The Current Insights and Challenges Faced by OYO Rooms

Back in 2013, a college dropout spotted the untouched opportunity in organizing India’s budget hotels while travelling through the country. His startup has reached up to 3.5x growth in revenue when it was valued at 10 Billion dollars in October 2019.

It’s easy to guess that OYO Rooms, a thriving venture by a young entrepreneur Ritesh Agarwal, is being spoken about.

The funding marks OYO’s presence as India’s most successful unicorn. OYO has successfully raised a whopping $4.1B, as of August 20, 2021. The company has marked its footprints beyond India—in China, Malaysia, Nepal, and the UK. Here's an insight into Oyo Rooms subsidiaries, growth and the challenges faced by Oyo.

Oyo Rooms - Latest News
Oyo Rooms - Growth, Expansion and Valuation
Oyo Rooms Subsidiaries
Oyo Rooms - Funding
Challenges Faced by Oyo Rooms

Oyo Rooms - Growth, Expansion and Valuation

In 2012, Ritesh Agarwal launched Oravel Stays to enable the listing and booking of budget accommodations. After months of research and experiencing various bed and breakfast homes, guest houses, and small hotels across India, he pivoted Oravel to OYO in  May 2013.

OYO partners with hotels to offer world-class guest experiences across cities. Shortly after launching Oravel Stays, Ritesh Agarwal received a grant worth $100,000 as part of the Thiel Fellowship from Peter Thiel, which greatly contributed to shaping his startup.

OYO Rooms currently houses 17,000 employees globally, of which approximately 8000 are in India and South Asia. OYO Hotels & Homes is now recognized as a full-fledged hotel chain that leases and franchises assets.

Over a span of six years, the startup expanded globally with thousands of hotels, vacation homes, and millions of rooms in hundreds of cities in India, Malaysia, UAE, Nepal, Brazil, Mexico, UK, Philippines, Japan, Saudi Arabia, Sri Lanka, Indonesia, Vietnam, the United States and more. It is even valued higher than the renowned  Taj group of hotels and Oberoi hotel chain.

As per the DRHP filed by the company recently, the total income of OYO, which stood at Rs 13,413.26 crore in the previous FY20 fell by nearly 70% in FY21, standing currently at Rs 4,157.38 crore. All of these can be pointed out as the adverse effects of the pandemic, which restricted the Indians largely to their homes. However, it is important here to note that the company saw a massive 70% contraction in losses though.

The losses of Oyo became as less as Rs 3,943.8 crore in FY21 when compared to the loss of Rs 13,122.77 crore in FY20. This is due to the reason of the huge fall in the expenses of the company, which was recorded at Rs 22,800.12 crore in FY20 and came down to Rs 6,936.07 crore. The company's expenses on employee benefits also drastically declined by 63% to Rs 1,742.12 crore in FY21, from Rs 4,765.28 crore in FY20 because of numerous layoffs.

The business that undoubtedly bore a considerable amount of the brunt of the pandemic is looking to rise again after the lockdown relaxation this year 2021. Oyo took its first step towards growth by raising funding from the American software giant, Microsoft, as part of strategic investment.

Along with Microsoft, Oyo has a set of other strategic investors, which includes Chinese ride aggregators Didi Chuxing; South-East Asian ride-hailing giant, Grab and Airbnb, American online marketplace for lodging, tourism, and homestays.

The total valuation of OYO is $9.6 Bn, as of August 20, 2021, after the company raised $5 Mn from Microsoft.

Oyo Rooms Subsidiaries

Oyo Rooms have acquired 8 companies to date. Denmark-based data science firm, Danamica was the last company that was acquired by OYO on September 2, 2019, at $10M, after which Oyo acquired Direct Booker on May 9, 2022. The Croatia-based hospitality service provider has more than 3200 homes with it and has serviced 2 mn+ customers so far. The acquisition of the Nikola Grubelic and Nino Dubretic-founded company is expected to strengthen Oyo's presence in Europe, especially in Croatia.

