Oravel Stays Limited, popularly known as OYO, has been going through a tough time. Amid the news of its upcoming Initial Public Offering(IPO), there is an ongoing dispute with hoteliers that can disrupt the preparation process. It is not the first time OYO has had a backlash at the time of IPO. At the time of Draft Red Herring Prospectus(DRHP) back in 2021, Zostel filed a petition and asked SEBI to cancel OYO’s IPO. Now, when Oravel Stays Ltd makes every effort to prepare for an IPO, the ongoing tussle can create problems in the future.
In such a scenario, OYO Founder Ritesh Agarwal’s role is crucial in fixing the disputes before the IPO launching date. Right now, retail investors only have the option to invest in OYO unlisted shares, which are only available for trading in the Pre-IPO market. Various experts believe if the ongoing disputes are not fixed on time, it will affect the IPO and the company’s reputation.
OYO’s Dispute With Hotel Owners
Things are not going well for OYO’s owner Ritesh Agarwal as the ongoing dispute with the hotel owner seems to be never-ending. It is why various hotel owners said, “We will only accept cash.” Customers find it difficult to settle the payment, as hoteliers don’t accept the pre-paid booking due to non-payment of the amount by OYO.
In 2019, various hotel owners signed a five-year lock-in contract with OYO. According to this minimum guarantee contract, hotels can make a minimum revenue irrespective of occupancy. OYO made such an agreement with thousands of hotels, but things didn’t go well due to the pandemic. Due to less business, OYO terminated these contracts back in 2020, so the majority of hotel owners got upset and filed a claim of Rs 220 crore against OYO for breaching the contract and unpaid dues.
As Oravel Stays Limited is heading towards IPO, its primary goal should be to settle disputes with hoteliers as soon as possible. Recently, OYO also shuffled its top management to support its future business goals and prepare for an IPO.
As per the reports, OYO has already settled 50-60% of the claims of hotel partners. If Ritesh Agarwal fixes things later, industry bodies like the Federation of Hotel & Restaurant Associations of India (FHRAI) will stop OYO from launching the IPO. FHRAI recently wrote to the market regulator SEBI, “OYO is responsible for the systemic depredation of the budget segment hotel business.”
However, OYO’s spokesperson said, “Disagreements or litigations with patrons constitute less than 0.25% of our 170,000 storefronts (hotels and homes) globally. A lot of these originated during the tumultuous covid period. We have been working hard to settle these through mediation, arbitration, etc., and have seen steady progress. In most such cases, the patrons have started working with us again.”
Need For Finding Ways To Improve Margins
While cleaning up its books, Ritesh Agarwal’s major priority is to cut costs to improve margins. In December, OYO terminated more than 600 employees and started hiring for sales and business relationship roles. The company’s gross margin in the first half of FY 22-23 was 41%, in which a high fixed cost fell due to the termination of minimum guarantee contracts. The DRHP draft file by OYO marked the repayment of Rs 2,441 crore and another Rs 2,900 crore for funding the company’s growth initiatives. Before filing an IPO, Ritesh Agarwal should find ways to improve the margins.
Is It Best To Invest In OYO Unlisted Shares Before IPO?
An IPO of Oravel Stays Ltd will allow investors to buy listed equity shares. However, you can invest in OYO unlisted shares to get a competitive advantage. At the time of an IPO, the demand for the shares of OYO will subsequently increase, due to which the majority of investors’ applications get rejected. However, if you unlisted shares of OYO at this time, you can easily invest in its listed shares as well. Unlisted shares will act like a token to invest in OYO’s IPO shares.
Another reason to invest in OYO unlisted shares before its IPO is a fair price. The current price of the OYO Pre-IPO stock is Rs 67 in the grey market, which is less than any company’s listed shares. In addition, once the IPO of OYO launches, the unlisted share price is expected to go higher, allowing you to make a good return on your existing unlisted shares.
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