SoftBank slashes OYO’s valuation by 20% to $2.7 billion

Japan’s SoftBank cut the valuation of OYO hotels on its books by more than 20%, Bloomberg reported Thursday, citing sources. The downgrade comes at a time when the hotel aggregator is once again gearing up for an initial public offering (IPO) early next year.

The Japanese investor, OYO’s largest shareholder, slashed its estimated value for the company to $2.7 billion in the June quarter from $3.4 billion previously, after comparing it to peers with similar operations, according to the report. OYO’s valuation had reached $10 billion in a funding round in 2019.

Although SoftBank could not be reached for comment, OYO dismissed the markdown, calling it “obviously incorrect.” Explaining why there was no basis for a markdown, OYO said, “Convinced that the speculations about valuation depreciation are patently incorrect. Valuation is a result of business performance. According to our latest audited results, we recorded an initial adjusted Ebitda profit of Rs 7 crore in the June quarter, with a gross profit margin of 41% and a 45% increase in the gross value of bookings per hotel per month compared to the last fiscal year. These are significantly improved results and the strong performance trajectory should continue.”

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On speculation that it is targeting an IPO in early 2023 at a $5 billion valuation, OYO said: “We have not decided on the exact timing of the IPO and the valuation of the stock. IPO is also highly speculative.”

On September 19, OYO filed its results for fiscal 22 and the April-June quarter of the current fiscal year as an addendum to its draft red herring prospectus filed earlier with the Securities and Exchange. Board of India (Sebi). The hotel aggregator’s revenue from operations during the April-June period stood at Rs 1,459.3 crore, while losses were Rs 414 crore. In FY22, with the lifting of Covid restrictions, its operating income increased by 20.7% to Rs 4,781.4 crore and losses narrowed to Rs 2,140 crore against Rs 4,103 crore for FY21.

OYO is still far behind its pre-Covid annual revenue of Rs 13,413 crore for the financial year 2020. It had recorded a net loss of Rs 10,419 crore during that year.

Its total costs increased to Rs 6,984 crore in FY22 from Rs 6,937 crore in FY21. General administrative expenses at Rs 515.4 crore decreased by 44.4% from Rs 927 crore in FY21. Employee expenses, net of ESOP-based compensation, decreased by 26 .5% in FY22 to 1,117.2 crore.

Helped by the resumption of travel, the hotel company’s gross value of bookings per hotel in Q1FY23 stood at Rs 3.25 lakh. In FY22, it was at Rs 2.21 lakh. Its storefronts in the April-June quarter were 168,000 compared to 157,000 at the end of FY21.

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