"I don’t think IPO is an outcome you work for. It is a waste of time to think about things which you cannot control and not do enough for what you can control," said Rohit Kapoor, OYO India and South Asia CEO.
OYO’s fat-burning exercise from its business in January this year is to accelerate its growth on the profitability path and the eventual IPO. But whether that pays off would come from its balancing with external forces be it customer complaints, backlash from industry associations and hotel partners or allegations around hurting competition in the market. However, facing severe criticism and controversies may be to an extent is obvious when the aim is to become the world’s biggest hotel chain. And to have that target, one cannot afford to make small bets. “I don’t lose sleep over financials etc but customer complaints,” OYO Hotels & Homes India and South Asia CEO Rohit Kapoor told Financial Express Online in an interview. Kapoor, who in his previous role at OYO had put himself on the customer care ID to listen to the customer complaints unfiltered, explains Sandeep Soni how the company is balancing the internal vision and external forces. Below are the edited excerpts of the interaction.
You have been able to cut losses for India business from 24 per cent to 14 per cent of the revenue in FY19 even as globally they have soared. Can we expect OYO India to turn profitable soon if not global?
The past results show the trajectory of (growth). If you remember the year before, it (losses share in revenue) had come down from approximately 45 per cent to about 24 per cent and then to 13.8 per cent on the back of 3X revenue growth. Gross margins went up from about Rs 10 crore. So the trajectory is there. The way we think business is phase one markets which are early markets. We just entered last year like in the US, Latin America, and Japan. Then there is phase two markets where we have been for some time but still in early stages of gross margin realisation like China, Southeast Asia. The third is more mature markets like India. Although there is so much to do here where you start seeing gross margins grow and that trends continue.
OYO recently added Gerry Lopez the head of SoftBank’s Operating Team whose role is to possibly help portfolio companies grow globally and get listed. What role would he play at OYO with future IPO in the backdrop?
Every person that joins the board brings a certain amount of value. So this (Lopez joining the board) is no different. I feel Aditya Ghosh, Betsy Atkins (early investor in Yahoo, eBay), Munish Varma ((SoftBank Vision Fund Managing Partner), Bejul Somaia (Partner at Lightspeed Venture Partners), Mohit Bhatnagar (Managing Director at Sequoia), and now Gerry joining the board is very exciting because as a management also you look for a very strong board which can guide you in different areas and bring different strengths to the table. I have been on boards of companies and always feel that if I cannot add value to the company then the management is not interested in having me there.
Watch Video: SoftBank-backed OYO’s CEO explains how the company is moving towards profitability, IPO
There have been customers’ concerns around hygiene at OYO hotels. How can you ensure hotels maintain this hygiene and standardisation because you cannot be physically present there 24×7?
Every complaint is an opportunity to learn. The fact is that over 90 per cent of our customer base is repeat or organic and 73 per cent repeat, this also shows the value customer is getting time and again. Not just about cleanliness, it could be about WiFi, check-in convenience etc as there are a bunch of things that define the experience. What we have developed over time is a set of technology capabilities which allows us to know what is happening in that building and have a logical framework for dealing with that and giving feedback to the partners. I don’t lose sleep over financials etc but customer complaints. I go through a lot of complaints. There is great learning in that. In my previous role at OYO, I had put myself on the customer care ID and all customer complaints unfiltered used to come to me and I used to read all of them to understand what is happening where.
While competition is good for any market, there have been multiple allegations against OYO from your competitors and associations. How do you look at it?
India is such a large market that to say that we have any large market share, we will be deluding ourself. I don’t believe that because there is so much to do. If you want to find a hotel, we are one of the choices you get. We want to be the preferred choice for thousands of people but the reality is there are so many players to choose from. Secondly, CCI has exonerated us on most of those (allegations). There is one specific one with the Go-MMT which is sub-judice and I shouldn’t comment on that.
Where does the company see itself on the runway to IPO? Has it just aligned or accelerating on it or about to take off?
I don’t think IPO is an outcome you work for. It is a significant milestone and once you IPO there are other milestones. With the right metrics and the financials, outcomes take care of themselves at the right point in time. It is a waste of time to think about things which you cannot control and not do enough for what you can control.
Marriott is roughly 1.5 lakh rooms ahead of OYO as the biggest hotel chain globally. Do you expect OYO to surpass it this year?
I much rather care about the next customer coming to our hotel and serving them properly. In this process, if we do that, if our repeat rates are high, and we offer value to customers and partners, we will get there. Marriott is a great brand and has been there for so many years, very admired by us as well. So it will be a great honour for us to get there but when we do that is again an IPO type question. So the date of when it happens doesn’t matter.
Why was there a need to restructure the business when the company has been claiming global growth all the while?
Every company which has emerged from a startup stage has gone through these phases. However, towards the end of 2019, all of us got together and said we have done so well in just six years, but taking stock on what 2020 means and can we go on at this pace and should we focus on different metrics. We thought it is probably time to calibrate and look at accretive growth which balances metrics on partners side, customers side, and employee side; and have a line of sight to profitability. That day can come for some part of the business in three months, nine months for some, or two years for some but this is not the point. The point is to have a clear path to profitability.
Softbank itself is reportedly finding it tough to raise its Vision Fund 2 after the WeWork debacle even as it has shifted focus on profitability for its portfolio businesses. Is this what is driving OYO’s profitability push?
We separated out two things very clearly. How much liquidity and funding we have in the balance sheet, which is very good. We arrived at saying that we have a strong balance sheet but let’s look at what are the right metrics to drive and the right way to build a business in 2020 and how do you grow from here. So I want to dispel this thing that this is coming from any pressure from any investor. We are a board governed company and have a strong management team. We have as normal a discussion with SoftBank as with any other investor on the board.
How are you addressing the hotel partners’ concern who have alleged unfair business practices by OYO hurting their businesses?
Having a great relationship with partners is an absolute number one priority. While you will always hear some small section of partners having a difference of opinion with us, this is fine as it happens in every business. OYO’s senior leaders go in the field meeting partners. I have met around one dozen partners. When we meet they say you have a lot of value to bring to the table and things that you can do better. We have more than 7,500 companies who work with us. These are very strong distribution advantages we bring for hotel partners and they appreciate it. In any business relationship where economic interests are there, some tension will always exist. This happens everywhere.