Fitch upgrades OYO's outlook to positive citing positive cash flow, EBITDA

Fitch expects OYO to improve its financial performance in FY24, driven by cost reductions and a rebound in the travel industry.

Fitch upgrades OYO's outlook to positive citing positive cash flow, EBITDA

Wednesday May 31, 2023,

2 min Read

Credit rating agency Fitch has upgraded the outlook of travel tech company OYO's (Oravel Stays Limited) long-term foreign and local currency issuer default ratings (IDRs), changing from stable to positive.

Fitch also affirmed the ratings at 'B-' and maintained this rating on OYO's $660 million senior secured term loan facility due 2026, issued by its subsidiary Oravel Stays Singapore Pte Limited.

According to Fitch, the upgrade in rating was driven by OYO's expected positive EBITDA and cash flow in FY24, surpassing Fitch's earlier forecast. The company achieved positive EBITDA in every quarter of FY23, marking its first profitable year since its inception in 2012.

Fitch's rating said OYO's asset-light business model benefits from minimal capital expenditure requirements, exclusive distribution rights, pricing control over inventory, fixed revenue share, and strong long-term growth potential.

The agency anticipates significant EBITDA growth in FY24 supported by the recovery of the travel and tourism industry, stable gross margins, and cost reductions implemented by Oyo. It expects OYO's cost-reduction measures to contribute to improving profitability in FY24, while the company continues to expand its storefronts by prioritising business development.

Also Read
OYO turns cash flow positive for first time in Q4 FY23

Furthermore, Fitch predicts that travel and tourism conditions will continue to improve in OYO's key markets in FY24, building on the strong recovery experienced in FY23 due to pent-up demand for leisure travel after the easing of COVID-19 restrictions.

Fitch added that OYO's unrestricted cash at the end of FY23 is sufficient to cover its projected free cash flow deficit of around $7 million and annual debt repayment of approximately $6 million in FY24.

Moody's Investors Service also recently announced its expectation of OYO remaining EBITDA positive for FY24 and maintaining a stable outlook, projecting an EBITDA range of $50 million-$55 million after shared-based payment expenses.

In terms of OYO's future plans, the company aims to refinance its debt through a primary issuance of shares, intending to raise between $400 million to $600 million. OYO has also revealed its intention to expand its portfolio by doubling the number of premium hotels in India in 2023, adding approximately 1,800 upmarket properties.

In the UK, OYO plans to increase its portfolio by more than 50 properties, focusing on cities such as London and Birmingham. Additionally, OYO has ambitious plans to add over 100 hotels in the US during 2023.

Edited by Kanishk Singh