Stable Outlook, Positive EBIDTA says Moody’s, as OYO Reports its First Cash Flow Positive quarter
United States
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May 16, 2023 09:30 AM Eastern Daylight Time
Global rating agency Moody’s (Moody’s Investors Service) has reported that it expects IPO-bound OYO (Oravel Stays Limited) to remain EBITDA positive for FY24 and the overall outlook to remain stable. Moody’s in its latest ratings update said that OYO will generate EBITDA of around $50 -$55 million in FY2024, supported by a strong demand recovery in the hospitality business, an increase in the number of storefronts on OYO's platform, and cost optimisations.
Moody's has affirmed OYO’s B3 corporate family rating (CFR) and the B3 rating of the backed senior secured term loan issued by Oravel Stays Singapore Pvt. Ltd, OYO's wholly owned subsidiary. Moody’s report elaborates that OYO has good liquidity and the company's existing cash and cash equivalents will remain sufficient to support its operations. It further adds that the company will generate positive EBITDA for the fiscal year ending 31 March 2024 (fiscal 2024), even after accounting for share-based payment expenses.
"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, for the fiscal year ending 31 March 2024, supported by a strong demand recovery and its various cost reductions,” says Sweta Patodia, Assistant Vice President and Moody's Lead Analyst for OYO.
The Moody’s report comes after founder Ritesh Agarwal in an employee town hall, said that it has turned cash flow positive in the Q4 FY 2023, marking the next important step towards becoming a profitable company. The company ended the quarter with nearly $11 million surplus cash flow. While Moody’s estimates remain conservative the company is bullish on EBITDA profitability. Agarwal said that OYO has marked their first financial year of Adj EBITDA profitability in FY2023 and are expected to clock Adj. EBITDA of over $100 million for FY2024.
A source revealed that this can be attributed to an increase in bookings across all key geographies, but especially in the Europe homes business that is witnessing unprecedented advance bookings for both for the upcoming summer season peak and even the relatively off-season period between November to March. The cash flows also have a seasonality element. They increase during the European high season when advance bookings peak. Hence the positive cash trajectory is expected to continue into the first quarter of FY 2024. The company treasury or cash corpus on the balance sheet is ~$328 mn.
Moody's expects OYO to benefit from changing demographic and societal trends as increasing smartphone usage and data consumption in its key operating markets will increase the demand for its services.
OYO operates over 168K hotels and homes in more than 35 countries. The company recently announced that it is planning to add over 100 hotels in the US in 2023. Currently, OYO has over 250 hotels across the US. OYO’s UK business plans to add more than 50 properties to its portfolio in 2023 with a focus on cities such as London and Birmingham. OYO already has more than 150 hotels across the UK. The company also plans to double the number of premium hotels such as Townhouse Oak, OYO Townhouse, Collection O and Capital O in India in 2023 by adding approximately 1800 premium hotels.
Original article published in blog.aadhan.in by Seema Sharma.
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