OYO at a Crossroads: Scalable Hospitality Platform or Valuation Ahead ... OYO at a Crossroads: Scalable Hospitality Platform or Valuation Ahead of Fundamentals? Read more

COMPANY OVERVIEW: 

Oravel Stays Limited, globally known as OYO, began its journey as a bold Gurgaon-based startup with a singular ambition to organize and transform the highly fragmented, unbranded hospitality market using technology. Over the past decade, OYO has evolved from an aggressive, cash-burning growth engine into a more disciplined, multi-brand global enterprise, increasingly focused on sustainable profitability, premiumisation, and governance rigor.

This article presents a comprehensive corporate overview of Oravel Stays Limited, covering its business model evolution, governance framework, operational strategy, financial turnaround, risk profile, peer comparison, and future growth prospects, to assess whether OYO’s transformation is structurally sustainable or still execution-dependent.

Two-Sided Technology Platform

At its core, OYO operates as a two-sided technology marketplace:

• Supply Side (Hotel & Home Owners):
  OYO enables fragmented, unbranded hospitality assets to become digitally enabled, standardized, and revenue-optimized through pricing tools, branding, distribution, and operational technology.

• Demand Side (Customers):
  Customers gain access to a wide, reliable, and standardized accommodation inventory across multiple price points and geographies.

This platform-led approach allows OYO to scale rapidly while remaining largely asset-light, a defining characteristic of its business model.

From Budget Hotels to a Lifestyle Ecosystem

While OYO initially built its identity around economy hotels, its strategy has expanded significantly. The launch of PRISM LIFE (PRISM) as a new corporate parent brand marks a critical inflection point.

Under PRISM:

• OYO remains the consumer-facing brand for budget and mid-scale travel.

• Premium hospitality brands such as Townhouse and Sunday Hotels are scaled.

• Adjacent lifestyle verticals are integrated, including:

• Weddingz (weddings & events)

• Innov8 (managed workspaces)

• Extended stays and luxury vacation homes

This brand stratification enhances clarity, enables premium pricing, and positions the company as a lifestyle platform for the modern traveller, rather than just a hotel aggregator.

Corporate Governance Mechanisms

Key governance safeguards include:

• Audit Committee oversight of financial integrity

• Whistleblower and Vigil Mechanism

• Arm’s-length Related Party Transaction policy

• Annual Board and Committee performance evaluations

These frameworks are particularly important given OYO’s complex global structure and history of rapid expansion.

Shareholding Structure

OYO’s ownership is led by:

• Founder: Ritesh Agarwal

• Institutional Investors: SoftBank Group, Sequoia Capital, Lightspeed Venture Partners, Airbnb, and others

Financial Performance Overview 

Oravel Stays Limited’s performance from FY21 to FY25 reflects a transition from deep losses to early-stage profitability, driven mainly by restructuring, cost rationalisation, and a gradual shift toward higher-quality revenue. While key metrics have improved, the sustainability of profitability remains dependent on execution discipline and operating leverage.

Revenue Performance and Growth

• Revenue grew from ₹3,961.65 crore in FY21 to ₹5,463.95 crore in FY23, supported by post-pandemic demand recovery, inventory expansion, and higher booking volumes. Growth was strongest in FY22 (20.69%), aided by a low base and travel normalization.
• In FY23, growth moderated to 14.28%, indicating stabilization after recovery. FY24 saw a marginal decline of 1.38%, despite higher inventory, due to the onboarding of new hotels with lower initial occupancy and the deliberate exit from low-margin properties.
• In FY25, revenue rebounded to ₹6,252.83 crore, growing 16.03%, driven by maturing inventory, increased contribution from premium and company-serviced hotels, better pricing discipline, and stronger demand realization.

EBITDA and Operating Efficiency

• EBITDA losses narrowed sharply from ₹3,082.97 crore in FY21 to ₹324.41 crore in FY23, reflecting workforce rationalisation, contract exits, and operational efficiencies.
• In FY24, EBITDA turned positive at ₹1,279.98 crore, as restructuring benefits fully flowed through and margins improved in premium formats. The sharp growth in FY24 largely reflects the shift from negative to positive EBITDA rather than absolute margin expansion.
• In FY25, EBITDA declined to ₹953.43 crore (–25.51% YoY), despite higher revenue, indicating rising operating costs linked to scaling operations and premium expansion. This suggests operating leverage remains limited.

