OYO’s Q2 profitability to get impacted due to slower budget travel recovery

New Delhi:  IPO-bound hospitality tech player OYO has surprised the industry observers by posting a positive EBITDA of Rs 10 crore in the first quarter of FY23 — against the backdrop of Rs 472 crore EBITDA loss in FY22.

The key drivers of this recovery, according to the information filed by the company, were higher monthly revenue per hotel due to increase in occupancy rates and more homes being added to the platform.

However, the overall growth in the number of hotels and homes (called Storefronts) was lacklustre, with a meagre 7.2 per cent increase in global storefronts.

Within this, the Hotels segment actually de-grew by 30 per cent to 12,700.

The company attributed the decrease to churning out of low performing hotels on its platform.

In its last update on OYO, the global rating firm Fitch sounded sceptical on the extent and sustenance of OYO’s performance recovery.

Fitch mentioned that “we believe OYO’s revenue growth in FY22 may have underperformed that of peers in the hotel industry, which grew by 50-100 per cent YOY, given OYO’s higher exposure to the mid-to-budget hotel segment, which has been slower to recover”.

The report added that “we believe that OYO will likely achieve meaningful EBITDA profit only in FY24”.

What Fitch pointed out is not surprising. The aK shaped recovery’ in India is evident in multiple industries.

While passenger vehicle sales have grown by 29 per cent YOY in October to 3.36 lakh, two wheelers have been dragging at 1.3 per cent YoY to 14.97 lakh despite the excitement created by the new entrants in the EV space.

Consumer distortionary as a segment have prospered while the staples in the FMCG space continue to witness slow growth. The budget-conscious consumer segment has clearly not come out strongly to spend, at least till now.

Additionally, since the second quarter is the weakest one historically, especially in OYO’s core India market, when the summer vacation driven travel is absent and the monsoons deter travel, the company may witness a dip in the revenues for Q2 FY23, and will at best be able to eke out a similar range of Rs 10 crore EBITDA.

With second quarter being a relatively lower travel season in India, it won’t also be able to bank upon its European business — OYO Vacation Homes (OVH) — to bolster the bottom-line, given the high inflation, high energy prices and low growth overhang in the European market due to the warring neighbour and key energy supplier Russia.

This miss will also flow through directly to the net loss which will likely stay similar to the Rs 406 crore reported in Q1, given the two near-term sticky components of interest and ESOP costs.

According to industry observers, OYO will probably have to wait till the third quarter which is seasonally the strongest, driven by winter holidays and festive demand, to be able to demonstrate that the EBITDA positive quarter wasn’t a flash in the pan, but was driven by structural shift in the business to a profitable one, at least at the EBITDA level for now.

Not just that, it will have to deliver a sterling EBITDA growth in the second half of FY23 to make up for the anticipated weak Q2, they added.

–IANS

 

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