Home Hotel industry Fitch downgrades OYO amid profit uncertainty

Fitch downgrades OYO amid profit uncertainty


Fitch Ratings has lowered the long-term issuer ratings in foreign and local currency (IDR) of Oravel Stays Ltd (OYO) from “B” to “B-“, citing uncertainty over the hotel company’s achievement of a strong EBITDA profit in FY23.

“The company is facing execution challenges given the lackluster recovery in travel demand in the price-sensitive markets where OYO operates. OYO will likely only realize a significant EBITDA profit in the year ending in March 2024 (FY24), compared to our previous expectation of FY23,” the rating agency said in a statement.

The outlook on the instruments is stable. It reflects comfortable liquidity as available cash is sufficient to fund the expected free cash flow (FCF) shortfall over the next two years, with limited refinancing risk on its long-term debt.

Fitch downgraded the rating of the $660 million senior secured term loan facility due 2026 issued by OYO subsidiary Oravel Stays Singapore Pte Limited from “B” to “B-”. The term loan facility is unconditionally and irrevocably guaranteed by OYO and certain group subsidiaries.

Fitch said it expects OYO’s FY23 revenue to grow about 30%, which is lower than the agency’s forecast. This is due to a slower recovery in travel demand in its main markets and moderate growth in the number of partner hotels and residences.

OYO’s revenue growth in FY22 may have lagged its peers in the hospitality industry, which grew by 50-100% (YoY). OYO has higher exposure to the mid-budget hotel segment, which has been slower to recover.

OYO management expects FY23 revenue to grow by around 80% thanks to a stronger recovery in travel demand and the addition of hotels and residences to the portfolio, it said. added the rating agency.

Liquidity is satisfactory. OYO’s unrestricted cash in FY22 was sufficient to fund Fitch’s estimated FCF deficits of $74 million in FY23 and annual debt repayments of $6 million, although greater consumption of cash weakens liquidity.

Its business model is intact and its profile benefits from a diversified presence in India, South-East Asia and Europe, and moderate barriers to entry. These are offset by its exposure to price-sensitive travel markets.

OYO targets business travelers and price-sensitive travelers. This market recovered much slower than the premium market in FY22, he said.

Dear reader,

Business Standard has always endeavored to provide up-to-date information and commentary on developments that matter to you and that have wider political and economic implications for the country and the world. Your constant encouragement and feedback on how to improve our offering has only strengthened our resolve and commitment to these ideals. Even in these challenging times stemming from Covid-19, we remain committed to keeping you informed and updated with credible news, authoritative opinions and incisive commentary on relevant topical issues.
However, we have a request.

As we battle the economic impact of the pandemic, we need your support even more so that we can continue to bring you more great content. Our subscription model has received an encouraging response from many of you who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of bringing you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practice the journalism we are committed to.

Support quality journalism and subscribe to Business Standard.

digital editor