InvestorQ : With Softbank cutting the valuations of Oyo, do you expect the start-up company to cut its IPO pricing too accordingly?
Sam Eswaran made post

With Softbank cutting the valuations of Oyo, do you expect the start-up company to cut its IPO pricing too accordingly?

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Moii Chavate answered.
2 months ago
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Around 3 years back, prior to the start of COVID 19, Oyo was valued at around $10 billion. As of last count, its valuation had come down to $3.4 billion and now one of its largest shareholders, Softbank of Japan, has written down the total valuation of Oyo by another 20% to $2.7 billion. In a nutshell, since 2019, the valuation of Oyo Hotels stands cut by a full 73%. The challenge is that Oyo is looking at an IPO in the near future in the Indian primary market and that too at a valuation of close to $5 billion.

Oyo has refused to accept this valuation cut calls it speculative. As of now, these are just reports and even Softbank has not come out and made any public statement about this valuation cut. Ritesh Agarwal of Oyo feels that this valuation cut by Softbank does not consider the fact that there has been a recovery in valuations of hotel stocks. Most of the hotel stocks, including Oyo, had taken a hit on account of being a contact sensitive sector. Recently, Oyo Hotels filed a fresh round of financial documents with SEBI.

The valuation de-escalation is quite interesting. For instance, the original plan for Oyo Hotels had targeted valuations of $9 billion, which has bene later cut to $5 billion. Now, even that looks fairly impractical. The original plan of Oyo Hotels was to raise up to $1 billion or Rs8,100 crore through the IPO, entirely by way of new shares. Oyo still believes that its business performance was recovering and the conditions were getting ripe for hotel stocks, which was not factored in the valuations.

Ritesh Agarwal may have a point there, if you look at the latest financials of Oyo Hotels. For FY22, the net loss if Rs1,890 crore was half the loss reported in FY21. Sales have also seen a rebound as more people are now travelling confidently and even checking into hotels without demanding huge discounts. Oyo was always supposed to be an Indian version of Airbnb but the pandemic had spoilt the trajectory. Softbank had written off $23.4 billion last quarter and these are routine. However, Oyo will have to really justify its price.

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