Oyo to eye $9-bn valuation in IPO

Oyo Hotels is aiming for a valuation of about $9 billion in its initial public offering after preliminary conversations with potential investors.

The startup is expected to get the green light to proceed with the offering this week or next after filing preliminary documents last year, said the people, asking not to be named because the talks aren’t public. A formal roadshow will begin after regulatory approval and determine final pricing.

The valuation Oyo is targeting would be lower than the $12 billion initially reported in local media last year and probably lower than the $10 billion level the startup hit in 2019. The startup, led by 28-year-old Ritesh Agarwal, has discussed offering a discount of as much as 15% on the $10 billion suggested by bankers during early discussions.

Executives are watching IPO demand as Oyo prepares to build an order book from institutional investors, one of the people said. The decline in tech stocks in the U.S. may also weigh on valuations. Such muted expectations reflect Oyo’s financial struggles and a more measured appetite for IPOs in India following the disastrous stock market debut of Paytm. The digital payments provider raised a record $2.4 billion in its November offering, but shares quickly plummeted and now trade at about half the IPO price.

Oyo’s offering will be among the biggest IPOs since Paytm’s. In its preliminary filing, the company said it planned to raise Rs 8,430 crore ($1.1 billion) through the sale of new shares and some secondary shares, or those held by existing investors.

SoftBank founder Masayoshi Son became an early and enthusiastic backer, encouraging Agarwal to rapidly expand beyond India into markets like Japan and the U.S. The Japanese billionaire even personally guaranteed a $2 billion loan to Agarwal so he could buy more shares in Oyo, an extremely unusual move.

The startup has overhauled its business model too. It’s now focused on selling software and support services to hotel operators, resorts and homeowners, while providing a platform for travelers to book lodging. It no longer offers partners guaranteed revenue though.

Revenue plummeted during the fiscal year ended in March 2021, but Oyo made progress toward profitability. It lost Rs 3,930 crore for the fiscal year, down from R 12,800 crore the year before, according to documents filed to the stock market regulator.

The IPO will consist mainly of primary shares, or those sold by the company, and a smaller portion of secondary stock. SoftBank, which holds about 47% of the equity, aims to sell a small percentage of shares. Agarwal, who holds about a third of the stock, does not plan to part with shares.

Existing investors Sequoia Capital, Lightspeed Ventures and Greenoaks Capital Management also do not intend to sell shares.