Ritesh Agarwal’s OYO inches closer to profitability in India but no ‘deadline’ yet to hit milestone

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Updated: February 18, 2020 6:08:27 PM

OYO currently has over 43,000 hotels on its platform with a little over 1 million rooms and is present in 80 countries. The ownership of these hotels is through the franchisee model and the company operated.

OYO reported over 90 per cent of the revenue coming from repeat and organic user base in 2019. (Image: oyorooms.com)

Even as hospitality company OYO has been gunning for profitability in the near future, the company is yet to put a timeline to it at least for its India business that narrowed its share of losses in the revenues significantly from last year. While the company’s consolidated losses grew by 544 per cent from $52 million in FY18 to $335 million in FY19, its India operations have reported a 66 per cent increase from $50 million to $83 million. This, however, in terms of share in revenue has declined 24 per cent to 14 per cent as the India business grew from $210 million in FY18 to $604 million in FY19 — 63.5 per cent share in the company’s consolidated revenue of $951 million. The share of consolidated losses in revenues increased from 25 per cent to 35 per cent.

“There is no deadline for any business to come to a particular path to Ebitda profitability,” Rohit Kapoor, CEO, OYO India & South Asia told reporters in a conference call on Monday to discuss FY19 results and CY19 performance. “We have demonstrated the ability to grow revenues, gross margins, and reduce the losses which is not really the narrative often seen about startups. We see the same thing forward,” he added.

OYO currently has over 43,000 hotels on its platform with a little over 1 million rooms and is present in 80 countries. The ownership of these hotels is through the franchisee model and the company operated. However, the former’s share is significantly higher, said Aditya Ghosh, Member – Board of Directors, OYO Hotels & Homes over the call. Ghosh, though, couldn’t disclose the number of rooms in India and China.

Apparently, India and China are OYO’s biggest markets with 95 per cent share — $911 million — in the revenues while only $41 million being contributed by the rest of its markets. In terms of room count, the Middle East, Japan etc are among the leading markets for OYO. “In Southeast Asia in December 2019, we are at about 99,000 rooms across 300 cities. In the Middle East, we have over 17,000 rooms (and) in Japan we have more than 12,000 rooms. We have 16,000 rooms in Latin America. These are the markets where we have not even spent a year,” said Kapoor.

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While China remains the priority for the company, OYO’s chief Ritesh Agarwal had admitted in a company blog post earlier this month that the China business would take a hit due to the Coronavirus outbreak. Given the impact of the epidemic is a developing situation, OYO couldn’t confirm the level of impact that would likely be of short term. “Obviously bookings have gone down but every business will see the same thing,” said Kapoor adding “we will have to wait a little while longer to see the impact.”

In around seven years, OYO has become the second most valued Indian unicorn at around $10 billion behind Paytm’s around $16-billion valuation. OYO is among the growing list of startups that have made their mark globally that also includes Zomato, Ola, Freshworks, Paytm, Zoho both on B2B and B2C side. For OYO, this global expansion has been a growth divided into three phases. First one is entering the market that requires “putting in a lot of investments in people and setting up costs and go-to-market. These are markets where we have spent not even a year like the US, Canada, and Latin America,” said Ghosh. 

The second phase is about establishing the business where “you are investing in the brand and beginning to create operational efficiency to some extent and basically looking at gross margin growth. So these are markets like Southeast Asia, China.” And then there are markets which are more mature like India where on back of the operational efficiency “you are not only driving better gross margins but you are basically chasing Ebitda now and the path to profitability,” he said. The markets in the last phase would be OYO Vacation Homes in Europe and the India business.

The company reported over 90 per cent of the revenue coming from repeat and organic user base in 2019 while repeat-only customers contributed 73 per cent to the revenues. “73 per cent repeat customers show that our ability to expand our customer base and revenue is not directly related to the amount we spent on marketing,” said Kapoor.

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