Oyo IPO: SoftBank-Backed Hotel Chain Files for $1.16 Billion Offering

Oyo Prepares for Public Market Debut

Oyo, the Indian budget hotel chain, is poised to enter the public markets. The company, established eight years ago, has submitted the necessary documentation (PDF) to the Indian market regulator for an initial public offering (IPO), aiming to secure approximately $1.16 billion in funding.

IPO Details and Funding Allocation

The Gurgaon-based startup intends to raise around $942 million through the issuance of new shares. The remaining portion of the IPO will involve the sale of existing shares, representing a secondary transaction.

SoftBank has announced plans to divest stakes valued at over $175 million. Oyo intends to utilize over $330 million of the raised capital to reduce its existing debt, following a recent $660 million debt raise.

Investor Landscape and Valuation

Oyo’s investor base includes prominent firms such as SoftBank, Airbnb, Lightspeed Venture Partners, Sequoia Capital India, and Microsoft. The company’s most recent valuation stands at $9.6 billion. The startup is targeting an IPO valuation exceeding $12 billion.

Notably, Ritesh Agarwal, Oyo’s founder, does not plan to sell his shares as part of this public offering.

A Significant Turnaround

This IPO filing signifies a substantial recovery for Oyo. The company previously pursued an overly ambitious expansion strategy in international markets, but has since adjusted its approach by scaling back certain initiatives.

Impact of the Pandemic and Recovery

Like many businesses in the hospitality and travel sectors, Oyo experienced significant disruption due to the pandemic. At one point, the company reported a business decline of up to 60% as lockdowns were implemented globally to control the virus’s spread.

In the financial year ending March of this year, Oyo reported a loss of $528 million on a total income of $600 million.

However, the company has demonstrated a strong recovery in recent months, coinciding with the reopening of key markets. Currently, India, Indonesia, Malaysia, and Europe collectively contribute approximately 90% of Oyo’s total revenue.

Streamlined Hotel Partnerships

Oyo has refined its relationships with hotels in recent quarters. The company no longer owns any hotels directly, instead collaborating with over 157,000 partners to manage hotels, resorts, and homes. It no longer offers minimum guarantee agreements to these partners.

The Origin Story of Oyo

The story of Oyo begins with Ritesh Agarwal, who left his hometown seeking educational opportunities in Rajasthan. Frequent visits to friends in Delhi led him to utilize budget hotels. Observing a struggling hotel with low occupancy rates, Agarwal envisioned an opportunity.

He proposed a deal to the hotelier: renovating the property in exchange for a share of future commissions. This initial venture proved successful, inspiring Agarwal to expand his offering using technology to address underserved segments of the market.

This marked the inception of Oyo, which quickly gained traction and attracted the attention of a fellowship program supported by PayPal co-founder Peter Thiel’s foundation.

Expansion and Challenges

Oyo initially achieved market leadership and subsequently expanded into Southeast Asia, Europe, China, and the United States, among other regions. While its expansion has seen mixed results, the company is performing well in Europe and Southeast Asia, though gaining traction in China and North America has proven more challenging.

At the peak of its expansion, Agarwal invested $700 million into the startup, intending to increase his stake in Oyo to 30% from 10% through an entity called RA Hospitality Holdings. Current filings indicate that Ritesh and his associated holdings now control approximately 32-33% of Oyo.

Key Metrics and Market Opportunity

Oyo reports that its app has been downloaded over 100 million times, and 70% of its workforce is based in India. As of December 2019, the company estimated its total addressable market to encompass 54 million short-stay storefronts.

According to Oyo’s filing, hotels utilizing the Oyo platform in India, Indonesia, and Malaysia demonstrated improved performance compared to independent hotels of similar size in 2019. Specifically, these Oyo-powered hotels generated 1.5 to 1.9 times more revenue after 12 weeks on the platform.

In Europe, Oyo-powered homes earned an average of 2.4 times more revenue in 2019 compared to independently managed homes.