OYO Hotels which last month received $800 million funding from SoftBank Vision Fund is now valued at about $5 billion, which is a six-fold jump over its valuation a year ago. In an interview with BusinessLine, Ankit Tandon, COO, Operated Businesses, OYO Rooms shares the company’s expansion plans and how it plans to scale up operations in China.
With the latest investment of $800 million coming in, and $600 million of that going toward investments in China, how is that market panning out for OYO?
China is a huge market for us. We decided to enter the market because if you want a substantial presence in the global market, that is the place to go. We built the company from scratch there; learning on the job. But the issues are the same as elsewhere. There is an issue of finding budget and quality hotels. We have been in China for the last 10-11 months and have been rapidly expanding.
OYO has said that by 2022, it will be the largest chain of hotels globally. How do you plan to achieve that?
Our business model is simple. We take over an asset and manage it fully, and we have a franchise model where we partner with asset owners who run the hotels. We are adding rooms at a rapid pace and if we continue to do that, probably we will able to get to that mark by 2022.
One criticism against Oyo is that while it is growing rapidly, there are complaints from customers about quality issues. How do you plan to tackle that?
Rapid growth is being backed by quality operations. We have a robust ground team which is headed by captains or team leaders. We also have an app which allows our employees to monitor quality.Customer feedback is integrated into that and it helps us to look out for problem areas and rectify them immediately. Our social response systems are super quick and we respond within minutes of receiving a complaint. We are using technology extensively to sustain and increase the quality of operations. We have been able to deliver good hospitality which has helped us to scale up rapidly.
Are you now profitable? When will the Chinese operations start making profits?
In the domestic market, we have about 1.25 lakh rooms and all this within five years. We have been able to post an operating profit and soon we will be EBITDA break-even. But it will be hard to say what it will be in China as it will be a balance between growth and consolidation. There is no doubt in our mind, our model will be profitable. China being a huge opportunity, we want to grow fast there to take advantage of the situation. The Chinese team is a very different team and they are also growing by the month. Our net adds per month is increasing. We are adding 20,000 rooms per month but it is not consistent. It may even grow more. In China, we started modestly. With the right team in place, we went for expansion. The first month, we added 5,000 rooms and today it can even go up to 40,000 rooms per month.
Will at some point in time, Oyo get into the luxury hotel space?
The hospitality industry has several great companies. We are in the budget space, and with the Oyo Townhouse, we have entered the mid-market space.
It takes Oyo 75-200 days and minimum investment to have a Townhouse operational whereas it takes 180 days to three years for the competition to develop it from scratch. The Townhouse also benefits from Oyo’s inventory size of two-lakh plus globally leading to economies of scale in the procurement process. All this goes to show that we can get into higher tiers. We have got into the resort space now. The 26 per cent margin we get from franchisees sometimes goes up for other properties.
How long will the current funding last? Do you plan to add more employees?
It is good enough to sustain for a very, very long time. We have a pretty healthy balance sheet and we don’t feel that there is an immediate need to go in for another round of funding. It is actually a decent position to be in. Our employee strength is around 5,500 to 6,000 and if necessary, we will add more.