Home/IPOs/OYO Oravel Stays Limited
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About OYO Oravel Stays Limited IPO
Why To Invest in OYO Oravel Stays Limited IPO
India's leading, new-age technology platform empowering the large yet highly fragmented global hospitality ecosystem. The IPO proceeds will be utilised to repay borrowings and fund organic and inorganic growth initiatives.
Strengths And Risks
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Leadership in Core Growth Markets: As at Sept 2021, OYO had the largest footprint in terms of hotel storefronts in India and SEA and the second largest footprint in Europe in short stay segment. This scale provides more choices to their customers, driving higher engagement and demand, bringing economies of scale. The large network also helps in leveraging data-driven insights to strengthen their value proposition.
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Full-stack Technology Platform: OYO's proprietary platform is highly differentiated, developed largely in-house, 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 the platform and scale their technology solutions without significant incremental costs.
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High Engagement: Company benefits from strong engagement with their Patrons and Customers, leading to healthy retention rates and revenue share retention. Their scaled network and high level of engagement provides a deep understanding of the markets and enables them to innovate and layer additional solutions to existing integrated technology stack.
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Strong, trusted Consumer Brand: The strength of OYO brand is well-recognized by both Patrons and Customers in the Core Growth Markets and helps them to attract both Patrons and Customers to the 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.
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Asset Light Business Model: OYO has an asset-light business model and a lean cost structure. They do not own the storefronts listed on the platform. As at March 2021, 99.9% of the storefronts on the platform do not have fixed payout commitments or minimum guarantees from them, with investments, capital expenditure and expenses relating to the operation borne solely by hotels. This enables them to be capital-efficient and scale the business with minimal marginal costs.
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Net Losses: OYO has incurred net losses in each year since incorporation, and their ability to achieve profitability may be delayed. They incurred restated losses of Rs. 23,64.5 Cr, Rs. 131,22.7 Cr and Rs. 39,43 Cr for Fiscals 2019, 2020 and 2021, respectively.
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Retention Risk: If we fail to retain existing Patrons and Customers or acquire new ones in a cost-effective manner, the revenue may decrease. If their Patrons cease operations, or face financial distress or other business disruptions e.g. during Covid times, or if our relationships with our Patrons deteriorate, OYO may not be able to provide Customers with a sufficient range of storefronts for bookings.
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Third Party Risk: OYO has no control over its patrons or customers' actions. If OYO's Patrons, Customers or third parties engage in criminal activity or any form of misconduct, OYO's brand and reputation may be harmed, the platform may be deemed unsafe and may receive negative media coverage or be subject to regulatory investigation.
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High Marketing Expenses: Company relies on marketing as one of the key levers to drive customer traffic to their platform. Their
marketing and promotion expenses were Rs. 447.5 Cr, Rs. 18,79.7 Cr and Rs. 542.6 Cr in Fiscals 2019, 2020 and 2021, respectively. These brand marketing efforts are expensive and may not be cost-effective or successful.
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