Surge in bookings, cost cutting fuel 8-fold surge in IPO-bound OYO's Ebitda

Spike in adjusted Ebitda primarily driven by a 23% QoQ rise in Gross Booking Value per hotel in Q2 to Rs 4,00,000; firm still ends with Rs 333 cr loss

IPO-bound hospitality major OYO recently recorded an eight-fold increase in its adjusted Ebitda, from Rs 7 crore in Q1FY23 to Rs 56 crore in Q2FY23. This has been fueled by the company's move to put a leash on runaway expenses, and an increase in bookings as consumer travel returns, according to company filings.

The hotel aggregator shared its H1 financials with Sebi as a part of its commitment to update its Draft Red Herring Prospectus with the financial performance till the first half of FY23. Sebi had permitted OYO to submit updated financials before it examined and finally processed the company’s IPO application.

The surge in adjusted EBITDA was primarily driven by a 23 per cent QoQ (quarter-on-quarter) rise in Gross Booking Value (GBV) per hotel during Q2 to around Rs 4,00,000. According to a source close to the company, the monthly rise in GBV per hotel was due to improved occupancy and higher average room rents as travel returns.

The uptick in Ebitda, however, was not enough to make the company profitable at a net level. The company logged in a net loss of Rs 333 crore, down from Rs 414 crore reported in the first quarter of FY23.

According to the company’s second addendum, OYO’s revenue from contracts with customers was up 20.7 per cent, from Rs 3,962 crore in FY 2021 to Rs 4,781 crore in FY 2022. In addition, the firm’s revenue from contracts with customers for the six-month period ended September 30, 2021 rose by 24.3 per cent from Rs 2,336 crore to Rs 2,905 crore for the six-month period ended September 30, 2022.

“One of the key reasons for the growing Ebitda is because it has been able to sustain a fairly handsome gross profit margin of 41 per cent. It is able to command such a margin since it continues to provide substantial customer demand to its hotels,” the source, who wanted to remain anonymous, said.

Another reason for the increase is OYO's ability to control its marketing cost which is growing much slower than its GBV, the source added.

The firm’s marketing expenses grew 19 per cent YoY in H1 FY23 to Rs 400.7 crore while its GBV grew much stronger at 33 per cent during the same period to Rs 5,028 crore. The monthly revenue per hotel, known as Gross Booking Value (GBV), per month increased by 69 per cent YoY to Rs 3,48,000.

High percentage of direct and repeat demand, coupled with a high customer retention rate kept marketing and promotion expenses in check. Benefits provided through OYO’s loyalty programme Wizard also played a part in retaining customers.

All around improvement in the travel sector post pandemic also gave a fillip to OYO’s performance.

According to the company’s booking data from January to September, there was a 62 per cent uptick in leisure tourism between this period, compared to the same period last year. “This growth is attributed to high consumer confidence combined with unprecedented pent-up demand in travel has given a significant impetus to domestic tourism across India,” the company had said in a statement.

Furthermore, OYO claimed that June 2022 saw the highest uptick in demand compared to the same period last year.

Increased demand during the festival season also fueled growth. The hotel aggregator had witnessed 127,000 daily bookings during May, Business Standard had reported earlier.

The company had also received over 310,000 bookings during the Navratri, Durga Puja and Ashtami period earlier this year, surpassing overall gross bookings for New Year’s weekend, usually the highest booked weekend for the travel industry.

The resurgence of business and cultural travel also bolstered the company’s performance. OYO added more than 1,250 corporates since March 2022. “Our mid-year business travel report reveals that sustained momentum is now visible in business travel with a jumpstart in business activities across all industries since January 2022,” the firm had said in a statement.

According to OYO’s ‘India’s Treasure Trove of Cultural Travel 2022’ report, cultural travel also witnessed its biggest boom in the past two years as the pandemic pushed Indians to explore domestic destinations. Srinagar clocked the highest growth in bookings among cultural destinations in 2022, with over 3.5 times growth over the past year, the report said.

“The ongoing third quarter will be the most important one to watch for OYO’s performance as it is the peak season for travel in India and some of the other geographies OYO operates in. The company will need to show another quarter of growing EBITDA for the market to start judging if this performance trajectory is sustainable,” the source said.