Oyo’s preparing to list in next 2-3 years, eyes up to $18 billion valuation

Oyo Hotels and Homes, India’s most valuable hotel chain, is preparing for an initial share sale in the next two-three years, according to two people aware of the development, one of them directly associated with the firm.

“An IPO has been an integral part of all investor conversations over the last couple of months,” the person directly associated with Oyo said on condition of anonymity. “The intent is to go public in two-three years and the company is taking several steps towards this major goal.”

When it happens, the share sale could value Oyo, the country’s second most valuable startup after Paytm, at up to $18 billion, according to four non-Oyo investors, who did not wish to be named.

Oyo has not decided on the stock exchange on which it intends to list its shares, the first person said, adding that it is most likely to be an overseas listing as Oyo is not yet profitable and the US markets seem to be more receptive to such business models.

Last year, Oyo disclosed that it had raised $800 million in its latest round of funding from SoftBank’s Vision Fund, along with other existing investors such as Sequoia Capital, Lightspeed Venture Partners and Greenoaks Capital, besides a commitment to pump in an additional $200 million. At that time, the company was valued at nearly $5 billion, six times its 2017 valuation.

“With every new market that Oyo enters, it will add $2-3 billion to its valuation. If executed well, Oyo can be as highly valued as Uber in the long run,” said Vivek Durai, founder of business signals platform Paper.vc.

Oyo didn’t respond to a questionnaire sent by Mint on Monday.

The company has begun taking steps towards the IPO. These include share buyback plans of founder Ritesh Agarwal and streamlining its business into two units—the Indian hotel business, and the international and technology business. According to a report by The Economic Times, Agarwal is in the process of buying back shares from the company’s early backers Sequoia Capital and Lightspeed Venture Partners, to boost his ownership. Currently, Agarwal owns 9.43%, Sequoia 10.24% and Lightspeed 13.4%, according to Paper.vc.

Sequoia and Lightspeed have not made any follow-on investments in Oyo since 2017.

“SoftBank wants to free up the cap table. Oyo is a prime jewel for the investor for unlocking value,” Durai said. “The problem is Oyo is sucking up too much capital. SoftBank is probably the only investor that can last till the IPO. So it has two options: it can get a very large co-investor as it would not want too many stakeholders, like Sequoia and Lightspeed that have not backed the firm in the last two years, at the IPO window. The buyback is thus a part of the plan to have SoftBank, the founder and one more investor.”