Moody’s Changes OYO’s Rating to B2 from B3, Denotes Stable Outlook

Moody’s has increased the corporate family rating of OYO’s parent company, Oravel Stays Limited, to “B2” from “B3”.

The rating agency has maintained a stable outlook for the travel technology firm, which has seen a financial turnaround in recent quarters, according to Business Standard.

Sweta Patodia, associate vice president and analyst at Moody’s, attributed the upgrade to OYO’s increased profitability in recent quarters. She stated that the positive results have greatly improved the startup’s credit metrics.

Related: OYO Buys American Motel 6’s Arm G6 Hospitality for $525 Mn

The news follows on the heels of OYO’s proposed refinancing of its existing term loan with another lender. According to the article, once completed, the transaction will likely reduce the startup’s refinancing risk.

In the same report, Moody’s gave a “B2” rating to the proposed $825 million senior secured term loan facility to be used by the hospitality major’s subsidiary, Oravel Stays Singapore Pte. Ltd. Deutsche Bank will fully underwrite the term loan.

It is important to highlight that OYO is completing a new $825 million term loan with a five-year duration. A significant portion of these money, together with the $174 million raised by OYO between June and August of this year, will be used to repay existing debts that maturity in June 2026.

While this is expected to alleviate OYO’s refinancing concerns, a portion of the revenues will be used to fund the proposed $525 million acquisition of US-based G6 Hospitality, the parent company of the Motel 6 and Studio 6 brands.

Moody’s anticipates OYO’s profitability to rise further following the successful merger of G6, particularly with “cost synergies of $20 Mn to $30 Mn following a seamless integration of corporate and support functions”.

The rating agency also stated that the homegrown travel technology major’s acquisition of French rental home company Checkmyguest (CMG) in July of this year will pave the way for an increase in earnings before interest, tax, depreciation, and amortization (EBITDA) to around $134 million in fiscal year 2024-25 (FY25).

Overall, Moody’s said that “sustained improvement in operating performance” resulted in $56 million in EBITDA for OYO in the first half (H1) of fiscal year 25.

The Moody’s improvement comes at a time when OYO is rapidly growing its global reach, strengthening operations in the country, and releasing a slew of new products.

The hospitality industry leader promises to provide integrated solutions to its customers, who run over 1.5 lakh hotel and home stores in 35 countries across India, Europe, and Southeast Asia.

With the post-pandemic travel boom, OYO became profitable in FY24. The travel technology major posted a net profit of INR 229.5 crore for the year, compared to a net loss of INR 1,286.5 crore in FY23.

However, income from operations fell 1.3% to INR 5,388.7 crore in FY24, from INR 5,463.9 crore in FY23.

OYO CEO Ritesh Agarwal has stated that the business aims to treble its net profit to INR 700 crore by FY25.