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OYO Boosts Financial Strength with $195M Debt Buyback, Earns Fitch Rating Upgrade

Fitch Upgrades OYO's Credit Ratings as Hospitality Giant Reports Strong Profit and Liquidity

28 May 2024

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Neelesh Bachani

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    1.      OYO has completed a significant debt buyback of $195 million (Rs 1,620 crore), leading to an upgrade in its financial profile by Fitch Ratings. Oravel Stays, OYO's parent company, saw its long-term foreign and local currency issuer default ratings rise from 'B-' to 'B' with a 'Stable' outlook, reflecting enhanced creditworthiness and financial stability.


2.      Fitch highlighted improvements in OYO's financial health, particularly in EBITDA leverage, which is expected to fall below 5x. This improvement is driven by cost-saving measures, a rebound in short-term stay demand, and the recent debt buyback. OYO also reported a net profit of nearly Rs 99.6 crore ($12 million) for FY 2023-24, showcasing effective management and operational efficiency.


3.      As of March 2024, OYO held around $95 million in unrestricted cash, exceeding Fitch's expectations post-debt buyback. This strong liquidity, combined with anticipated positive free cash flow from FY25, positions OYO well to meet financial obligations and capitalize on growth opportunities, supported by a favorable outlook for the travel and tourism industry.

OYO, a leading player in the hospitality sector, recently concluded a significant debt buyback of $195 million (Rs 1,620 crore). This strategic move has positively impacted the company's financial profile, prompting Fitch Ratings to upgrade the rating of OYO's parent firm, Oravel Stays. According to a statement released on Monday, Fitch has upgraded Oravel Stays' long-term foreign and local currency issuer default ratings from 'B-' to 'B' with a 'Stable' outlook. This upgrade reflects a more favorable assessment of the company's financial health and prospects.

 

In addition to the issuer default ratings, Fitch upgraded the rating on Oravel Stays' $660-million senior secured term loan facility due in 2026. The rating for this facility has been raised from 'B-' to 'B', indicating improved creditworthiness. This upgrade is a testament to OYO's efforts to strengthen its financial position, particularly through the recent debt buyback, which has contributed to a more robust balance sheet.

 

Fitch's decision to upgrade OYO's ratings is based on several positive developments within the company. The rating agency highlighted its estimate that OYO's EBITDA leverage will improve to below 5x, driven by sustained EBITDA growth. This growth is attributed to cost-saving measures, a recovery in demand for short-term stays, and the significant debt buyback completed in November 2023. These factors collectively enhance OYO's financial stability and operational efficiency.

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The upgrade comes shortly after OYO reported a net profit of nearly Rs 99.6 crore ($12 million) for the financial year 2023-24. This announcement was made by OYO's Founder, Ritesh Agarwal, during a recent town hall meeting with employees. The company's return to profitability is a crucial milestone, reflecting its successful adaptation to market conditions and effective management strategies.

 

OYO's liquidity position is also highlighted as a key factor in Fitch's assessment. As of March 2024, the company had around $95 million in unrestricted cash, which is higher than the agency's post-debt buyback expectation of $80-90 million. This sufficient cash balance, coupled with the expectation of positive free cash flow from the financial year ending March 2025 (FY25), underscores OYO's ability to meet its financial obligations and invest in growth opportunities.

 

Looking ahead, Fitch expects continued improvement in the travel and tourism industry, particularly in OYO's key markets, in FY25. This optimistic outlook further supports the company's ability to refinance its debt on time and sustain its growth trajectory. OYO's improving profitability and declining leverage are critical elements that should bolster its financial resilience and strategic positioning in the competitive hospitality sector.

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