Oyo IPO: COVID-19, slow growth, dispute with Zostel and other key risks listed in DRHP


Oyo Hotels and Homes, the parent company of hotel-booking startup Oyo, on October 1 filed draft documents with the Securities and Exchange Board of India (Sebi) to raise Rs 8,430 crore through an initial public offering (IPO).

The IPO will comprise a fresh issue of equity shares aggregating up to Rs 7,000 crore and offer for sale to the tune of Rs 1,430 crore, the draft red herring prospectus (DRHP) filed with the market regulator shows.

Proceeds from the issue would be used to prepay or repay, in part, borrowings availed by Oyo’s subsidiaries amounting to Rs 2,441 crore, fund the company’s organic and inorganic growth initiatives amounting to Rs 2,900 crore and the balance towards general corporate purpose, it added.

The latest in the growing club of tech companies lining up to list on the Indian stock market, the company has had its share of troubles with the coronavirus pandemic taking a toll on business. It is also embroiled in legal disputes, as mentioned in the DRHP.

Here are some of the risk factors listed by the hospitality unicorn in DRHP:

> The COVID-19 pandemic and the measures taken by governments to curb its spread have materially and adversely impacted, and are expected to continue to impact the travel industry and Oyo’s business, results of operations, financial condition and cash flows.

> Oyo has incurred net losses in each year since incorporation, and the company’s ability to achieve profitability may be delayed.

Also read: Oyo files draft papers for $ 1.2 billion public offering

> Oyo may not continue to grow on pace with historical rates and may face difficulties in executing expansion plans and implementing growth strategies.

> “If we fail to retain existing patrons and customers or acquire new patrons and customers in a cost-effective manner, our revenue may decrease and our business, results of operations and financial condition could be adversely affected,” Oyo said.

Also read | OYO’s losses shrink to Rs 3,929 crore during FY21

> Negative publicity could damage the brand and thereby harm Oyo’s ability to compete effectively, and could materially and adversely affect business, results of operations and financial condition.

> “If we do not continue to innovate and develop our platform, our platform developments do not perform or we do not keep pace with technological developments, we may not remain competitive and our business and

results of operations could suffer,” the DRHP said.

> Oyo relies on third-party distributors, including OTAs, travel management companies and global distribution systems to market and distribute storefronts, which may adversely affect margins and profitability.

> “Any adverse outcome in legal proceedings involving Zostel may materially and adversely affect our business, reputation, prospects, results of operation and financial condition,” it said.

> Oyo’s business and activities may be regulated by competition laws of various jurisdictions. “We are currently involved in a matter before the Competition Commission of India and could be subject to penalties, if any

such penalties are awarded, the company said.

> “There is pending litigation against our company, certain of our subsidiaries and directors and promoter 1. Any adverse decision in such proceedings may render us/them liable to liabilities/penalties and may

adversely affect our business, cash flows and reputation,” it added.

> Oyo is subject to risks frequently encountered in the travel industry. A decline in the travel and accommodation industries or an economic downturn can materially and adversely affect business, results of operations and financial condition.

> The company’s pricing methodologies and the revenue share may be impacted by a number of factors and it may not always be successful in attracting and retaining patrons and customers.

> The business and industry are highly competitive, locally and globally, and the company may be unable to compete successfully, Oyo said.

> Oyo is, and after the offer, may remain a “foreign-owned and controlled” company in accordance with the Consolidated FDI Policy and FEMA Non-debt Instruments Rules. We are subject to certain foreign

investment restrictions, which could limit our ability to attract foreign investors and our ability to raise foreign capital is subject to certain conditions prescribed under Indian laws, it said.

> “Laws that affect the hospitality and short-term rental business have limited, and may continue to limit, the ability or willingness of patrons to list their storefronts on our platform and expose our patrons or us to significant penalties, which have had and could continue to have a material adverse effect on our business, results of operations and financial condition,” it said.