In less than a year, OYO's China business is half as big as India's

OYO Logo | Photo: Wikimedia Commons
In less than a year of entering the Chinese market, Gurugram-headquartered budget hotel room brand OYO Rooms has built a base of over 50,000 rooms. This is almost half of the company’s entire inventory in India where it has been operational since 2013.

In this July alone, the SoftBank-backed company added over 25,000 rooms to its inventory in China. Even in the three months that ended in June, Oyo Rooms added a total of 47,000 rooms in China as compared to 34,000 in India, signifying a higher growth rate in the foreign market.

In his presentation to the investors on Monday, Masayoshi Son, Chief Executive of the Japanese investment giant said that OYO had added 81,000 rooms to its platform in the April-June period, which is about eight times the number of rooms the world’s largest hotel chain Marriott had added during the same period.

He also said that OYO in India with 101,000 rooms is now seven times larger than one of India’s largest hotel chains, Taj Hotels Resorts and Palaces. By the end of the year, Son said, the Ritesh Agarwal-led firm will grow to have between 150,000 and 200,000 rooms, making it over ten times larger than the Tata-owned hotel chain in the country.

According to Son, this drastic growth is being driven by enhancing the efficiency through the use of artificial intelligence, translating to higher occupancy for partner hotels from 30 per cent to 78 per cent in the past one year.

“OYO has the most advanced hotel management. It is not a travel agent but manages hotels comprehensively with its management, booking technology, quality control method and efficient AI. About 43 million micro optimisations take place each day for demand projection to decide on the dynamic pricing of OYO rooms,” he explained. 

SoftBank is the largest shareholder in OYO, having led three investment rounds in the company. OYO has raised around $450 million in funding so far. In September 2017, when OYO went for a $250-million funding round, the company achieved a valuation of $850 million, bringing it close to the Unicorn tag. It is now said to be in talks with Chinese technology giant Tencent to raise between $300 million and $500 million.

OYO is currently present in 26 Chinese cities, including Hangzhou, Guangzhou, Xian, and Shenzhen, offering a combination of franchises and managed hotels. Among other international geographies, OYO is already operating in Dubai, Malaysia, Nepal and Thailand while the company has expanded to London last month.

When asked how soon OYO would become profitable, Son said the company is already profitable at a unit level, and would become profitable at company level as it scales further.

“The cost of acquisition and development are considered early proactive investments, but since the volumes are huge, growth margin should exceed such affixed costs. Once it exceeds, you will see dramatic improvement in profitability, similar to what Google, Microsoft and Facebook have proven,” Son added.

Talking about SoftBank’s other portfolio companies, Son said, he was expecting some of these firms to become profitable in 5-10 years, and even some could go for IPO (initial public offering) even before that happened. For SoftBank’s Vision Fund to make money, it needs to drive value of its investments and not just their profitability, he added.

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