Fitch said it has also affirmed the rating on the $660 million senior secured term loan facility due 2026, issued by Oyo’s fully owned subsidiary, Oravel Stays Singapore Pte Limited, at ‘B-‘.
The recovery rating is ‘RR4’. The term loan facility is unconditionally and irrevocably guaranteed by Oyo and certain subsidiaries within the group. “The guarantee covers 121% of the outstanding principal or up to $800 million, and we consider the guarantee full and worthy,” the company said in a statement.
Fitch said the outlook revision reflects its 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).
Fitch said it expects 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.
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“We expect Oyo to deliver positive EBITDA and CFO in FY24, ahead of Fitch’s earlier forecast, led by a greater reduction in operating costs than we expected,” Fitch said in a statement. “This is notwithstanding weaker-than-expected growth in gross booking values (GBV) in FY23, as rising GBV per storefront amid improving occupancy levels and an increased number of homes storefronts was offset by a fall in the number of Oyo’s hotel storefront partners,” Fitch added.
Fitch said it expects the ongoing demand recovery in the industry to drive revenue growth of over 20%. It also expects Oyo’s operating leverage to benefit from a sustained reduction in costs and drive high single-digit EBITDA margins in FY24.
Fitch expects travel and tourism industry conditions to continue to improve in Oyo’s key end markets in FY24, following a strong recovery in FY23 from pent-up demand for leisure travel after the easing of Covid-19 restrictions.
The Indian hotel industry saw improving occupancy rates with a 73% increase in the number of air-traffic passengers in FY23. Foreign tourist arrivals also increased to 6.2 million in 2022 from 1.5 million in 2021, albeit still well below pre-pandemic levels.
Oyo increased the number of storefronts and GBV per storefront in its European homes business in FY23 as leisure travel recovered, despite the cost-of-living crisis and reduced disposable incomes in the region. “We expect this recovery to continue over the upcoming summer holiday and be further supported by a recovery in business travel, which initially picked up at a slower pace,” Fitch stated.
Fitch said that Oyo’s unrestricted cash at FYE23 seems sufficient to fund its Fitch-estimated free cash flow deficit of around $7 million and annual debt repayment of around $6 million in FY24.
“However, 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,” Fitch stated.
