SoftBank-backed OYO said to weigh 50% smaller IPO as markets sag

OYO, the high-profile affordable lodging startup that filed for an initial public offering last year, is considering slashing its fundraising target by half or even shelving the debut, according to people familiar with the matter.

Faced with headwinds including slumping stock markets, OYO-operator Oravel Stays Ltd. could clip its Indian IPO from the nearly $1 billion initially sought to half that, the people said, declining to be identified discussing internal matters. It’s considering also halving its expected valuation from the $12 billion originally targeted, they said. OYO could even decide to suspend its IPO plans, the people said.

“We strongly deny the assertion that we are either shelving the IPO or changing valuations dramatically,” OYO said in an emailed response late Thursday, while declining to share specific financial details.

The deliberations over IPO size underscore investors’ reluctance to buy into IPOs during a time of extraordinary market turmoil. The Airbnb Inc.-backed startup had already considered lowering its target valuation to $9 billion earlier this year after Paytm’s disastrous debut -- but that was before the Ukraine conflict and inflationary concerns ignited a global tech selloff.

OYO, backed by investors including SoftBank Group Corp and Sequoia, made preliminary filings in September aiming for an IPO in early 2022. Nearly six months later, the initial documents, known as a draft red herring prospectus, have yet to get a green light from India’s stock market regulator.

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Path to profitability

The company, however, said it continued to receive investor interest and has seen improving business performance as it awaits approval from the market regulator. Aided by rebound in travel and tourism, the company’s EBIDTA losses in the April to September period “were 66% lesser that we witnessed in the same period last year moving toward a clear path to profitability,” OYO said.

None of OYO's IPO-related deliberations have proceeded far enough to come up for formal discussions or approval at the board level, the people said.

OYO's hesitance is emblematic of a cooling in India’s unicorn-minting technology industry, where nearly 50 startups got venture funding at valuations of $1 billion or more in 2021 alone. This year, there have been signs of slower fundraising and contracting valuations, as investors harbor second thoughts.

The most palpable slackening has been in the IPO arena, after tumbling stock prices dampened investor enthusiasm.

Also read: OYO appoints Prakash Padariya as Chief Information Security Officer

SoftBank, OYO's largest backer and one of the most prolific dealmakers in Indian startups, is now taking a more cautious approach with its investments there. The Japanese firm, which was bullish throughout last year, has held back funding for at least two startups after handing out term sheets, or agreements that spell out the terms and conditions of an investment, according to a person aware of the matter.

The two startups operated in the e-commerce and software-as-a-service segment, where valuations have diminished dramatically.

If OYO decides to modify its IPO terms drastically, it will need to file a fresh DRHP, one of the people said.

Many other startups that have received approval for their IPOs have chosen not to proceed. Delhivery Ltd.’s nearly $1 billion IPO hasn’t moved ahead, and neither has API Holdings, which operates online pharmacy Pharmeasy. Delhivery and API received regulatory approvals in January and February, respectively.

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