OYO’s G6 acquisition to boost profitability, lift EBITDA margins to 20% by FY26, says Fitch

OYO’s G6 acquisition to boost profitability, lift EBITDA margins to 20% by FY26, says Fitch

Fitch Ratings expects Oravel Stays Ltd, the parent of hospitality chain OYO, to see a notable improvement in profitability following its acquisition of US-based G6 Hospitality, with EBITDA margins projected to increase from around 18 percent in FY25 to 20 percent in FY26.

In a note affirming OYO’s long-term issuer default rating at ‘B’, Fitch said the acquisition, completed in December 2024, will increase the company’s exposure to developed markets such as the US and France, where storefronts generate higher gross booking values.

Pro forma for the acquisitions of G6 and French platform Checkmyguest (CMG), around 65 percent of OYO’s earnings before interest, taxes, depreciation and amortisation (EBITDA) is expected to come from the US and Europe.

Fitch believes OYO will be able to increase G6’s EBITDA by implementing its revenue management system and reducing operating costs, including shifting staff from the US to India and replacing existing IT contracts with in-house technology or centralised contracts.

Additional revenue is expected from a combined business development team driving storefront expansion and the introduction of dynamic pricing.

EBITDA leverage is forecast to temporarily rise to over 6x in FY25 due to the partly debt-funded acquisition, but Fitch estimates it will decline to 4.5x in FY26. Including 12-month EBITDA contributions from G6 and CMG, FY25 leverage would be around 5x. OYO is targeting debt/EBITDA of under 3.0x in the medium to long term.

EBITDA leverage refers to the ratio of a company’s debt to its earnings before interest, taxes, depreciation, and amortisation (EBITDA). It indicates how many years it would take for a company to repay its debt using its current level of earnings. A higher ratio suggests higher financial risk, while a lower ratio signals better debt-servicing ability.

In OYO’s case, Fitch uses this metric to assess the company’s ability to manage its borrowings, especially following the debt-funded acquisition of G6 Hospitality.

Fitch also noted that OYO’s successful issuance of an $830 million term loan maturing in 2029 has eliminated medium-term refinancing risk. As a result, the agency has removed previous negative rating sensitivities related to the funding of the G6 acquisition and the refinancing of the company’s 2026 debt maturity.

While OYO’s EBITDA scale remains smaller than higher-rated technology-sector peers, Fitch said the company’s asset-light business model, minimal capex requirements, and fixed revenue-share agreements support long-term growth potential, albeit in a sector with high competitive intensity and cyclical demand.

This comes at a time when OYO has initiated talks with bankers in its latest attempt to launch its initial public offering (IPO). The global travel tech platform is hoping to list in the fourth quarter of the current financial year.

The Ritesh Agarwal-led company is likely to be valued in the range of $6-7 billion as suggested in its initial discussions with investment banks, Moneycontrol reported earlier.