Oyo in talks with investment banks for managing its $1.5-bn IPO: Sources

SoftBank-backed Oyo is eyeing valuation range of $14 bn-$16 bn, say sources close to the development

The board of Oravel Stays, the parent firm of Oyo, approved the increase in the authorised share capital of the company, from the existing Rs 1.17 crore to Rs 901 crore, at an extraordinary general meeting held on September 1, reveal the regulatory filings. 

The changes come ahead of the company’s proposed plans of a public listing. The firm is expected to file its draft red herring prospectus in the months to come, as it prepares to launch its initial public offering (IPO). The travel technology firm is expected to raise between $1.2 billion and $1.5 billion at a valuation of $14-16 billion after having initiated talks with investment banks like JP Morgan, Citi, and Kotak Mahindra Capital to manage its $1.5-billion public issue, said sources privy to the development. 

Authorised capital is the maximum amount of capital a company is authorised to issue at any given point in time. This limit is decided by shareholders and is prescribed in the memorandum of association document of the company. A company increases its authorised capital when it anticipates further capital requirement or intends to go public and list its shares on the stock exchanges. 

The move is likely part of Oyo gearing up for future capital-raise ahead of its IPO. As precursor to the IPO, Oyo recently raised fresh capital from Microsoft at a post-money valuation of $9.6 billion. 

In July, it became the first Indian start-up to raise $660 million through the term B loan route from global institutional investors, including Fidelity Investments, to refinance and simplify its existing borrowings. The company also became the first Indian start-up to be rated by international rating agencies —Moody’s and Fitch.

Oyo’s shift to tech and a software-led operational model has meant an asset- and capital expenditure-light structure, which has resulted in an increase in margins, from single digits to nearly 27 per cent. 

The company moved away from the minimum guarantee model seen until 2019 to a revenue-sharing one, and has shifted to an automated and simplified twice-a-week dues reconciliation with its hotel partners.

In the first quarter of 2021, the firm had announced its India operations had turned earnings before interest, tax, depreciation, and amortisation-positive for the quarter.

It recently altered its strategy to convert itself into a product-tech provider for hotels and homes. This led to the launch of products and initiatives, such as Yo! chatbot, Discover Oyo, Sanitised Before Your Eyes, VaccinAid, Tariff Manager, among others, to ensure steady cash flows, higher occupancy, revenue, and enhanced operations for its partners.

The company has been making efforts to organise the highly fragmented and unorganised small hotel and homes segment, which constitutes more than 75 per cent of the short-stay accommodation market in India and globally. 

Oyo has earlier raised funding rounds from global venture capital funds like SoftBank, Sequoia, Lightspeed Venture Partners, Hero Corporate, and leading global consumer tech companies like DiDi, Grab, and Airbnb.