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Key risks to consider

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Key risks to consider

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Hotel company Oyo filed preliminary documents with the Securities and Exchange Board of India (SEBI) on Friday to raise Rs 8.43 billion through an initial public offering (IPO).

However, whether it’s the coronavirus pandemic, Oyo’s pace of growth, profitability, or the legal battles he’s involved in, the list of the latest tech unicorn looking to go public is not risk-free.
“All forward-looking statements are subject to risks, uncertainties and assumptions about our company that could cause actual results to differ materially from those contemplated in the relevant forward-looking statement,” the firm said in its preliminary filings for OPI.

Below are some of the key risk factors listed by OYO on its DRHP

COVID-19: Oyo, which was launched in 2013 by Ritesh Agarwal, says the ongoing pandemic and measures taken by governments to curb its spread have had an adverse impact on its business. He said these measures are likely to affect the travel industry and the company’s business.

Perpetual losses: Oyo may have become a popular platform for booking hotel stays; however, the company has a history of net losses every year since its incorporation. This can delay your ability to achieve profitability and can be a factor that leads the company to stare at uncertainty.

Growth rate: The lack of growth at a historical rate and the difficulties in executing expansion plans and implementing growth strategies is another aspect classified by the company as a risk.

Patrons and clients: If Oyo is unable to retain existing users and customers or acquire new ones in a cost-effective manner, it may not be able to deliver the desired results, according to the DRHP. Your income may decline and your business, results of operations and financial condition could be adversely affected.

Negative publicity: According to the company, another risk it faces is the possibility of not maintaining or improving the brand and reputation, which is critical for growth, or any negative publicity that could damage the brand.

Technological challenges: If the hotel company does not innovate and develop its platform or does not keep pace with technological developments, it may not remain competitive enough and the impact of which would be reflected on the business.

Zostel case: Oyo is involved in a legal battle with rival Zostel. The problems between the two companies date back to 2015 after the failure of the merger negotiations between Zo Rooms and Oyo. In March this year, an arbitrator appointed by the Supreme Court said that Oyo had breached its agreement to acquire Zo Rooms, adding that the latter can proceed to execute the final agreement.

However, while Zo claims that he is entitled to a 7 percent stake in OYO, the latter has denied the claim. He said the court had not awarded specific compensation to Zostel in terms of receiving the property in Oyo. The Delhi High Court is hearing the case.
“Any adverse outcome in legal proceedings involving Zostel may materially and adversely affect our business, reputation, prospects, results of operations and financial condition,” according to OYO’s DRHP.

Third Party Distributors: The Unicorn has listed its reliance on third-party distributors, including OTAs, travel management companies, and global distribution systems to market and distribute storefronts as another key factor that can negatively affect its margins and profitability.

Safety: Oyo said it has no control or ability to predict the actions of its users, customers and other third parties, such as neighbors or guests, during a customer’s stay.

“If our sponsors, clients or third parties engage in criminal activity, misconduct, fraudulent, counterfeiting, negligent or inappropriate conduct, immoral trafficking, sexual violence or use our platform as a conduit for criminal activity, our platform and the listings on our platform may it will be considered unsafe and we could receive negative media coverage or be subject to a government investigation, which could have an adverse impact on our brand and reputation and reduce the rate of adoption of our platform, ”he said.

Economic decline: A decline in the travel and lodging industries or any economic downturn can affect your financial performance.

Competition laws: Oyo said that he is currently involved in a matter before the Indian Competition Commission and could be subject to sanctions if such sanctions are granted.

Prices: In filing documents, Oyo has said that its pricing methodologies and the revenue shares it charges customers can be affected by a number of factors and may not always be successful in attracting and retaining customers.

Competitive environment: “The business and industry in which we participate are highly competitive, locally and globally, and we may not be able to compete successfully,” said the unicorn.

(Edited by : Yashi gupta)

First published: IST


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