Startup Sunday Season 3 Episode 8 (OYO Rooms)

OYO Rooms, to be valued at $2 Billion, could be the next entry in the Unicorn Club. Started in 2012 the success story of Gurugram based OYO rooms almost seems like a fairy tale. Founded by Ritesh Agarwal,24, a tall, thin, scruffy looking guy who would be lost in crowd is an inspiration to every budding entrepreneur. Earlier this June the online hotel aggregator, which reportedly has a network of over 1,00,000 rooms in India, has already started establishing its presence in London & China. Let’s unwind the story of OYO Rooms! Your budget-friendly holiday home.

The Maestro and the Orchestra

Ritesh Agarwal hails from a well-off business family from Bissam, Cuttack. At the age of Ritesh.png8, he started coding and thus began his love for software programming. At the age of 16, when he was in Kota to join IIT, Ritesh travelled extensively and stayed in odd Bread & Breakfast (B&B) places and by the time he was 18, he dropped out of college to kick-start his entrepreneurial dream. It’s been an exceptional journey for Ritesh, from being a college drop out at 18 to a Millionaire at 24.

In 2012, Ritesh Agarwal started with Oravel Stays! replicating the model of Airbnb i.e. providing short and midterm rental B&B joints, serviced apartments and private rooms. But the Company failed to pick up and garner any movement; so ultimately in 2013 the existing business model was tweaked to make way for “OYO Rooms”.

Let’s have a look at the journey and funding rounds of OYO.OYO - Funding.png

If a recent report of Times of India is to be believed, Tencent, China’s Internet giant has OYO.pngheld talks to lead a fresh $300 – 500 Million financing in the brand. The latest fundraiser is likely to value OYO at over $2 billion, which is more than double its previous valuation of $850 million. The fundraiser is likely to accelerate OYO’s business in the Chinese market.

Business Model & Are they making profit?

Oyo rooms works on an aggregator business model, but unlike its competitors like Yatra, Goibibo, etc. OYO’s business model is quite unique. Instead of just listing the hotel availability on its platform, OYO partners with the various organized and unorganized Hotels and have strict standardizing guidelines. This helps OYO have a unique place amongst the aggregators. Let’s deep dive into it.

For Organized Hotels,

  • They book the inventory of the hotel rooms for a certain time by paying in advance, after some bulk discounts.
  • Since these hotels are already standardized, OYO directly lists these luxurious rooms on their website at budget prices.
  • This is simply a hotel room reselling model at affordable prices.Example.png

For Unorganized Hotels

  • For hotel rooms that do not meet the standards, they partner with the owners to give it a makeover as per it’s guidelines.
  • These rooms become exclusive OYO Rooms with OYO branding all over. The individual hotel losses its name and thus a standardization is achieved.
  • Profit is shared with each room booking instead of a commission.

OYO is seeing a per room realization of Rs. 1650 on an average after discount, the average room is booked at Rs. 3000 per night. OYO boasts 70% Occupancy, that implies an annual revenue of Rs. 42 billion but as with all start-ups, the Company’s Balance sheet is showing losses right now but these losses have gone down from Rs. 4.96 billion in FY16 to Rs. 3.25 billion in FY 17. Initially, these losses were incurred because of the high marketing and branding cost and net loss in the organized hotel sector. The business model of OYO is unique and sustainable. The catch of the business lies in occupancy. Higher the Occupancy, higher the profit.

Way Ahead

Starting on its multi-brand strategy, OYO launched OYO Homes in FY 17 that unlocked over 1000 holiday homes in leisure destinations. The company has also started leasing townhouses under the banner OYO Townhouse. Earlier this year, after it had already expanded its business in London & Chinese Markets, the Company aims to shift to 100% inventory model and have 1.8 lakhs rooms by the end of FY 18. A $20- billion market, the budget hotel segment is buzzed with activities with OYO targeting a 4.5 percent market share.

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