India’s OYO Aims To Disrupt Global Hotel Industry

The birth of Oyo Hotels

OYO Rooms, is generally known as the OYO which is regarded as India’s largest hospitality company that comprises of largely the budget hospitals. The company was founded during the year 2013 by Ritesh Agarwal and ever since its establishment the business has grown over 8,500 hotels in 230 cities of India, UAE, China, Nepal and Indonesia. Following three months of the research and staying in more than 100 bed the owner established a pivoted Oravel to OYO in the year 2013 (Gupta, 2018). OYO builds partnership with the hotels to provide similar guest experience all through the cities. Shortly following the launch of the Oravel Stays, Ritesh Agarwal received a grant of $100,000 as the part of the Thiel Fellowship from the Peter Thiel.

OYO Rooms asserts to be one of the branded network of budget hotels and hence claims to be different from the other hotel aggregators and OTAs (Online Travel Agents) namely Goibibo, Make my trip, Clear Trip and Yatra. The business model of OYO Rooms is such that it simply connects the hotel aggregators with the guests by listing the hotels on their website and taking up the commission as their revenue (Owler 2018). Several times the hotel aggregators work on the deal with the hotel aggregators for a minimum order guarantee per month and as a result they are able to offer discounted rates and deals on the rooms in comparison to the rates that is given by the hotel to the normal guest. The business model of OYO Rooms is such that it makes it lucrative for the guests. The business model of OYO Rooms is that it neither owns any hotels nor it is the hotel aggregator.

OYO Rooms builds partnership with the non-standardized hotels and blocks rooms by purchasing them for a specific period of duration. OYO later resells the room under its brands to potential guests (Owler 2018). The business model of OYO Rooms is such that it naturally adds up to the operational costs and demands huge amount of working capital to the first block the rooms. This enables the owners to understand where their money is going.

The manner in which OYO Rooms functions is different from the Online Travel Agents (OTA) as they emphasis on the co-branding. According to reports OYO forms partnership with the two to three star hotels and also includes the standardized guest house and attracting customers though their website or applications. The initial marketing strategy of OYO Rooms involved listing hotel of its properties.

During the late 2017, OYO Rooms launched an Airbnb such as marketplace for the short term managed rentals. OYO Rooms has the presence in more than 10 leisure destinations of India that also includes Goa, Shimla, Pondicherry, Udaipur, Kerala etc. In the month of April 2018, Oyo launched the OYO Home in Dubai which is the first international accommodation for the company.

Figure 1: Figure representing OYO Overview

(Source: Owler 2018)

The capital structure of OYO Rooms involves venture capital financing that is raised from numerous sources. OYO Rooms raised a “Series A” round of funding that comprised of $24 million from the light speed venture Partners, Sequoia Capital, Greenoaks Capital and DSG Consumer Partners (Owler 2018). During the month of August 2015, OYO Rooms raised another $100 million from the Softbank an existing investor. In the following year of 2016, OYO Rooms raised another $90 million from the Softbank Group, Innoven Capital and the existing investors.

Growing Oyo’s inventory

Further in the year of 2017 September, OYO Rooms announced that it had closed down a Series D funding of $250 million that was led by Softbank Group, new investors Hero Enterprise and Light Speed Venture Partners (Borio and Disyatat 2015). China Lodging also made a strategic investment to OYO Rooms that amounted to $10 million during the year 2017 in September.

The venture financing of OYO Rooms continued in the financial year of 2017 as the company managed to raise another $1 billion during the month of September 2018. The major part of the funding was raised from Softbank vision fund where Lightspeed also participated with Greenoaks Capital and Sequoia which amounted to $800 million. Therefore, major part of the capital structure for OYO Rooms is based on the Venture capital funding.

Round	Funding Date	Amount	Investors
Series E	Sep-18	$1 Billion	Light Speed Venture
Series D	Sep-17	$10 Million	China Lodging Group Ltd
Series D	Sep-17	$250 million	Softbank
Series C	Apr-17	$250 million	Softbank
Equity	Aug-16	$61.7 Million	Softbank

OYO faces major competitors from the following

1. Treebo Hotels
2. Fab Hotels
3. Vista Rooms
4. Lemon Tree Hotels Ltd

OYO Rooms faces intense competition from the above stated businesses. Treebo competes with OYO Rooms, Fab Hotels and beside this it also faces competition from Make My Trip, Yatra and ibibo group that have also entered into the hotel industry. While companies such as OYO rooms have continued to raise capital but with the intense competition prevailing in the market other small companies namely Mumbai Based Instant Hotels Around You Pvt Ltd, Stayzilla and RoomsTonite have closed down.

