Ritesh Agarwal’s ambitions for Oyo are still intact

Last week, Oyo agreed to buy Motel 6 from Blackstone for $525 million in cash. The Ritesh Agarwal-led company will finance the deal partly by raising debt.

The acquisition will significantly increase Oyo’s presence in the US and entrench the dominance of international markets within the company’s overall business. But more importantly, at least in the short term, it will significantly improve Oyo’s profitability.

Oyo reported its maiden annual net profit of ₹229 crore in the year ended 31 March, 2024. The company estimates that Motel 6 will add ₹630 crore of Ebitda (earnings before interest, taxes, depreciation, and amortisation) in FY26. It expects its overall Ebitda to rise to ₹2,000 crore. That, combined with a revival in sales growth, will position Oyo well to attain an attractive market capitalisation on the public markets, given the increasing appetite among stock market investors for new-age tech companies.

IPO aspirations

Although it withdrew its IPO filing in May, Oyo wants to go public at some point. And, why not? Stock prices of Indian internet companies like Nykaa, PolicyBazaar and Cartrade have registered a remarkable turnaround this year. Even battered Paytm has recovered most of its losses over the past four months; its stock had crashed after the RBI directed the company in January to shut its payment bank.

Until this year, apart from Zomato, most other internet stocks had declined after listing. It’s not just internet stocks, the broader market has been on a tear this year. Whether the rally and the current market levels are sustainable is anyone’s guess. But the spectacular performance of internet stocks this year, along with a funding downturn in private markets, has prompted other startups like Oyo to make a beeline to list their shares.

Also Read: Vivek Kaul: Today’s IPO frenzy can’t be attributed to India’s growth story

For several years before the pandemic, Oyo had expanded recklessly. Fuelled by Agarwal’s dreams of world domination, backed by SoftBank, the company opened hotels in nearly 80 countries, including the US and China, the world’s two largest economies. By the end of 2019, it had become the second-most valued startup in India at $10 billion. But even before Covid-19 hit travel and hospitality, it had become clear that Oyo had grown too fast for its own good.

During the pandemic, it was forced to cut tens of thousands of jobs, exit hopeless markets and give up its world domination ambition. In its latest funding round last month, it was valued at $2.4 billion, less than a fourth of its 2019 valuation. Its revenues are still far off from pre-pandemic levels. While the company has avoided a collapse, its decline has been humbling.

The opportunistic Motel 6 acquisition, however, shows that Agarwal still harbours ambitions to become a large global hotel brand. To his credit, despite the many setbacks, Agarwal has held firm and stabilised the company. He has also increased his holding in Oyo, now estimated at 33% (although it’s not clear how exactly he financed the $2 billion he invested in Oyo in 2019 and how he will pay it back).

Oyo’s maiden net profit, posted last year, is likely to increase in the coming years, especially if it can revive sales growth. It’s easy to forget that Agarwal is still only 30 years old. He has time on his side. But it will likely take several years more for him to return Oyo to its 2019 peak — a cautionary tale for entrepreneurs whose unfettered ambition leads them to lose touch with the reality of daily operations.

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