OYO Gets 'B2' Rating from Moody's; What Does It Mean For The Hospitality Giant?

Global rating agency Moody’s has raised the corporate family rating (CFR) of Oravel Stays Limited (OYO) from B3 to B2. The upgrade reflects improved profitability and operational performance of Ritesh Agarwal-led hospitality start-up over recent quarters, according to a Business Standard report.

As per Moody’s, B2 rating indicates that the corporate obligation is speculative and has a high credit risk. This upgrade follows the proposed refinancing of OYO’s existing term loan through another credit which is expected to alleviate the company’s refinancing risk.

The agency has also assigned B2 rating to OYO Singapore’s $825 million senior secured term loan facility. The term loan is fully underwritten by Deutsche Bank. Currently, OYO is in the process of securing a new five-year $825 million loan. The amount will be used to repay its existing loans that mature in June 2026. In addition, the proceeds will also help the company’s $525 million proposed acquisition of a US-based hotel.

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OYO's Performance Shift

The start-up’s operating performance has continued to improve, considering its business growth and sustained cost optimisation efforts. The company has also generated an EBITDA (including employee stock ownership expenses) of $98 million for FY24, remarkable improvement from the $34 million EBITDA loss in the previous year, the report said.

It added that the company’s negative free cash flows also moderated to $17 million from $84 million over the same time period. The start-up has maintained sustainable improvement in operating performance as it generated $56 million EBITDA for the first half of FY24-25. Moody’s stated that the earnings will further increase upon the successful integration of its Motel 6 acquisition worth $525 million deal from US investment firm Blackstone Real Estate.

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Under the Motel 6 brand and the Studio 6 extended brand, the company has nearly 1,500 economy lodging locations both in the United States and Canada. Motel 6 was acquired by Blackstone in 2012 for $1.9 million from French hospitality group Accor. Blackstone claimed that it invested significant capital to enhance the brand value of Motel 6. This in turn made the acquisition by Oyo lucrative.

Besides this, the company also achieved a profit after tax of Rs 158 crore in the second quarter of the current fiscal ended September. In Q2 FY25, Oyo's revenue surged to Rs 1,578 crore, from Rs 1,413 crore in Q1.

As of now, Oyo operates over 320 hotels across 35 states in the country. The company added nearly 100 hotels in 2023 and it aims to add around 250 hotels in 2024.