Fitch Ratings Elevates OYO Parent Oravel Stays with a 'B' Grade

Fitch Ratings, a global leader in credit ratings and research, has recently upgraded the ratings of Oravel Stays, the parent company of OYO, a renowned hospitality firm. This decision reflects the company's enhanced financial profile, showcasing a positive trajectory in its operational performance. The upgrade includes an elevation of Oravel Stays' long-term foreign and local currency issuer default ratings from B- to B with a stable outlook. Additionally, the rating on the USD 660-million senior secured term loan facility due in 2026 has been raised to B from B-.

Representative image

The rating upgrade is attributed to Fitch's projection that OYO's EBITDA leverage will improve to below 5x, driven by sustained EBITDA growth amid cost savings, a rebound in demand within the short-term stay market, and OYO's strategic buyback of USD 195 million in debt in November 2023. This financial maneuvering underscores OYO's commitment to strengthening its balance sheet and enhancing shareholder value.

Furthermore, this upgrade follows closely on the heels of OYO announcing a net profit of nearly Rs 99.6 crore (USD 12 million) for the fiscal year 2023-24. This announcement was made by Founder Ritesh Agarwal during a townhall meeting with employees, marking a significant milestone in the company's journey towards profitability.

Liquidity and Market Outlook

OYO's liquidity position has been deemed adequate by Fitch, bolstered by a sufficient cash balance and the anticipation of positive free cash flow starting from the financial year ending March 2025 (FY25). The company's recent debt buyback initiative of USD 195 million (Rs 1,620 crore) further illustrates its proactive approach to financial management.

As of March 2024, OYO boasts an unrestricted cash reserve of around USD 95 million, surpassing Fitch's post-debt buyback expectations of USD 80-90 million. This robust liquidity is expected to support OYO's ability to refinance its debt timely, ensuring long-term financial stability and growth.

Fitch also highlighted its optimistic outlook for the travel and tourism industry conditions in OYO's key markets for FY25. This positive sentiment is based on the anticipated continued recovery and growth within the sector, which should bode well for OYO's operational performance and financial health.

In conclusion, Fitch Ratings' upgrade of Oravel Stays' ratings is a testament to OYO's improved financial profile, strategic debt management, and promising market outlook. As the travel and tourism industry continues to recover, OYO's focus on profitability and liquidity positions it well for sustained growth and success in the coming years.