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Oyo will refile its draft red-herring prospectus (DRHP) with updated information about its initial public offering. Its original DRHP filed in September 2021, and the addendum to it in November 2022, suggest the hospitality unicorn is back on its feet after the pandemic, with a derisked business model that gives it a presence across India, Southeast Asia and Europe. In fact, its revenues from international operations dwarf those from India, even as India remains its “most mature market". It’s a company with a unique profile in many ways, with both a virtual and a brick-and-mortar presence, and seems to have carved a clearer path to profitability than many other unicorns. But the pandemic and a global recession remain lurking dangers for the company and its founder Ritesh Agarwal.

How Oyo has responded to the pandemic

In recent years, Oyo has done a course correction, scaling down its international expansion plans. The pandemic forced it to overhaul its business model, shifting from a minimum guaranteed monthly payment to a revenue-sharing model.

It has also focused on becoming leaner, and cut its storefronts (hotels and homes) by over 40% in the first six months of this fiscal, from 17,994 on 31 March, 2022 to 12,546 on 30 September, 2022. The company calls it an attempt to "improve our GBV (gross booking value) per storefront per month, including temporarily pausing operations for storefronts that were operating at subpar ..." The company has also sharply cut its employee benefits expense in recent years by reducing costs and headcount.

A recovery in travel demand coupled with cost pruning has started to yield results, and the company has been Ebitda-positive for two consecutive quarters this fiscal - that adds up to about 69 crore for six months ending September 30, 2022. But amid the churn within Oyo, it remains essentially a global company.

Global revenues dwarf Indian revenues

Plenty has been written about how Oyo's rapid expansion derailed in markets such as the China, the UK and the US, and how it was compelled to cut its global workforce. While that was true, the fact remains that at the core, it remains a global company. In its DRHP in September 2021, Oyo states that its core markets of India, Southeast Asia and Europe add up to over 90% of its revenues. However, data from the DRHP and the addendum shows a major chunk of its revenues still come from outside India.

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In the first six months of FY23 too, only 7,942 crore of its 29,046 crore revenue from contracts with customers – that’s about 27% – came from India. The remainder, about 73%, of its revenues were from outside India. In fact, in its DRHP, Oyo says it "has the largest footprint (in terms of hotel storefronts) in its key markets of India and SEA and the second largest footprint in Europe (in terms of homes storefronts)... ".

All this essentially tells us that Oyo is predominantly a global company, with India a big but not the major contributor to its revenues.

The bottom line

Unlike many Indian unicorns, Oyo has a virtual (through its tech platforms) and a physical brick-and-mortar presence, and appears to have built a derisked business model with presence across diverse geographies. As it points out in its DRHP, while Europe is the largest short-stay accommodation market globally, India and Southeast Asia too are among the faster growing travel markets.

And by reworking its business strategy, it appears to have crafted a relatively more visible roadmap to profitability and that is showing up in its positive Ebitda over the past couple of quarters.

The biggest risk factor in Oyo’s quest to keep its plans on track is obviously the pandemic and an expected global recession, though a presence across geographies may help cushion the blow somewhat. If covid continues to retreat, it will benefit Oyo's valuations. A global recession too will be an obvious drag on valuations.

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