The Current Insights and Challenges Faced by OYO Rooms

Yash Gupta Yash Gupta Anik Banerjee Anik Banerjee
Oct 1, 2021 8 min read
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 traveling 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.

OYO - Latest News

October 1, 2021 - OYO successfully files its DRHP with SEBI to raise around Rs 8430 crores in its upcoming IPO round.

OYO- Growth, Expansion and Valuation
OYO- Funding
OYO- Major Acquisitions
OYO- Challenges
Conclusion
FAQs

OYO- Growth, Expansion and Valuation

Ritesh Agarwal
Ritesh Agarwal, Founder

In 2012, Ritesh Agarwal launched Oravel Stays to enable 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.

In 2018, OYO reported a loss of Rs 330.97 cr which was better than the previous year. Furthermore, in 2019, OYO registered 3.5x growth in revenue in FY 2017–18 at Rs 416 cr for India operations and a marginal loss of 360 cr.

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 sets foot in UAE after China
OYO is on an expansion spree after launching its operations in 350 cities across India, Nepal and Malaysia. The latest operations embarked by OYO is in UAE hospitality space.

OYO- Funding

Oyo has raised a funding of $4.1B in total, as of August 20, 2021. The company raised $5Mn in their last funding round dated 20th August 2021, led by Microsoft. The company has seen 20 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.

Date Stage Amount Lead Investors
August 20, 2021 Corporate Round $5M Microsoft
July 29, 2021 Corporate Round - Microsoft
July 16, 2021 Debt Financing $660M -
March 11, 2021 Debt Financing $200M Softbank Vision Fund
Jan 6, 2021 Series F $7M Hindustan Media Venture
Dec 10, 2019 Series F $1.5B Ritesh Agarwal, Softbank
Nov 30, 2019 Debt Financing $6.73M MyPreferred Transformation
April 1, 2019 Series E $75M Airbnb
Feb 14, 2019 Series E $100M Didi
Dec 7, 2018 Series E $100M Grab
Sep 25, 2018 Series E $1B Softbank Vision Fund

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.

Major Acquisitions

Oyo Rooms have acquired 7 companies till date. Denmark-based data science firm, Danamica remains the last company that was acquired by OYO in September 2, 2019 at $10M.

Acquired Date Amount
Danamica Sep 2, 2019 $10M
Leisure Group May 1, 2019 $415M
Qianyu Islands March 26, 2019 -
Innov8 Coworking March 15, 2019 $30M
Weddingz Aug 13, 2018 -
AblePlus Solutions Pvt. Ltd. July 10, 2018 -
Novascotia Boutique Homes March 18, 2018 -

Ritesh Agarwal’s OYO heads for global expansion
24 year old Ritesh Agarwal’s solution to a backpacker’s ordeal of unpleasantsurprises to horrors of the “budgeted” hotels is a booking app that promisesclean, affordable and branded hotels. The youngest self-made entrepreneur,Ritesh Agarwal’s net worth is ₹2,600 crore as he made to the Barclays …

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.


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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 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

Who are competitors of Oyo Rooms?

  • Yatra
  • Fabhotels
  • ClearTrip
  • Treebo
  • MakeMyTrip
  • Airbnb

How does Oyo tie with hotels?

You can visit the site of partners with OYO and register your hotels and homes to get associated with OYO.

How much does Oyo pay the hotel owners?

Oyo rooms charges a commission of 20-25% from its associated accommodation partners.

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