OYO to invest $1.2 bn in global expansion

SoftBank-backed Indian budget hospitality chain OYO, which operates in multiple markets including India and China, will invest over a billion dollars (about ~87 billion) over the next three years to add several 100,000 rooms to its brand.

The bulk of the spend from the outlay of $1.2 billion will be towards expansion in India and China.

“We have earmarked

$600 million for China and India is a very important market... and we will invest $300-400 million in India. We had a strong balance sheet before the recent capital raise of $1 billion. We will put strong resources behind both the India and China markets because both are our home markets and offer sizeable opportunity,” Ritesh Agarwal ( pictured), the 24-year-old founder and chief executive officer of OYO, told Business Standard.

Agarwal said the five-year-old firm had $200 million on its balance sheet before it raised $1 billion a month ago from investors, including SoftBank, taking the capital to $1.2 billion. “We will invest roughly $900 million to $1 billion between India and China and approximately $300

million in other international markets,” he added.

The last fund raise valued the company at $5 billion. OYO started its journey in May 2013 with a single hotel in Gurugram and it now has about 300,000 rooms under management globally.

Of these, 133,000 rooms are in India, followed by 129,000 in China, and the rest in markets like the UK, the UAE, Indonesia, Malaysia, and Nepal.

Irrespective of the challenges that many non-Chinese firms face in China, Agarwal remains focused and bullish on the country.

“We now operate in over 260 cities in China with over 2,500 assets and over 129,000 keys under management as of end-September. Needless to say, the October metrics will be very attractive as the pace of renovation of hotels that have joined us continues to accelerate,” he said.

OYO said it was adding 60,000 rooms every month to its network. Of those, 40,000 rooms are being added in China.

Agarwal said of the $600 million spend in China, half will go towards upgrading a large number of assets to make them become a suitable modern living space, targeted at millennials.

In cases where OYO puts its own

money in renovating a hotel, it charges a higher fee from the owner. A strong team of 500 civil engineers are on the job in the world’s most populous country. The company said it had built a network of 600 vendors who were supplying the products required for upgrading the hotels joining OYO. But the bigger job for OYO comes after renovation.

After renovation, it is important to take up occupancy, he said. “We are able to take occupancy starting at an average 28 per cent to 65-70 per cent after the hotel is leased or franchised by us. It is a fantastic jump in utilisation for asset owners in the span of a couple of months.”

OYO, which started the China journey in November last year, is among the top 10 hotel chains in the country. “We have been able to bring strong leaders such as Jia Zou, our chief technology officer, and Wilson Li, our chief financial officer, and others. We have been able to get more than 15 per cent of the business from third-party distributors such as online travel agents and offline agents. We have commercial relations directly or indirectly with all the distributors,” said Agarwal.

However, it gets 80 per cent of the revenue from its own channels such as walk-ins, call centre and so on. He claimed that almost 90 per cent of the company’s hotels in China were rated four-star and above on third-party review platforms and it has 65 per cent repeat users. Agarwal said OYO had created 60,000 jobs in China, a large number of them being skilled by the company’s training institutes. “If you see in India, we have created over 100,000 jobs. We feel we can do the same in China. We think of India and China as our home markets and the rest of the world as international,” he pointed.

While it ranks among the top 10 already, OYO has bigger ambitions. “We are looking at ways to grow to the No. 1 chain in China. We believe there is an opportunity with the 35 million rooms in that country. We have all the competencies, a strong team, and a brand that is getting recognised. The result is visible in revenue management and increased occupancy for owners. We will face many challenges because China is a large complicated market, but we remain confident of our capabilities,” said Agarwal.