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Oyo Rooms IPO: Key risks to watch out for

Oyo Rooms IPO: Key risks to watch out for

Oyo Rooms IPO: Key risks to watch out for
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By Kanishka Sarkar  Oct 15, 2021 6:10:32 PM IST (Updated)

Oyo Rooms IPO: From COVID-19, competitive environment, losses each year to the legal battle with Zostel, here's a look at key risks listed by hospitality firm OYO in its DRHP filed with SEBI to float an IPO.

Hospitality firm Oyo on Friday filed preliminary papers with market regulator Securities and Exchange Board of India (SEBI) to raise Rs 8,430 crore through an initial public offer (IPO).

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The IPO of the Softbank-backed company, is the first hospitality firm in India to seek a market listing since 2019. It comprises a fresh issue of equity shares worth Rs 7,000 crore and an offer for sale for the remaining Rs 1,430 crore.
However, be it the coronavirus pandemic, Oyo’s pace of growth, profitability or the legal battles it is involved in, the listing of the latest tech unicorn looking to go public is not devoid of risks.

“All forward-looking statements are subject to risks, uncertainties, and assumptions about our company that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement,” the firm said in its preliminary papers filed for IPO.
Here’s a look at some of the key risk factors listed by OYO in its DRHP
COVID-19: Oyo, which was launched in 2013 by Ritesh Agarwal, says the ongoing pandemic and the measures taken by governments to curb its spread have adversely impacted its business. It said these measures are likely to affect the travel industry and the firm’s business.
Perpetual losses: Oyo may have become a popular platform to book hotel stays; however, the company has a history of net losses every year since its incorporation. This may delay its ability to achieve profitability and may prove to be a factor leading the firm to stare at uncertainty.
Pace of growth: The failure to grow at a pace with historical rates and any difficulties in executing expansion plans and implementing growth strategies is another aspect listed by the company as a risk.
Patrons and customers: If Oyo is unable to retain existing patrons and customers or acquire new ones in a cost-effective manner, it may not be able to deliver desired results, according to the DRHP. Its revenue may decrease and the business, results of operations, and financial condition could be adversely affected.
Negative publicity: According to the company, another risk it faces is the possibility of failure to maintain or enhance brand and reputation, which is critical to growth, or any negative publicity that could damage the brand.
Technological challenges: If the hospitality firm fails to innovate and develop its platform or doesn’t keep pace with technological developments, it may not remain competitive enough and the impact of which would reflect on the business.
Zostel case: Oyo is engaged in a legal battle with rival Zostel. The issues between the two companies date back to 2015 after merger talks between Zo Rooms and Oyo failed. In March this year, a Supreme Court-appointed arbitrator said Oyo was in breach of its agreement for the acquisition of Zo Rooms, adding the latter can proceed to execute the definitive agreement.
However, while Zo claims it is entitled to a stake of 7 percent in OYO, the latter has denied the claim. It said the tribunal had granted no specific relief to Zostel in terms of receiving ownership in Oyo. The Delhi High Court is hearing the case.
“Any adverse outcome in legal proceedings involving Zostel may materially and adversely affect our business, reputation, prospects, results of operation and financial condition,” according to OYO’s DRHP.

Third-party distributors: The unicorn has listed its reliance on third-party distributors, including OTAs, travel management companies and global distribution systems to market and distribute storefronts as another key factor that may adversely affect its margins and profitability.
Safety: Oyo said it has no control over or ability to predict the actions of its patrons, customers and other third parties, such as neighbours or invitees, during a customer’s stay.
“If our Patrons, customers or third parties engage in criminal activity, misconduct, fraudulent, forgery, negligent or inappropriate conduct, immoral trafficking, sexual violence or use our platform as a conduit for criminal activity, our platform and the listings on our platform may be deemed to be unsafe and we may receive negative media coverage or be subject to a government investigation, which could adversely impact our brand and reputation and lower the adoption rate of our platform,” it said.
Economic downturn: A decline in the travel and accommodation industries or any economic downturns can affect its financial performance.
Competition laws: Oyo said it is currently involved in a matter before the Competition Commission of India and could be subject to penalties if any such penalties are awarded.
Pricing: In the papers filed for listing, Oyo has said its pricing methodologies and the revenue shares it charges patrons may be impacted by a number of factors and it may not always be successful in attracting and retaining patrons and customers.
Competitive environment: “The business and industry in which we participate are highly competitive, locally and globally, and we may be unable to compete successfully,” the unicorn has stated.
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