Hotel room aggregator Oyo Hotels and Homes is raising US$1.5 billion as it looks to expand its footprint in overseas markets such as Europe and the US. This round of funding will be done by founder Ritesh Agarwal, SoftBank Group Corp and other investors.
Agarwal, will spend $700 million to buy new shares in the company as part of a previously reported $2-billion plan to triple his ownership stake to 30% from 10%. Existing investors such as SoftBank’s Vision Fund, Lightspeed Venture Partners and Sequoia India will contribute the rest.
The 25-year-old founded Oyo in 2013 during his teens and built it into India’s second-most valuable startup with a valuation of about $10 billion.
The service covers 1.2 million rooms in over 80 countries, including 590,000 rooms in China, where it operates under the brand name Oyo Jiadian and has a tie-up with online travel aggregator Ctrip. It also entered the US earlier this year and now lists 7,500 rooms in 60 cities.
Japanese banks Mizuho Financial Group and Nomura Holdings are bankrolling Agarwal’s share acquisition, according to people familiar with the deal. He is buying some of those shares from Sequoia and Lightspeed, and will carry out the transaction through an entity called RA Hospitality Holdings, Oyo said.
Oyo India’s valuation of $10 billion makes it second only to One97 Communications, the parent of digital payments pioneer Paytm. E-commerce giant Flipkart Online Services Pvt was acquired by Walmart last year in a $16-billion deal.
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Agarwal founded the startup in his teens after dropping out of college and traveling in India on a shoestring budget. The erratic standards at hotels and guest houses he encountered inspired him to start the online service and the brand now aims to provide travelers with a consistent experience.
Oyo mainly signs on hotel owners, then helps them upgrade everything from bathroom fittings to furniture and bedding, and provides standardized supplies like sheets and toiletries, plus support to train their staff. It gets a cut of roughly 25% of every booking. Rooms usually cost between $25 and $85.
Rival ventures
The success of Oyo had spawned similar ventures under brands such as Treebo and FabHotels. However, they could not stop Oyo’s meteoric rise and are no match to the number of rooms it has on offer and reach.
In the 2018 fiscal year, Oyo India registered revenue of 4.16 billion rupees (58.58 million), up from 1.2 billion rupees the previous fiscal year, against losses of 3.6 billion rupees in FY18 — a marginal increase from 3.5 billion rupees in the preceding fiscal year. For the 2019 fiscal year, Oyo expects to grow revenue by 15 billion rupees.
Oyo has a presence in 80 countries, in comparison with Treebo, which reportedly has over 400 hotels on its platform across more than 75 cities in India, while FabHotels has over 500 hotels in more than 40 cities in India.
Meanwhile, the Oyo phenomenon in the budget hotel segment has also affected certain well-established hoteliers.
Indian Hotels Co, the hotel arm of Tata Group, is planning to dispose of certain budget inns in the nation’s non-metro areas and lease them back for a fee, in order to pare debts. The group operates budget hotels under the brand name Ginger and plans to sell six of them.