Furthermore, online competitors such as Make My Trip offer intense competition to OYO Rooms as the company has more than 13,000 hotels and guest houses in India and more than 184,000 (Gupta, 2018). Yatra.com on the other hand, partners with more than 7500 hotels and holidays packages in a day and accounts 21.17% of its revenue from the hotel services. The business has presence on the websites and applications as well and draws more number of customers from its website and mobile applications.

Fab Hotels is viewed as one of the biggest rivals of OYO Rooms and Vista Rooms. The business was founded during the year 2014 in Gurgaon. Fab Hotels has more 20 employees versus Vista Rooms and OYO Rooms. Similar to Vista Rooms, OYO Rooms also competes with the Hotels space and produces more $397 million in terms of revenue. Another competitor that has emerged into the market of accommodation industry is the Lemon Tree Hotels Ltd (Hoenig and Henkel 2015). The business owns more than five thousand rooms in more than 31 cities of India until date. The lemon tree hotels are regarded as the largest chain of medium priced hotels in India and it is third largest overall hotels in terms of the controlling interest and leased rooms.

The capital structure of Lemon Tree Hotels Ltd presents the Authorized Capital, Issued Capital and Paid-Up Equity Capital of the company over the time period.

Capital Structure of Lemon Tree Hotels Ltd
Period	Instrument	Authorized Capital (Rs Cr)	Issued Capital	Capital
From	To		(Rs.Cr)	(Rs.Cr)	Rs
2017	2018	Equity Share	1001.4	786.4	786.4
2016	2017	Equity Share	998.5	781.2	781.2
2015	2016	Equity Share	998.5	778	778

Taking into the account the capital structure of Fab Hotel the company raised funding of around $8 million from the Accel Partners, Qualcomm Ventures, Mohandas Pai’s Aarin Capital and RB Investment (Manigart and Sapienza 2017). In the following year of 2017, Fab Hotels further reported the receipt of funds that amounted to $25 million from the Series B funding from the Goldman Sachs and Accel Partners also participated in the Series B funding to raise capital for Fab Hotels.

Founding Date	2015
Fabhotels total funding	$35.3 million
Fabhotels latest funding	$25 million
Investors of Fabhotels	Mohandas Pai, Accel Partners, Qualcomm Ventures, RB Investments, Goldman Sachs

Oyo’s expansion plans

Figure 2: Figure illustrating Capital raised by Fab hotels

(Source: Hoenen et al. 2017)

Treebo one of the Hotel Aggregator has reported that the revenue of the company multiplied by around 10 times in the revenue during the financial year of 2017, however the company reported an increase in the net loss due to the higher instances of expenditure (Fu, Yang and An 2018). The total amount of revenue for the company increased to $20.6 million for the year 2016-17 representing a $2.3 million rise in from the reported period of 2015-16. The net loss also increased by $7.5 million from the year $25.1 million.

Taking into the account the capital structure of the company the budget chain of hotel raised the funding of $34 million from the series C funding that was led by the Hong Kong based investment firms namely Ward Ferry Management and Karst Peak Capital (Ghoshal 2018). The existing investors namely SAIF Partners, Matrix Partners India and Bertelsmann India Investment also took part in the process of funding for Treebo Hotels.

During the year 2016, the company raised around $16.7 million in its Series B funding across by the Bertelsmann India Investment, the strategic investment vehicle of international from the international media company (Bril, Kalinina and Valebnikova 2016). The existing investors includes the SAIF partners and Matrix Partners India also took part in the fund raising activity. Furthermore, during the year 2016 the company further raised $6 million from the Series A funding round which was Co-led by the Matrix and SAIF.

The capital structure of Vista rooms suggest that the Vista rooms has venture capital structure as the company has obtained fund from the Angel Investors and equity crowd funding. The capital structure of the company is mainly based on the equity financing and raised $736.8K in the form of funding over one round (Cbinsights.com 2018). Being the start-up company Vista Rooms raised 1.5 million of capital from the seeds funding.

