Oyo raises $50 Mn from InCred at $2.38 Bn valuation

Oyo’s Resurgence: Securing $50 Million Funding at $2.38 Billion Valuation

In a significant development for India’s hospitality sector, Oyo, the Gurugram-based hospitality unicorn, has successfully raised Rs 416.85 crore (approximately $50 million) from InCred Wealth and Investment. This funding round marks a crucial milestone for Oyo, coming after a gap of almost three years, and signals a potential turnaround for the company amidst challenging market conditions.

Funding Details and Valuation

Oyo’s board has passed a special resolution to issue 14,37,41,379 Series G CCPS (Compulsorily Convertible Preference Shares) at an issue price of Rs 29 each. This move is set to inject Rs 416.85 crore or $50 million into the company’s coffers. According to estimates by TheKredible, this funding round values Oyo at approximately Rs 19,756 crore or $2.38 billion post-allotment.

New Investor Stake

The new investor, InCred Wealth and Investment, will command a 2.11% stake in Oyo following this allotment. This addition to Oyo’s investor roster could bring fresh perspectives and strategic inputs to the company’s growth plans.

Valuation Trajectory

While the current funding round is a positive development for Oyo, it’s worth noting the significant shift in the company’s valuation over recent years:

1. Peak Valuation: Previously valued at $9.6 billion in August 2021 when Microsoft invested $5 million.
2. Current Valuation: $2.38 billion post this funding round.
3. Valuation Haircut: This represents a reduction of more than 70% from its peak valuation.

Financial Performance and Profitability

Despite the valuation decline, Oyo has shown signs of financial improvement:

1. FY24 Profitability: Oyo’s founder, Ritesh Aggarwal, announced the company’s maiden annual net profit of Rs 100 crore for FY24.
2. FY23 Performance:
– Revenue growth: 14.3% increase to Rs 5,464 crore from Rs 4,871 crore in FY22.
– Loss reduction: 33.7% decrease to Rs 1,287 crore.

Strategic Use of Funds

Oyo has outlined clear intentions for utilizing the newly raised capital:

1. Fueling Growth: Expanding operations and market presence.
2. Global Expansion: Exploring new international markets and potentially acquiring strategic assets.
3. Enhanced Business Plans: Implementing improved strategies to solidify market position.

IPO Plans and Market Conditions

Oyo’s journey towards going public has seen some hurdles:

1. DRHP Withdrawal: The company recently withdrew its draft papers for the second time due to unfavorable market conditions.
2. Future Plans: Oyo is likely to refile its IPO papers after the conclusion of the ongoing funding round.

Investor Perspectives

The funding landscape for Oyo has seen interesting developments:

1. SoftBank’s Stance: In 2022, SoftBank, a major investor, reduced Oyo’s valuation to $3.4 billion.
2. Oyo’s Response: The company initially rejected this markdown, showcasing confidence in its higher valuation.

Conclusion

Oyo’s successful raising of $50 million from InCred Wealth and Investment marks a significant milestone in the company’s journey. While the current valuation of $2.38 billion represents a substantial decrease from its peak, it also reflects a more realistic assessment of the company’s worth in the current market conditions.

The achievement of profitability in FY24, coupled with the reduction in losses and growth in revenue in FY23, indicates that Oyo is on a path to financial stability. The fresh influx of capital is expected to fuel the company’s growth plans, both domestically and internationally.

While the IPO plans have been temporarily put on hold, the successful completion of this funding round could pave the way for Oyo to revisit its public listing ambitions in the near future. As the market watches Oyo’s next moves, this funding round serves as a testament to the enduring potential of innovative business models in the hospitality industry.

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