Oyo Hotels, once an Indian startup struggling during the pandemic, is eyeing a valuation of around $9 billion in its initial public offering after preliminary talks with potential investors, according to people familiar with the matter.
The SoftBank Group Corp-backed startup is expected to get the green light to proceed with the offering this week or next week after filing preliminary documents last year, the people asked for anonymity, as the talks are not public. A formal roadshow will begin after regulatory approvals and final pricing will be determined.
Oyo’s targeting will be less than the $12 billion initially reported in the local media last year and likely below the $10 billion level the startup hit in 2019. The 28-year-old Ritesh Agarwal-led startup has discussed offering. The person said a discount of up to 15% on the $10 billion suggested by bankers during initial discussions.
An Oyo representative declined to comment.
As OYO is preparing to build order books from institutional investors, executives are monitoring the demand for the IPO, a person said. Another person said a fall in US tech stocks could also have an impact on valuations.
Such sluggish expectations reflect a more measured appetite for IPOs in India after Oyo’s financial struggles and Paytm’s disastrous stock market debut. The digital payments provider raised a record $2.4 billion in its November offering, but shares fell sharply and is now trading at nearly half of its IPO price.
OYO’s offering will be one of the biggest IPOs after Paytm. In its initial filing, the company said it planned to raise 8,430 crore ($1.1 billion) through the sale of new shares and certain secondary shares, or to existing investors.
Agarwal founded Gurgaon-headquartered OYO, formally known as Orawell Stages Limited, in 2013. He dropped out of college in his teens to travel across the country and understand the troubles with India’s accommodation infrastructure. He envisioned OYO as a way to standardize the hotel stay experience, providing premium linens and high-speed Internet service, ubiquitous in Indian cities such as the brand’s bright red OYO logo.
SoftBank founder Masayoshi Son became an early and ardent supporter, encouraging Agarwal to expand rapidly beyond India into markets such as Japan and the US. ,
The Covid-19 pandemic brought the startup’s expansion to an abrupt halt. Agarwal had to retreat in several markets and lay off thousands of employees. In an interview with Bloomberg TV last year, he said the pandemic hit Oyo “like a cyclone”.
The startup has also changed its business model. It now focuses on selling software and support services to hotel operators, resorts and homeowners, while providing a platform for travelers to book accommodations. However it no longer provides guaranteed revenue to the partners.
Revenue declined during the fiscal year ended March 2021, but Oyo made progress toward profitability. According to documents filed with the stock market regulator, it reported a loss of Rs 39.3 billion for the financial year, up from Rs 128 billion a year ago.
OYO filed its initial documents on the last day of September and has since discussed several questions with the Securities and Exchange Board of India, including a legal dispute with Zostel Hospitality Pvt Ltd.
The IPO will consist primarily of primary shares, or shares sold by the company, and a smaller portion of secondary stock. SoftBank, which has about 47% equity, aims to sell a small percentage of the shares. Agarwal, who owns about a third of the stock, does not plan to part with the shares.
Existing investors Sequoia Capital, Lightspeed Ventures and Greenox Capital Management also do not intend to sell shares.
(Oyo’s update declined to comment)
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