Everything about OYO Rooms & its upcoming IPO

OYO Rooms, a revolution that is in India and abroad was founded by Ritesh Agarwal. ’OYO’ stands for On Your Own. The platform started in 2013 is known for budget-friendly rooms and for its affordable accommodation services. The company has kept on adding feathers to its cap ever since it came into the market.

OYO’S BUSINESS MODEL

Oyo Rooms business model was along the lines of an aggregator business model but had elements of a franchise model too. The company used to rent a section of a hotel and standardize these particular rooms under Oyo Rooms. These partner hotels provided assimilated service to customers of those rooms as it was decided in an OYO Contract. The present operating model of Oyo Rooms is similar to its previous one. Now, the only difference is the company doesn’t lease the hotel rooms anymore, but instead the hotel partners operate them under a franchise business model.

OYO’S JOURNEY SO FAR

OYO has exponentially grown since its inception. It currently operates in 800 cities and over 75 countries in the world. It started operating internationally from Malaysia in 2018. It soon entered other Asian, European, and some Middle Eastern markets. After emerging victorious in the non-exorbitant hospitality segment through OYO Rooms, OYO Hotels & Homes. It presently holds a multi-brand approach, through well-defined offerings addressed towards the varying requirements of the unique travelers in today’s world. “The platform combined its hotel brands (OYO’s Townhouse, Collection O, SilverKey), OYO LIFE (student housing and co-living), OYO Workspaces as well as OYO Home businesses into Frontier businesses.”

OYO’S INITIAL PUBLIC OFFERING

OYO has filed its draft papers with SEBI which is the market regulator in India on 30th September 2021 for an Rs. 8439 crore initial public offering. OYO is majorly backed by Softbank, Ritesh Agarwal-led RA Hospitality Holdings, Airbnb, Hindustan Media Ventures. The start-up is currently valued at around $9 Billion, as per CB Insights, thus earning it a position of India’s third most valuable start-up. 

In order to gain further insight into the company, we look at the financials that point out that in the Financial Year 2020 it made a revenue of around Rs.13 thousand crores with a gross profit margin of 10% and on the net level they incurred a loss. Due to the pandemic, the revenue of the company fell by around 70% but due to the strength of the internal management, despite the fall in revenue, there was an increase in gross profit. The company is looking at a fresh issue of OYO plans to raise 70 billion rupees through the sale of new shares and an offer for sale for up to Rs. 1430 Crores in this IPO. After which the remaining funds will be utilized for prepayment/repayment of borrowings of some subsidiaries, funding organic and inorganic initiatives like expanding storefront base, etc.  

The company hasn’t released information about the IPO release date, lot size, and price bank of the IPO. While one looks into analyzing OYO some of the points to be considered are that a major strength of OYO is that (it is a technology platform) of network effects, as more the listings it has, more the number of customers and more patrons listing their properties thus bringing brand value to their storefront. One weakness that one needs to keep in mind is that since it is in the expansion stage, it has not been profitable and it might be years before it sees the profitable side of things. It is only a matter of time before we find out how will this revolutionary cap with its many features do.

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