Moody’s expects Oyo’s EBITDA to jump 65% YoY in FY24

Oyo was eyeing an adjusted EBITDA of Rs 800 crore in FY24, the company’s founder and group CEO, Ritesh Agarwal, told employees in a town hall on April 28, 2023.

Moody's Investors Service on May 8 said Oyo, the hospitality and travel tech startup, was likely to see its Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) rise by around 65 percent YoY to $50 million-$55 million (around Rs 400-450 crore) in the current financial year (FY), on the back of a resurgence in travel. The company had also undertaken several cost-cutting measures.

Oyo was eyeing an adjusted EBITDA of Rs 800 crore in FY24, the company’s founder and group CEO, Ritesh Agarwal, told employees in a town hall on April 28, 2023.

During the same presentation, Agarwal said the SoftBank-backed startup reported an adjusted EBITDA of around Rs 245 crore in FY23, marking its first profitable year since inception around 2013. That likely prompted the rating agency to keep Oyo’s parent company, Oravel Stays Private Ltd’s rating at B3 corporate family rating (CFR), while saying that the outlook remained stable.

“The rating affirmation reflects Moody's expectation that Oyo remains on track to turn EBITDA positive (after share based payment expenses), on a full-year basis (in FY24), supported by a strong demand recovery and its various cost reductions,” said Sweta Patodia, vice president and analyst at Moody’s.

The prediction also accounted for Oyo’s share-based payment expenses.

To save costs, Oyo, in December last year, said it was firing 600 employees who were part of the product and engineering, corporate headquarters and Oyo vacation home teams.

“The stable outlook reflects our view that the company will maintain adequate liquidity buffers to support its operations until it turns cash flow positive over the next 12-18 months,” Patodia added.

In his presentation to employees, Agarwal had said the Gurugram-headquartered company was currently sitting on a cash reserve of around Rs 2,700 crore.

Moody’s, however, cautioned that the company’s rating could be downgraded if Oyo did not “significantly” reduce its cash burn over the coming 12-18 months or Oyo's liquidity was insufficient to fund its operations and investments over the next 2-3 years, at least.

Even other external factors, like entry of new players or a change in government policies could lead to a downgrade.

Further, Oyo’s FY24 EBITDA will fall short of covering its interest expenses of around $85 million, resulting in negative cash flow from operations in the absence of any material working capital movements, Moody’s said.

It however added that sustained earnings growth beyond FY24 will allow the company to cover its interest expenses and generate positive cash flow from operations in FY25.

Oyo refiled its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi) under the recently introduced pre-filing route in March 2023 and is reportedly looking to raise $1 billion at a valuation of $2.7 billion, sharply lower than $10 billion that it once commanded but dragged down as tech stocks around the world continue to get hammered.