Business Standard

Fitch Ratings revises outlook on OYO's long-term issuer ratings to positive

Any potential default of the debt outstanding at one of OYO's shareholding entities owned by the founder may be a reputational risk and affect OYO's operations, and we treat this as an event risk

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Press Trust of India New Delhi

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Fitch Ratings on Wednesday said it has revised the outlook on Oravel Stays Ltd's (OYO) long-term foreign- and local-currency issuer default ratings to 'positive' from 'stable', while affirming the ratings at 'B-'.
The ratings agency also said it has affirmed the rating on the USD 660-million senior secured term loan facility due 2026, issued by OYO's fully owned subsidiary, Oravel Stays Singapore Pte Limited, at 'B-'.
"The outlook revision reflects our view that OYO is on track to generate positive EBITDA and cash flow from operations (CFO) sustainably. This follows positive EBITDA in every quarter of the financial year ended March 2023 (FY23), which is the first year of profits since OYO's incorporation in 2012," Fitch Ratings said in a statement.
It further said, "We expect significant growth in its EBITDA in FY24, led by an ongoing demand recovery in the travel and tourism industry, the company's stable gross margins, and reduction in operating costs."

The rating reflects OYO's asset-light business model "that benefits from minimal capex needs, largely exclusive distribution rights, pricing control over storefront inventory, fixed revenue share and strong long-term growth potential", it added.
"The business profile's strengths are mitigated by the sector's high competitive intensity and demand cyclicality. The rating also reflects OYO's adequate liquidity," Fitch said.
The ongoing demand recovery in the industry is expected to drive revenue growth of over 20 per cent, it said, adding, "we also expect OYO's operating leverage to benefit from a sustained reduction in costs and drive high single-digit EBITDA margins in FY24."

On improved cost structure, Fitch said, "We expect the cost-reduction measures OYO undertook in recent years to support its improving profitability in FY24. We believe such reductions will not affect growth, as it has increased its business development staff to prioritise storefront additions."

The ratings agency also said it estimates that "OYO's unrestricted cash at FYE23 is sufficient to fund its Fitch-estimated free cash flow deficit of around USD 7 million and annual debt repayment of around USD 6 million in FY24".
However, it said, "a greater cash burn than we expect could weaken OYO's liquidity. Any potential default of the debt outstanding at one of OYO's shareholding entities owned by the founder may be a reputational risk and affect OYO's operations, and we treat this as an event risk.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: May 31 2023 | 4:12 PM IST

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