Prism Hotels and Resorts, the parent company of hospitality platform OYO, has disclosed a range of material business and legal risks in its updated draft red herring prospectus (DRHP), as the company moves closer to a proposed initial public offering (IPO). The filing, reviewed ahead of the offering, reveals that OYO's financial recovery rests on fragile foundations — marked by heavy overseas dependence, an unresolved legal battle with Zostel Hospitality, and profits driven more by tax credits than core operations.

Overseas Revenue Now Dominates

According to the updated DRHP, revenue from operations outside India has climbed sharply, accounting for 83.77% of total revenue during the nine months ended December 2025, up from 74.70% in FY23. The shift signals a structural reorientation of the business away from its domestic base.

The United States alone contributed 27.07% of revenue in the latest period — surpassing India's share of 16.23%. Combined, the US, the UK, and Europe accounted for 72.36% of total company revenue. This concentration in geographies outside India exposes OYO to currency volatility, regulatory shifts, and economic cycles in markets it does not control.

The Zostel Dispute: A Shareholding Overhang

The prospectus devotes considerable attention to the long-running legal dispute with Zostel Hospitality, rooted in a proposed acquisition announced in 2015 that was never completed. An arbitral tribunal subsequently ruled that the non-binding term sheet signed by both parties was enforceable — a finding that created significant legal exposure for OYO.

OYO later succeeded in having the arbitral award set aside by the Delhi High Court on public policy grounds. However, Zostel has challenged that ruling before a division bench under Section 37 of the Arbitration and Conciliation Act, keeping the matter very much alive.

The company has warned in the DRHP that if Zostel ultimately obtains a final, non-appealable order in its favour, OYO could be required to issue or transfer up to 7% of its shareholding — or pay an equivalent amount in cash — to Zostel and associated parties. This represents a meaningful dilution risk for prospective IPO investors.

Profitability: Tax Credits, Not Operations

OYO reported a turnaround from a restated net loss of ₹1,286.52 crore in FY23 to profits in both FY24 and FY25. However, the DRHP explicitly notes that FY25 profitability was significantly aided by a deferred tax credit. Stripping out this benefit, the company recorded a loss before tax for the year.

This distinction is material for investors assessing the sustainability of OYO's recovery. A turnaround driven by accounting adjustments rather than operating leverage raises questions about whether the business can sustain profitability once such one-time benefits are exhausted.

What Investors Should Watch

The DRHP disclosures collectively paint a picture of a company in transition — internationally diversified but domestically diminished, legally encumbered, and operationally not yet self-sustaining on a pre-tax basis. The outcome of the Zostel appeal and the trajectory of international revenue margins will likely be the two most closely watched variables as the IPO process advances. Market observers will also be tracking whether OYO can demonstrate operating profitability independent of tax-related tailwinds before the final prospectus is filed.