The Ritesh Agarwal-founded hospitality chain OYO has filed the preliminary papers with markets regulator Securities and Exchange Board of India (SEBI) for its Initial Public Offering (IPO) and aims to raise Rs 8,430 crore. As per the draft red herring prospectus filed by the company, it will have a fresh issue of equity shares of up to Rs 7,000 crore and an offer for sale, where some shareholders will be selling their shares, for up to Rs 1,430 crore.
The offer of sale includes shareholders such as SVF India Holdings (Cayman) Limited (Softbank Vision Fund), A1 Holdings Inc (Grab), China Lodging Holdings (HK), and Global IVY Ventures LLP. Investors such as Ritesh Agarwal, Sequoia Capital, Star Virtue Investment Limited (Didi), Lightspeed Venture Partners, Greenoaks Capital, Microsoft, and Airbnb are not diluting their stake.
OYO is the latest startup to have filed for an IPO recently, and it follows Zomato's IPO that ended with a massive oversubscription and saw a bumper listing on July 16.
As of March 31, 2021, OYO had 5,130 employees around the world, and 70.9% of the total employees are based in India. Reports stated that OYO was looking at a valuation of $12 billion.
Six things to know:
> As per the DRHP, proceeds from the IPO would be used towards repayment or prepayment of its debt. This comes up to Rs 2,441 crore, according to the DRHP â making up almost 29% of the total issue. Proceeds from the issue would also be used for funding the company's organic and inorganic growth initiatives amounting to Rs 2,900 crore and balance towards general corporate purposes. It had aggregate outstanding borrowings of Rs 4,890.55 crore as of July 31.
> SoftBank has been named a promoter in the DRHP, along with founder Ritesh Agarwal and his holding company RA Hospitality Holdings. Softbank holds 46.62% stake, while Ritesh Agarwal and RA Hospitality together own 33.15%.
> Oravel Stays Ltd, the company's official name, said in the DRHP said it has shown losses every year since incorporation and the pandemic has further "materially and adversely impacted" its business. The firm incurred a loss of Rs 2,364.53 crore in FY19, which widened to Rs 13,122.77 crore in the following year but reduced to Rs 3,943.84 crore in FY21.
> Risk factors listed by the organisation include adverse outcomes in legal proceedings involving Zostel which may âmaterially and adversely affect our business, reputation, prospects, results of operation and financial conditionâ. It also said that it is involved in a matter before the Competition Commission of India and could be subject to penalties. This pertains to the complaint filed by the Federation of Hotels and Restaurants Association of India (FHRAI) against OYO and MakeMyTrip over abusing dominance and competitive pricing.
> OYO said it has an asset-light business model, and that it does not own the storefronts listed on its platform.
âAs of March 31, 2021, 99.9% of our storefronts did not have contracts with minimum guarantees or fixed payout commitments from us, with any investments, capital expenditure, storefront employee costs and other expenses relating to the operation of such storefronts borne largely by our Patrons. This enables us to be capital-efficient and scale our business with minimal marginal costs,â it said.
It added that it has revenue-sharing contracts with hotels, largely exclusive distribution rights and âsignificant controlâ over pricing decisions relating to storefront inventory. The company said it had 1,57,344 storefronts in 35-plus countries listed on its platform as of March 31, 2021.
> OYO said that after the offer, it may remain a ââforeign-owned and controlledâ company in accordance with the Consolidated FDI Policy and FEMA Non-debt Instruments Rules.â
âWe are subject to certain foreign investment restrictions, which could limit our ability to attract foreign investors and our ability to raise foreign capital is subject to certain conditions prescribed under Indian laws,â it added.