Is the third time the charm for Oyo?

**Akshara** (0:04)
In today's episode, we'll break down two important stories. First, we'll talk about the OYO IPO, and then we'll talk about the economics of shipbreaking in India.
Welcome back to The Daily Brief by Zerodha, where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara, and today is Tuesday, 21st July. Coming to the first story.
So you've probably already heard that O'Raval, the company behind OYO, is gearing up for an IPO.
This is the company's third attempt at going public. It first flirted with the idea back in 2021, when it was reportedly looking for a valuation of $12 billion.
It pulled back then only to file a new offer document in 2023, and it's trying yet again. But this time, its offer documents talk of a different looking business. Now, one hint of that shift comes from its name itself. In the previous avatar, the company rested heavily on the OYO brand. But last September, it re-branded itself as Prism after the software that runs its hotels. The choice was meant to reflect a new reality. The company had pivoted to running a diversified ecosystem of brands under its umbrella, and OYO was now just one brand among many. Nine months hence, the company has made a new set of filings to go public, and this time, it wants to pick up Rs 6,650 crore entirely from selling new shares. Neither its founder Ritesh Agarwal nor SoftBank, its largest shareholder, is selling any shares. So how investible is OROVAL now in its third attempt?
For that, it's worth looking at the business it has now morphed into and what dreams it's chasing. So OROVAL's investment pitch rests on the incredible potential of the market it's in.
So the world's hospitality industry is worth roughly $1.3 trillion.
Most of that is broken and unorganized, made of independent unbranded properties, which run without a technological backbone or a way to reach customers. And this is true of India, where 92 percent of hotel storefronts are unorganized. It's also true of advanced markets like Europe, where 77 percent are in the same boat. So OROVAL wants to become the software and distribution layer to this massive market.
Any small hotel can sign up and list on its service. And within half an hour, the listing shall be up on the OYO app, as well as 230 odd other travel sites. OROVAL will handle check-ins, keys and payouts, all for a share of the booking amount. So OROVAL promises a large base of direct demand for anyone who signs on. Around 7 in every 10 bookings come to the company through its channels, and they save the 15 to 20 percent commissions other sites charge on each of those. The company boasts a high number of returning customers and a loyalty program with 16.64 million members in India. Now till recently, most of its offerings were limited to budget Indian hotels. And then it began to expand its footprint. So it captured a foothold in the United States by acquiring G6 Hospitality, which ran the Motel 6 chain, and it also picked up vacation home brands in Europe. More than 80 percent of revenue now comes from outside India, but most of its staff still sits in India and is paid Indian salaries. This is the dream. And for the first time, it can back the dream with earnings as well. O'Raval's operating profit has gone from Rs 274 crore two years ago to nearly Rs 2000 crore in the latest nine months, as its bookings have doubled. But can its business really match its ambitions the way it currently stands? So looked up close, O'Raval barely seems like a single business.
On the surface, O'Raval claims to operate nearly 3 lakh storefronts across 35 countries. But few of those resemble what you think of when you hear OYO Hotel. Just over 24,000 of those storefronts, or around 8% are hotels. In contrast, it runs almost 1.25 lakh homes, most of which are vacation homes in Europe, managed by firms like Bellevilla and Dan Centre. It also has over 1.44 lakh third-party listings, all of whom pay a flat fee to sit on its platform. Based on offerings alone, ORAVEL is partly a hotel booking website and partly a company that manages short-term rentals in Europe with a small hotel arm appended to it. Each business makes money in a different way. So let's start with hotels. The simplest is the classic OYO room you're probably familiar with. Once an independent owner signs up under a brand like OYO, ORAVEL takes over the pricing and the listing, and from this point, ORAVEL is the one selling the room. It sets the price, it recognizes everything a guest pays as its own revenue, and later, the hotel owner is paid separately. Between April and December last year, it recorded almost Rs. 4,300 crore in revenue from this vertical. But this model came with a problem. As long as its hotels were run by others, they would be plagued by quality issues. Rooms would be unclean or wouldn't match the photos uploaded online. They infamously even had privacy issues.