Oyo is open to exploring the public markets. Oyo, a budget Indian hotel chain that dates back to 2008, has filed paperwork (PDF) with the local regulator for an initial public offer. It is looking to raise approximately $1.16 billion.
The Gurgaon-headquartered startup which offers an operating system of sorts to help hoteliers accept digital bookings, payments, determine the best pricing for a room, and integrates with third-party booking services is seeking to raise about $942 million through sale of new shares, while the rest is set aside for sales of existing shares (secondary transaction).
Oyo stated in the filing that SoftBank intends to sell a stake worth more than $175 million. To repay its debt, the startup will invest more than $330 million. Oyo has recently taken on $660 million of debt.
SoftBank, Sequoia Capital India and Lightspeed Venture Partners are among the startup's investors. It was last valued at $9.6bn. The startup has not provided any additional details on what it is looking to get from retail investors. However, we do know that Oyo seeks a valuation of more than $12bn in the IPO. Ritesh Agarwal, the startup's young founder, doesn't intend to sell shares in the public offer.
Today's filing marks a significant turnaround for Oyo, which in recent years had grown too ambitiously on international markets. However, it has now retreated from that path by putting brakes on some of its efforts.
Like every other travel and hospitality company, Oyo was also affected by the pandemic. The startup claimed that it was experiencing a 60% drop in business due to lockdowns by several countries as they tried to stop the spread of the virus.
On a total income $600 million, the startup suffered a loss in excess of $528 million.
It has seen signs of rapid recovery in recent months, as key markets have opened up in recent quarters. According to the startup, India, Indonesia and Malaysia account for 90% of its total revenue.
In recent quarters, Oyo has also simplified its relationship with hotels. Today, Oyo does not own any hotels but works with more than 157,000 partners to help them manage resorts, hotels, and homes. These partners don't get any guarantees.
Agarwal, who moved from his village to seek a better education in Rajasthan, is the first person to tell the story of Oyo. Agarwal often visited Delhi to visit his friends and stayed in their homes or rented hotels. Agarwal was in his late teens when he spotted a hotel with a low occupancy rate.
According to Agarwal, he had previously spoken to the hotelier and convinced him to broker a deal for him to renovate the hotel, and then began marketing it to businesses in return for a share of future commissions.
This deal was a huge success and Agarwal decided to expand his offerings using technology to target the untapped segments of the market.
This was the start of Oyo. It quickly became a success and attracted the attentions of Peter Thiel, the foundation that founded PayPal.
Oyo was first in the market and began to expand, opening up new markets such as Southeast Asia, Europe and China. Oyo's aggressive expansion strategy has not been without its challenges. While it is doing well in Europe, Southeast Asia and North America, it has found that making inroads into China and North America are more difficult than initially thought.
Agarwal, a 27-year-old, invested $700 million in the startup at the height of the expansion. He announced in that year that he planned to invest $2 billion through an entity called RA Hospitality Holdings, to increase his stake in Oyo from 10% to 30% prior to the $700million investment. According to filings, Ritesh and other holding companies now hold a 32-33% stake in Oyo.
Oyo stated in its filing that its app was downloaded more than 100,000,000 times and that 70% of its workforce is Indian. According to Oyo, its total market opportunity was 54 million short-stay storesfronts as of December 2019.
OYO-powered hotels in India, Indonesia, and Malaysia performed better than independent hotels in India, Indonesia, and Malaysia in 2019, respectively. OYO-powered hotel stores generated 1.5 to 1.9x more revenue in 12 weeks than independent hotels with similar sizes in India, Indonesia, and Malaysia after joining the OYO platform. OYO-powered home stores in Europe earned an average of 2.4% more revenue in 2019 than the average revenue at an independent home in Europe. This was according to the filing.
These two slides offer a glimpse into Oyos' business.
Pre-COVID, average revenue for OYO-powered hotels compared to comparable independent hotels (US$ 2019).
Oyo has the second-largest loyalty program in India, including for food, retail, hotels, and travel businesses.
Catherine Shu contributed to the story.
