITDA leverage will improve to 4.2x in FY24 and 3.3x in FY25, significantly lower than the previous guideline of 5.0x. A partial debt buyback in FY24, reducing the debt by 30%, has also resulted in annual interest cost savings of approximately USD 26 million.
Demand Recovery and Market Expansion
The recovery in the travel and tourism sector has been pivotal for OYO’s success. Fitch anticipates continued improvement in industry conditions across OYO’s key markets, including increased occupancy rates in the Indian hotel industry and a rise in domestic and business travel. The recovery in inbound tourism, with foreign tourist arrivals in India increasing significantly from 2021 to 2023, further supports this positive outlook. Additionally, OYO’s expansion in Europe, despite economic challenges, indicates robust recovery in leisure travel.
Strong Liquidity Position
OYO’s liquidity position is robust, with around USD 100 million in cash at the end of March 2024 and a committed undrawn facility of USD 25 million. The company is expected to generate about USD 50 million in free cash flow in FY25. The only significant debt is a USD 448 million term loan due in June 2026, with manageable annual amortization and a favorable interest rate. This strong liquidity position provides OYO with the financial flexibility to navigate market uncertainties and pursue strategic growth initiatives.
Business Model and Market Position
OYO operates with an asset-light business model, which minimizes capital expenditure needs and enhances profitability through fixed revenue shares and largely exclusive distribution rights. Despite its smaller scale compared to higher-rated technology peers and the competitive nature of the industry, OYO has built solid relationships with property owners and focuses on cost efficiency and growth in its core markets. This strategic approach has enabled OYO to carve out a unique market position and maintain a competitive edge.
Standalone Rating and Investor Confidence
Fitch rates OYO on a standalone basis, not factoring in future support from its major shareholder, Softbank Group Corp., which owns 45% of the company but does not exercise control. This rating reflects OYO’s financial performance independently of external liquidity support, emphasizing the company’s intrinsic strengths and operational efficiency.
IPO Update and Future Plans
Despite its financial success, OYO has withdrawn its IPO application and is now seeking to raise $70-80 million (Rs 600-650 crore) from investors at a significantly lower valuation. This strategic pivot comes as the company continues to solidify its financial foundation. OYO’s first annual profit of Rs 100 crore for FY 2023-24, coupled with eight consecutive quarters of positive EBITDA and a cash balance of Rs 1,000 crore, underscores its strong performance. Fitch’s upgrade of OYO’s Long-Term Foreign- and Local-Currency Issuer Default Ratings to 'B' from 'B-', with a stable outlook, further validates the company’s improved financial health.
A Promising Future Ahead?
The upgrades reflect improved EBITDA leverage, expected positive free cash flow by FY25, and adequate liquidity. However, refinancing risks remain with USD 448 million in debt maturing in June 2026. OYO’s asset-light model, minimal capex, and growth potential are significant positives, despite high competitive intensity and demand cyclicality.
OYO’s journey from substantial losses to profitability marks a remarkable turnaround, highlighting effective management, strategic cost-saving measures, and resilience in a dynamic market. As the company continues to navigate growth opportunities in premiumisation, spiritual travel, business travel, conferences, and destination weddings, it stands well-positioned to capitalize on emerging trends and sustain its upward trajectory in the global hospitality landscape.
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