Unlocking Oravel Stays Limited - Key financial metrics to watch

Key Highlights

• Oyo’s financial revenue for FY 23 crossed ₹5500 crore
• Oyo narrowed losses for FY 23 to ₹1,286.5 crore from ₹1,941.5 crore in FY 22

An important aspect to watch out for as an investor of a company going for an initial public offering is its financial metrics. While an initial public offering (IPO) is an essential event in a company’s lifecycle, understanding the firm’s financial health is crucial for making informed decisions. Oravel Stays Limited, better known as Oyo, will soon come out with its IPO. Watch out for these financial metrics before you invest.

Essential financial metrics you should consider

• Revenue from operations

Revenue from operations indicates a company’s ability to generate income from its core business activities. It shows a firm’s ability to create sales and sustain its operations. Increasing revenue typically indicates growth, and it’s a fundamental component in calculating profitability ratios such as gross profit margin, net profit margin and operating profit margin. These ratios help assess how efficiently a company can convert sales into profits.

Oyo’s revenue from operations recorded an increase of 14.3% to ₹5464 crore [1] in FY 23 from ₹4871 crore in FY 22.

• Profit after tax

Profit after tax or PAT represents the net income available to shareholders after deducting all expenses and taxes. In other words, it reflects a portion of the revenue available to the company's shareholders after deducting all costs.

Consistent and growing PAT indicates that the firm is generating substantial revenue to cover its expenses and can retain its earnings for future investments. A higher PAT demonstrates that the company can provide better returns to its shareholders.

• EBITDA

EBITDA provides a snapshot of a firm's operating performance by focusing on its core business operations. It presents a clearer picture of how well a company generates profits from its main business activities. EBITDA helps assess a company's operational efficiency without being influenced by tax regulation or capital structure variations.

A high EBITDA reflects robust operational profitability and efficiency. As per Moody's, Oyo's EBITDA is expected to jump 65% year-on-year in FY 24 [2].

• Debt-to-equity ratio

This ratio reflects the proportion of a firm's financing coming from debt compared to equity. A high debt-to-equity ratio suggests that much of the company’s financing comes from debt, while a lower ratio indicates more reliance on equity.

A higher ratio typically implies higher financial risk, as companies with significant debt face increased interest payment risks. This can impact profitability, especially during times of economic downturns.

• Return on equity

Return on equity or ROE is another key is another essential parameter that helps you gauge a company's profitability. It's an indication of how well a company has utilised the money of shareholders. A high ROE indicates that the company can effectively turn equity into profits, which is favourable for investors. It also provides insights into how well the company's management is deploying shareholders' capital to generate profits.

While a higher ROE is generally positive, it's vital to consider the underlying factors contributing to the return and if they are sustainable.

Summing it up

While these are some of the essential metrics you need to watch before investing in Oyo’s IPO, make sure to go through the company’s draft red herring prospectus (DRHP) to understand the potential risks. Seek help from a financial advisor to ensure the investment aligns with your goals.