look news india
A big news regarding Prism / Oravel Stays, the parent company of hospitality and hotel chain sector giant OYO, is fast going viral in the corridors of the stock market and primary market. This news is going to prove to be very important for the investors who were waiting for this mega IPO for a long time. According to market sources and recent media reports, Oyo may reduce the size of its proposed IPO by half (by about 50 percent).
While earlier the company was preparing to bring a fresh issue of around Rs 6,650 crore, now news is coming that it can be reduced to around Rs 3,350 crore (about $400-600 million). The company’s changing financial model, strengthening cash flow and strategy to rapidly improve its balance sheet are said to be the reasons behind this big decision.
The news of Oyo’s IPO size being halved is raising many questions in the minds of both retail and institutional investors. But according to experts, this is part of a well-thought-out strategy of the company.
In the last few years, the company has worked rapidly on cost reduction (Cost Optimization) and restructuring of foreign business. With the addition of international brands like Motel 6, Studio 6, Belvilla and DanCenter and improved operations, the company’s EBITDA has become consistently positive. When a company is able to run its business and repay its debt from its internal cash flow, there is less need to dilute existing equity by issuing new shares in excess of the market.
Additionally, analysts believe that smaller issue size is easily absorbed by the market, which increases the chances of getting better premium and strong response on the listing day.
According to the company’s updated draft red herring prospectus (UDRHP) and reports, this entire IPO does not include any offer for sale (OFS) component. This simply means that existing investors and promoters like SoftBank, founder Ritesh Aggarwal, Microsoft, Airbnb, Peak XV Partners or Lightspeed are not selling any of their shares.
The entire amount raised will go directly into the company’s coffers as a ‘fresh issue’. The main objective of the company is to spend a large part of the funds received from IPO in repaying its old debt (Debt Repayment). When the company reduces its debt burden, interest expenses will reduce and net profit will directly increase.
This company led by Ritesh Aggarwal had submitted documents to SEBI through confidential and public route. Market experts estimate that the company can enter the stock market (NSE and BSE) during this current financial year with its revised size.
After the news of reduction in the size of IPO, there is movement in the unlisted share market (Pre-IPO Market) also. Investors are seeing this as a positive sign for Oyo as the company is now focusing on profitability and sustainable growth instead of just chasing big valuations. When the company files the final RHP in the coming days, its price band and exact listing date will become completely clear.