Profit After Tax (PAT)

• Net losses reduced steadily from FY21 to FY23, in line with improving EBITDA. FY24 marked the first year of reported profitability, with PAT of ₹229.58 crore, largely supported by non-cash and accounting adjustments, including deferred tax recognition.
• In FY25, PAT rose modestly to ₹244.82 crore (+6.64%), indicating stabilization but highlighting continued sensitivity to operating costs and non-operational items.

Earnings Per Share (EPS)

• EPS improved from –₹2.81 in FY21 to –₹0.92 in FY23, turning positive at ₹0.16 in FY24. In FY25, EPS increased marginally to ₹0.17, reflecting limited expansion in underlying profitability.

Capital Structure and Return Ratios

• Debt-to-Equity increased sharply until FY23 (9.15) due to losses and leverage but improved to 4.27 in FY24 and 2.60 in FY25, reflecting deleveraging and balance sheet strengthening.
• ROE and ROA turned positive in FY24, but declined in FY25 to 6.47% and 1.47%, respectively, indicating that returns are still weak and not yet supported by strong asset-level profitability.

Valuation Snapshot

• The high valuation implies expectations of sustained long-term growth, leaving limited room for execution slippage.

OYO’s improvement until FY23 was largely driven by cost control rather than revenue growth. FY24 profitability was mainly accounting-led, while FY25 shows early stabilization supported by revenue recovery.

However, moderation in EBITDA, PAT, and return ratios suggests that sustainable, cash-backed profitability is still evolving. Future performance will depend on operating leverage, margin improvement in premium inventory, and disciplined execution.

FUTURE FORECASTING 

Key Forecast Assumptions 

• Revenue Growth Rate
  OYO’s revenue is assumed to grow broadly in line with long-term global travel and tourism growth, with incremental upside from scale benefits and premiumisation of its hotel portfolio.

• PAT Margin Expansion
  Gradual improvement in profitability is expected as operating efficiency improves, premium and company-serviced hotels contribute more meaningfully, and recurring revenue stabilizes margins.

• Valuation Multiple (P/E)
  The valuation is based on a high earnings multiple, reflecting investor expectations of long-term growth, platform scalability, and improving profitability.
  
  

OUTLOOK

• OYO’s revenue is projected to rise steadily by FY30, reaching approximately ₹9,187 crore in the bear case, ₹9,402 crore in the base case, and ₹10,070 crore in the bull case. This reflects continued expansion of hotel inventory, stronger contribution from mature properties, and sustained demand for branded budget and mid-scale accommodation.
• Profit After Tax (PAT) is expected to improve in absolute terms, reaching ₹359.7 crore (bear), ₹376.1 crore (base), and ₹503.5 crore (bull) by FY30. This improvement is driven by better operating leverage, higher contribution margins from premium hotels, and tighter cost control as the platform scales.
• Despite growth in revenue and profits, the overall valuation outcome remains constrained, with estimated equity valuations of ₹56,622 crore (bear), ₹59,421 crore (base), and ₹80,058 crore (bull). This indicates that future upside is heavily dependent on sustained margin expansion rather than topline growth alone.
• The forecast highlights that even with consistent revenue growth and improving profitability, shareholder returns may remain muted unless the company delivers materially higher margins, stronger cash flows, or a significant re-rating driven by structural profitability.

The future forecast suggests that OYO is expected to grow steadily as a business, with improving revenues and profits over the long term. However, from an equity valuation perspective, the company’s current pricing leaves limited room for upside. The model indicates that execution risk, margin sustainability, and valuation discipline will be critical determinants of shareholder returns going forward.

