Many dangers remain for the pandemic-struck online travel agency, OYO Rooms and Hotels or Oravel Stays Limited (its official name) which filed its public offering with SEBI for ₹8,430 crore ($1.1 billion), last week. Yet, even though the tourism sector has scarcely recovered from multiple lockdowns, OYO’s indebtedness is one of its biggest—maybe its biggest worry right now.

The Draft Red Herring Prospectus (DRHP) filed with the regulator said that the management will have broad discretion over the use of the net proceeds from the public offering. Half of it, however, will go to paying back a mezzanine loan or term loan B (TLB) of ₹4,972 crore ($660 million) raised this July from institutional investors. The remaining amount will go towards business expansion and no more than a quarter will be put to corporate purposes.

The $660 million loan—the total of borrowings now—in July was then raised to service other existing loans. The loan carries an interest of 8.25% over the benchmark LIBOR rate—the interest rate at which major global banks lend to one another.

OYO has weathered net losses since its inception in 2013. It may not be profitable yet, but the company did manage to narrow losses from ₹12,799 crore in 2020 to ₹3,929 crore in 2021.

Atop that burden, its total income decreased catastrophically by 69% from ₹1,3413 crore in 2020 to ₹4,157 crore in 2021.

The financial state could end up making it more difficult to meet financial obligations, and even harder to face up to fluctuations in the economy; the weakening Indian currency rates; more competitors; failure to service debts in time, an increase in the cost of future borrowings, etc., being the other threats.

Though the DRHP only has figures until March 2021, things may be on the mend soon as what is being referred to as ‘revenge travel’ comes into play. After staying at home for hundreds of days, people are eager to make up for lost time and bookings using OYO’s Direct to Customer, or D2C platform will hopefully rise.

In its filing with the regulator, the company relates in great detail the hit on business because of the pandemic’s travel restrictions—a trend that lasted through 2020 and did not reverse until the second quarter of 2021.

Other than the Covid-19 restrictions, causing a drag on the company’s financials is the debt it leveraged for expanding to vast new geographies.

The company grew rapidly across Indian borders, to Malaysia, Indonesia, and Europe where it has the bulk of its storefronts, the firm said. OYO maintains it was instrumental in streamlining unorganised and scattered hospitality sectors in the countries it invested in. They boast of more than 157,000 storefronts operating in more than 35 countries, listing millions of rooms on its platform.

OYO plans to expand further in the U.S., Latin America and Europe.

Yet, it scaled back in China—a country it once saw as a future growth market. In April 2020, Fortune India reported 30% of the 10,000 China-based OYO employees were asked to leave.

Some say such global ambition was not folly. Sanchit Vir Gogia, chief analyst and CEO of Greyhound Research compares OYO to its competitor, Airbnb, which would never have been the success it is if it were to operate out of only one country alone, he said.

“It is a business that has been built in a rush,” said an analyst who wished to remain anonymous, “a lot of money has been pumped into it, and not enough attention paid to the business on the ground: the customer experience, processes, etc. compared to Ola, Zomato, but even Flipkart and Paytm—that set; it lacks their focus.”

Raising debt to meet impending financial obligations of a previous loan, too, is a sign that they were not able to raise enough money, says the founder of a Gurugram-based management advisory.

Some industry observers question the timing of OYO’s move. For instance, OYO’s contemporary, food delivery app—Zomato, which went public during the lockdown—did so because it boomed during the pandemic. That was not the case with OYO.

Sandeep Das, author of Hacks for Life and Career: A Millennial's Guide to Making it Big—who is also a stock analyst—says though the business will take a few years to become profitable, it will benefit from the ‘positive sentiments’ that reign in the markets now.

"Expansion is always tricky as it involves significant customer acquisition costs. OYO might (want) to pare losses in existing markets rather than spend to enter new markets. Despite the economic recovery, they will take at least 18-24 months to arrive at respectable revenue growth," says Das.

The Gurugram-based advisor adds further that one must differentiate between an IPO and the business, “The IPO will be successful. The market is so hot right now anyone will pick up the shares. But the matter remains; that the reason Airbnb and Amazon work better is that when they were growing, they were building businesses that were world-class and then they brought them to India. They weren’t trying to be the biggest or the fastest-growing, as OYO is.”

“It’s the ecosystem that gets you to play the cards you are dealt. Ritesh Agarwal (OYO's founder) is a part of the larger VC-driven ‘growth at all costs’ ecosystem,” said Piyush Sharma, global CEO, C-suite and start-up advisor.

Gogia defends OYO, "Such challenges are not unusual when a company “creates a new category (of a tech-led travel agent) as OYO has.” Indeed, it took Amazon a long time to become profitable, he said, calling these businesses ‘category creators.’

OYO is at pains to increase revenue and pay off loans while controlling operating costs to achieve profitability but such sacrifices may ultimately affect lodgers’ experience.

OYO also got poor publicity when The New York Times reported that the firm was refusing to pay its patrons, putting off some investors.

The public offer does not suggest a price or the number of shares, making it hard to arrive at its current valuation. Although, a previous estimate placed it at $9.6 billion, making it one of the enviable clubs of tech unicorns India produced in recent years.

Follow us on Facebook, X, YouTube, Instagram and WhatsApp to never miss an update from Fortune India. To buy a copy, visit Amazon.