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Oyo Rooms - Funding

Oyo has raised a funding of $3.1B in total, as of January 13, 2022. The company raised $29.72Mn in funding on January 13, 2022. Oyo previously raised an undisclosed debt financing round on December 16, 2021. The Ritesh Agarwal-led company raised its Series F round worth $5Mn on 20th August 2021, which was led by Microsoft. The company has seen 22 funding rounds to date.

Softbank Group, Lightspeed Venture partners, Airbnb, Sequoia India, Microsoft, Chinese Didi Chuxing, Garb, and more make up the lead investors' panel for OYO.

Oyo is currently eyeing an IPO soon for which the company is likely to file its Draft Red Herring Prospectus (DRHP) within the next 10 days, according to the reports dated September 23, 2021. The company is looking forward to raising around $1 Bn through its IPO round, which will consist of an offer for selling shares from the existing shareholders along with some fresh issues of shares.

Oyo has shortlisted 3 investment banks - JP Morgan, Kotak Mahindra Capital, and Citi eyeing its IPO that is to be worth over $1 billion, as per the last reports on August 9, 2021. The hotel and hospitality industry was among the most affected industries due to the strike of the Covid19 pandemic.

Now that the world is unwinding, this industry has the potential of witnessing a record recovery. This is also the reason why the software giant, Microsoft is planning to invest in this sector, and Oyo will not lose out on this opportunity of receiving the much-needed funds from Microsoft, which is why it is gearing up towards an IPO.

Furthermore, OYO has allegedly decided to proceed with a domestic IPO, however, they would also keep other options open.

Oyo has filed its Draft Red Herring Prospectus (DRHP) along with the details of its upcoming IPO round on October 1, 2021. The hospitality giant is looking to raise around Rs 8430 crores, which will be consisting of an offer for sale (OFS) of Rs 1,430 crores and a fresh issue worth 7,000 crores. SoftBank Vision Fund will offload shares worth Rs 1,328.5 crores and shall be standing as the biggest beneficiary of the OFS whereas, Global Ivy Ventures and China Lodging Holdings will be selling Rs 23.13 crores and Rs 51.62 crores worth of stakes respectively.

Oyo might raise close to Rs 1,400 crores with the help of a private placement in a pre-IPO round before the listing. This might reduce the size of its IPO to Rs 7,030 crores.

The upcoming IPO of OYO is on the back foot. This is because the Federation of Hotel & Restaurant Associations of India (FHRAI) the regulatory body of the hotels, has written to SEBI, charging the company over alleged fraudulent and unfair business practices, as reported on October 26, 2021.

Oyo was earlier charged by FHRAI for the ‘anti-competitive' measures that the company has embraced, with the Competition Commission of India (CCI). Furthermore, FHRAI also noted that an investigation by the anti-trust body is still pending and in its advanced stages. Besides, the company has also significantly failed to disclose the information.

According to the hotel's regulatory body, Oravel did not make a fair disclosure on the nature and consequence of the CCI-directed investigation and in turn, "has tried to confound investors by conflating irrelevant issues relating to the interim reliefs sought by RubTub Solutions Private Limited (Treebo) and Casa2Stays Private Limited (FabHotels)"

All these are reasons enough that the IPO of Ritesh Agarwal-led Oravel Stays will more likely be rejected because no past incidents where a company was under the CCI probe have been allowed to go ahead with the IPO.

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Challenges Faced by Oyo Rooms

Despite the shiny, successful exterior, OYO’s reputation has been dubious soon after its founding. OYO’s work culture raises questions about the proficiency of its business, according to financial filings, court documents and interviews with 20 current and former employees along with the others familiar with the startup’s operations.

Unethical growth strategies

OYO offers rooms from unavailable hotels, those that have halted its service, according to the company’s chief executive and nine of the current and former employees. This boosts the number of rooms listed on OYO’s site.