Investors	Type of Investors	Participating Rounds
Rajan Anandan	Angel Investor (Individual)	Seed VC
Let’s Venture	Equity Crowdfunding	Seed VC
Girish Mathrubootham	Angel Investor (Individual)	Seed VC
Singapore Angel Network	Angel Investor (Group)	Seed VC
Artha India Ventures	Venture Capital	Seed VC

Acquired Company	Date of Acquisition	Amount
Weddingz.in	August 2018	Undisclosed
ABLEPLUS	July 2018	Undisclosed
Novascotia	March 2018	Undisclosed

The above stated companies represents that OYO Rooms have acquired three companies and during the year 2018 of August the company has acquired Weddingz.

OYO Rooms is regarded as the largest hospitality company that is shaping the evolution of the hotel industry in India. The innovative business model of OYO Rooms is viewed as unique and indigenous to India and the business is looking forward to solve the problems of small hotels through the help of rapid technological advancement and procedure (Kandampully Zhang and Bilgihan 2015). As the business is not competing with the international template, the company is not on certain circumstances understood well and regularly the metrics of the business is misrepresented and cited beyond context.

During the quarter ending month of June in the year 2017, the business has observed its highest revenue producing month with the total amount of booking value standing close to $100 million setting up the higher watermarks for the business. The net amount of daily realised rooms per night have increased by 30% from the quarter to quarter and 1.7 times growth from year to year revenue (Jones, Hillier and Comfort 2016). The strong foundations of the company have strongly laid the foundations for strong growth where the players are representing growth in terms of consolidation. The business has growth organically with the single mind focus of introducing the quality of living based on the correct price and locations.

Oyo’s innovative approach

The quarterly realized rooms per night and revenue have increased by more than twelve times over the last two years. This represents the revenue that is derived from the guest for the rooms used per night.

Figure 3: Figure representing revenue growth of OYO Rooms

(Source: Jauhari and Bharwani 2017)

The take rate turned out to be positive from the month of March 2016 and the number have increased significantly upwards ever since the business gained market. As the matter of fact during last month, more than 33% of the booking value for OYO Rooms made up the net take rate of 20% (Jauhari and Bharwani 2017). In spite of the fact that the OYO Rooms keeps it reasonable level to assure that the its business partners make sufficient amount of money at the end of the day representing that the partnership have scripted the business of accommodation industry together.

OYO Rooms is growing at a faster rate and at the same time the business is making a giant leap towards the quality of its guest experience. The company has better been able to grow its business based on the top-line metrics. The business is keenly aware of the fact the growth has mainly been attained at the expense of costs. For OYO Rooms, it was mainly the long term capability creation (Peneder 2014). For the financial year of 2015, 2016 and 2017 the audited financial statements of OYO Rooms represent the growth in the number of customers. The investments made by the business have facilitated the creation of niche set of capabilities that results in higher base of growth in the profitability.

The business development team of OYO Rooms specializes in converting its properties at the correct places and selling them at the correct place. This has significantly contributed enormously towards the growth of the business. The on-ground strength of OYO Rooms has reflected in the number of guests per rooms and majority of the OYO Rooms properties are running at 80% occupancy in the key business cities (Murthy 2015). The wide shift in the network is made realistic from its partners that have been entrusted with the sole brand and business partners for creating a value cash producing asset.

Figure 4: Figure representing growth in cash producing asset

(Source: Mason and Harrison 2017)

Over the short period of time the business has achieved the scale where it becomes tough for OYO Rooms competitors to enable sustainable business practices. Presently, OYO Rooms is witnessing 45% of the repeat customers which is mainly because of its unified product experience, efficient marketing and rock-solid delivery capabilities. Majority of its lookalikes is mainly dependent on the online travel agents that basically makes some degree of business rationale due to the unviable economic and lower customer repeat or retention rates (Michaels, Page and Whited 2016). OYO Rooms has created capabilities where more than 98% of the demand is directly without the dependence on Online Travel Agents.    

Conclusion: 

On the conclusive note OYO Rooms ever since its establishment has gained immense popularity. The main source of capital structure is based on the venture capital funding and angel investors. However, OYO Rooms faces intense competition from the Treebo, Vista, Fab Hotels, Make My Trip and Lemon Tree Hotels Ltd. A recommendations can be made for OYO Rooms is that the business can increase more corporate tie-ups as this would further help OYO Rooms in expanding from two tier cities to the three tier cities. The business can strengthen its tie up with travel and tourism department to increase its operations in the prominent states across India. Furthermore, in a step forward to strengthen its competitive advantage OYO Rooms can tie up with the airline companies for room bookings and also increase its expansion across Asia and Europe.   

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