Fitch Ratings has downgraded ratings of Oravel Stays Ltd, which owns and operates hospitality unicorn OYO Hotels and Homes to B-, owing to the uncertainty over the company's ability to achieve earnings before interest, taxes, depreciation, and amortization (EBITDA) profit in the ongoing financial year ending March 2023.
However, the outlook of the company is said to be stable, said Fitch in a statement.
The credit rating agency has downgraded OYO’s long-term foreign- and local-currency issuer default ratings (IDRs) to 'B-' from 'B'.
Fitch has also downgraded the rating on the $660 million senior secured term loan facility due 2026, issued by OYO's fully owned subsidiary, Oravel Stays Singapore Pte Limited, to 'B-' from 'B'. The term loan facility of $660 million was issued by Oravel Stays Singapore Pte in July last year from global institutional investors for paring debt and for other business investments.
Fitch in the statement pointed out that the budget hotel operator faces execution challenges given the lacklustre recovery in travel demand in the price-sensitive markets where it operates.
“We believe OYO's revenue growth in FY22 may have underperformed that of its peers in the hotel industry, which grew by 50%-100% yoy, given OYO's higher exposure to the mid-to-budget hotel segment, which has been slower to recover,” the statement said.
However, the company is likely to recover from this fall in demand and is said to be on track to grow by around 80% in FY2023 riding on longer travel demand recovery and the addition of hotels and homes to the portfolio.
OYO's business profile also gained benefits from a diversified market presence in India, south-east Asia and Europe, and moderate entry barriers, which are offset by its exposure to price-sensitive travel markets.
“The hospitality industry is highly fragmented in India and other key markets, with the unorganised sector accounting for 75%-80% of the market, which gives OYO a large addressable market,” the report pointed out.
OYO has filed draft papers with the capital markets regulator for the company’s Rs 8,430-crore IPO. The company now reportedly plans to cut (https://www.vccircle.com/oyo-drops-offer-for-sale-plan-to-trim-ipo-sizedown) its IPO size in view of current market conditions.
The offer-for-sale has been dropped, and the company will raise a smaller amount at a lower valuation.