Thousands of rooms are from unlicensed hotels and guesthouses, its executives have acknowledged.

To save the trouble from the authorities over the illegal rooms, OYO sometimes provides free stays to the police and other officials, according to nine of the current and former employees and internal WhatsApp messages, as viewed by The New York Times."

Having a huge base of unmarried couples, a scheme involved workers at properties run directly by OYO conspiring to keep the guests checked in after they left. The workers then cleaned and resold the rooms for cash to other guests and nabbed the money, says an ex-worker.

Complaint of unpaid dues

OYO charges extra on hotels while refusing to pay the amounts to the hotels, which they claimed they were owed, according to the interviews with several hotel owners and employees, legal complaints, and emails viewed by The New York Times. Some hotel operators have filed criminal complaints against OYO, which said it retained payments. Aditya Ghosh, OYO’s head of India operations, dismissed the argument as “noise,” he said, “the disagreement is about the penalties we charge on customer service failure”.

Protests by hotel owners

Independent protests by small-scale hotel owners are surfacing up in mid-tier towns like Pune, Kota, Manali, Ahmedabad and Jaipur as well as Delhi and Bengaluru. They claim that OYO has been eluding them of their promised returns and minimum guarantees by imposing a ream of charges, often without informing them. Many of these charges are not specified in the contract between the owner and OYO.

The protestors state that OYO’s accounting and auditing process, and the penalties associated with petty faults and errors, are so heavy that they sometimes find themselves owing money to OYO at the end of the month.

Covid-19 Impact

Almost every business suffered a lot due to Covid-19, OYO was not any different. The hospitality business suffered a lot, and the occupancy rates of the hotels slow down due to all the lockdown curbs imposed by the Government. Even after the lockdown was over, people were being cautious and were avoiding travelling, so naturally, the occupancy rates were not increasing.All the restrictions created a negative impact on the revenues of the business

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Conclusion

Despite the hurdles, OYO has broadened its horizons beyond the bounds of India as well as just hotels. “Anyone who’s tried to innovate and attempted creating large organizations has faced bad press; Mark Zuckerberg, Steve Jobs, Elon Musk, Bill Gates—so I think he’s in the regal company,” said Ankur Nigam, a partner at KPMG. “I don’t think it’s fair to judge whether he’s a good leader. What’s visible is that he’s managed to build a $5 billion company and nothing succeeds like success”.

Oyo happened to be one of India’s most gifted startups. It witnessed its valuation jump to $10 billion in 2019. Additionally, Ritesh Agarwal also had in his hand 30% of the profits. However, belonging to the hotel and hospitality industry, Oyo also happened to bear the brunt of the coronavirus pandemic. This is the sole reason why it saw a drop in its valuation in 2020.

The unicorn startup was valued at $8B by the Hurun Global Unicorn Report 2020. After the last funding round led by the software giant, Microsoft, Oyo's valuation jumped $9.6 Bn, as reported on August 20, 2021. Oyo has bigger plans upcoming that the company feels too early to disclose.  

It’s one thing to think of business tactics, and another to be morally wrong. OYO should realize the fact that integrity is what makes the pillars strong in the long run. If it loses its ethics in the first few successful years, it’s impossible that the company would ever be remembered for any good.

Diversification of its humble beginnings as a budget hotel chain, Oravel Stays—the entity that owns and operates the OYO brand clearly aims for the sky and has accomplished triumph in the last five years to mark its eminence.

FAQs

What is the problem with Oyo?

Oyo rooms is facing challenges like protests from hotel owners, Complaints of unpaid dues and unethical growth strategies.

Is Oyo losing money?

Although Oyo has managed to narrow its losses from ₹12,799 crores in 2020 to ₹3,929 crores in 2021. The revenue of the company has plunged rapidly during the Covid-19 pandemic.

Who are Oyo's competitors?

OYO Rooms's top competitors are MakeMyTrip, ClearTrip, Yatra, Treebo and Fabhotels.