Fitch Ratings announced on Monday that it has upgraded the long-term foreign and local currency issuer default ratings of Oravel Stays, the parent company of OYO, from 'B-' to 'B', with a 'Stable' outlook. This upgrade reflects the hospitality firm's strengthened financial standing.

Additionally, Fitch has raised the rating on Oravel Stays' USD 660 million senior secured term loan due in 2026 from 'B-' to 'B'. The decision is based on expectations that OYO's EBITDA leverage will fall below 5x, supported by continuous EBITDA growth, cost reductions, a rebound in short-term stay demand, and a recent USD 195 million debt buyback in November 2023.

The upgrade follows OYO's recent financial success, with the company posting a net profit of approximately INR 99.6 crore (USD 12 million) for the fiscal year 2023-24, as shared by Founder Ritesh Agarwal during a recent town hall meeting.

Fitch highlighted OYO's strong liquidity position, noting the company's adequate cash reserves and the anticipation of positive free cash flow starting from the financial year ending March 2025 (FY25). As of March 2024, OYO had about USD 95 million in unrestricted cash, surpassing Fitch's post-debt buyback projection of USD 80-90 million.

Fitch believes that OYO's enhanced profitability and decreasing leverage will facilitate timely refinancing of its debt. The rating agency also forecasts continued improvement in the travel and tourism sectors within OYO's main markets for FY25.

Overall, Fitch's upgrade of Oravel Stays' ratings underscores the company's improved financial health and positive outlook for the future.