Fitch Downgrades OYO's Ratings

Fitch Ratings has given downgraded Oravel Stays Ltd's (OYO) long-term foreign and local currency issuer ratings (IDR) from "B" to "B-" due to the uncertainty that hospitality companies will record significant EBITDA profits in FY2011.

The outlook for the instrument is stable. This reflects comfortable liquidity, with sufficient cash available to cover the expected free cash flow (FCF) deficit over the next two years, and the risk of refinancing long-term debt is limited.

Fitch has downgraded the ratings $660 million senior secured term loan facility due 2026, issued by OYO's subsidiary Oravel Stays Singapore Pte Limited from "B" to "B-". The term loan facility is unconditionally and irrevocably guaranteed by OYO and certain subsidiaries within the group.

Fitch expects OYO's revenue to increase by approximately 30% in FY23, below agency expectations. This was due to a slower recovery in travel demand in the core market and slower growth in the number of partner hotels and homes.

The liquidity is sufficient. OYO's unlimited cash in FYE22 was sufficient to cover Fitch's estimated FCF deficit of $74 million and annual debt repayment of $6 million in FYE23, but liquidity weakens as cash burns increase.

The business model has not been compromised and the profile benefits from its diverse market presence in India, Southeast Asia, and Europe and its moderate barriers to entry. These are offset by involvement in the price-sensitive travel market.