PEER COMPARISON 

• OYO operates a technology-led, asset-light aggregation platform focused on rapidly scaling hotel inventory across budget, mid-scale, and premium segments. Its model leverages reach, standardization, and network effects to drive expansion, but this approach has led to challenges around margin stability, execution consistency, and sustainable operating leverage. In contrast, Lemon Tree Hotels follows a hybrid hospitality model centered on owned, leased, and managed hotels in the mid-market segment, prioritizing operational control, brand consistency, and steady profitability over rapid scale.
• In terms of scale versus profitability, OYO operates at a significantly larger scale, with revenues of ₹6,252.83 crore and a market capitalization of approximately ₹3.85 lakh crore, reflecting its platform-driven growth ambitions. Lemon Tree Hotels, with revenues of ₹1,286 crore and a market capitalization of ₹12,030 crore, operates at a smaller scale but demonstrates stronger profitability and financial discipline. This positions OYO as a scale-led platform business, while Lemon Tree represents a profitability- and efficiency-driven hospitality operator.
• From a growth perspective, OYO’s three-year revenue CAGR of 9.26% reflects moderate, normalized growth following restructuring. Lemon Tree Hotels, however, has delivered a much higher three-year revenue CAGR of 47%, driven by post-COVID recovery, asset-light expansion, and improved occupancies. This indicates that Lemon Tree is in a faster growth phase, while OYO is transitioning toward stable, mature growth.
• Profitability differences are more pronounced at the operating level. OYO’s EBITDA margin of 15.25% and net profit margin of 3.92% reflect early-stage profitability with limited operating leverage. In contrast, Lemon Tree Hotels reports a significantly higher EBITDA margin of 48.57% and net margin of 18.90%, supported by stronger pricing power, cost efficiency, and asset utilization, resulting in more durable and cash-backed earnings.
• Capital efficiency further differentiates the two companies. OYO’s return ratios remain weak, with ROCE of 1.46%, ROE of 6.47%, and ROA of 1.47%, indicating underutilized capital. Lemon Tree Hotels delivers healthier returns with ROCE of 13%, ROE of 18.40%, and ROA of 6.00%, reflecting superior capital deployment and shareholder value creation.
• Balance sheet strength also favors Lemon Tree Hotels. OYO’s debt-to-equity ratio of 2.60 and interest coverage of 0.99x indicate higher leverage and tighter debt-servicing capacity. Lemon Tree’s debt-to-equity ratio of 1.67 and interest coverage of 2.84x reflect stronger cash flows and lower financial risk.
• From a valuation standpoint, OYO trades at a high P/E of 157.4x and P/B of 10.18x, implying that future growth expectations are largely priced in and making the stock execution-sensitive. Lemon Tree Hotels trades at a lower P/E of 54.7x and P/B of 9.71x, which is relatively better supported by its stronger margins, return ratios, and earnings quality.

RISK 

Oravel Stays Limited’s future growth prospects are closely linked to its ability to balance expansion with financial discipline, while managing a set of identifiable risks inherent in its business model. On the risk side, the company continues to face execution risk due to the complexity of operating a large, asset-light and geographically diverse platform, where maintaining consistent service quality and partner compliance remains critical. Ongoing legal and regulatory matters, including contingent liabilities such as the Zostel dispute, create uncertainty and potential financial outflows. Additionally, the non-recognition of deferred tax assets arising from accumulated losses highlights continued sensitivity around the sustainability and timing of taxable profits. Competitive intensity in both budget and premium hospitality segments, along with exposure to cyclical travel demand and cost inflation, also poses challenges to margin stability.

FUTURE GROWTH 

From a growth perspective, OYO is well positioned to benefit from the global recovery in travel and its strategic pivot toward premiumisation through brands such as Sunday and Townhouse, which offer higher unit economics and stronger contribution margins. Continued investment in proprietary technology, data analytics, and AI-driven pricing and demand management enhances scalability and operating efficiency, supporting long-term margin improvement. The asset-light model provides flexibility to expand rapidly across geographies, particularly in high-potential markets such as the United States, without significant capital intensity. If the company successfully converts scale into sustained operating leverage, maintains cost discipline, and strengthens cash flows, it has the potential to transition into a structurally profitable global hospitality platform with improving risk-adjusted returns over the medium to long term

IPO UPDATE

OYO’s parent Prism has received shareholder approval to raise up to ₹6,650 crore through a fresh IPO, marking a renewed push to list amid improving profitability and growth momentum.

CONCLUSION

In conclusion, OYO’s evolution reflects a clear strategic shift toward financial discipline, operational efficiency, and higher-quality growth, supported by its technology-led, asset-light platform and increasing focus on premium segments. While the company has achieved important milestones in profitability and balance sheet strengthening, its valuation remains sensitive to execution and sustained margin improvement. Compared with more stable, profitability-led peers such as Lemon Tree Hotels, OYO represents a higher-risk, higher-reward opportunity. For investors, the company offers long-term growth potential driven by scale, technology, and global expansion, but returns will ultimately depend on its ability to convert this scale into consistent cash flows and durable profitability.