Fitch Ratings said on Wednesday that it has changed the outlook on India-based Oravel Stays Limited's (OYO's) long-term foreign- and local-currency issuer default ratings (IDRs) to positive from stable, while maintaining the ratings at 'B-'.

Fitch affirmed the 'B-' rating on Oyo's completely owned subsidiary, Oravel Stays Singapore USD 660 million senior secured term credit facility due 2026.

'RR4' is the recovery rating. Oyo and some group subsidiaries unconditionally and irrevocably guarantee the term loan facility. "The guarantee covers 121 per cent of the outstanding principal, up to USD 800 million, and we consider it full and worthy," the rating agency said  in a statement. 

According to Fitch, the outlook adjustment reflects its belief that OYO is on track to produce positive EBITDA and cash flow from operations (CFO) in the long term. This comes after achieving positive EBITDA in each quarter of the fiscal year ended March 2023 (FY23).

The firm added, "This is notwithstanding weaker-than-expected growth in gross booking values (GBV) in FY23, as rising GBV per storefront amid improving occupancy levels and an increased number of homes storefronts was offset by a fall in the number of OYO's hotel storefront partners."

Fitch forecasts the industry's sustained demand recovery to deliver revenue growth of more than 20 per cent. It further anticipates that OYOs operating leverage will benefit from continuous cost reductions, resulting in high single-digit EBITDA margins in FY24.

Fitch forecasts travel and tourism industry conditions in OYO's key end markets to strengthen further in FY24, following a robust recovery in FY23 from pent-up demand for leisure travel following the relaxation of Covid-19 limitations.

According to Fitch, OYO's unrestricted cash at FYE23 is enough to sustain its Fitch-estimated free cash flow shortfall of roughly USD 7 million and yearly debt repayment of around USD 6 million in FY24.