OYO to stop investing in capex of hotels, says India CEO Rohit Kapoor

Three-pronged revamp strategy includes getting out of investing in capex of hotels, moving away from offering minimum guarantees to hotel partners and giving them flexibility to determine room tariff

Global travel tech startup Oyo Rooms is fundamentally altering its business model to prepare for a new growth phase after a tough year which saw hotels closing down due to the lockdowns induced by the Covid-19 pandemic. 
 
The three-pronged revamp strategy includes getting out of investing in capex of hotels managed by them (about 25 per cent of OYO’s India properties), moving away from offering minimum guarantees to hotel partners to a pure revenue-share model, and  giving them the flexibility to determine room tariffs, and is aiming at undertaking daily reconciliation of payments instead of twice a week.  The company has also decided to concentrate on two key global markets, Europe and Southeast Asia, even as it continues with its presence in other markets.   

 
Speaking to Business Standard, OYO Rooms CEO for India and south east Asia Rohit Kapoor said: “We have made three radical changes which came through after tough conversations with our partners last year. We have the tools to guide our partners to do the right capex, but we do not do the capex ourselves, as we were doing earlier. We have the tools to ensure that partners win on revenue but we do not underwrite or guarantee revenues. We have transfor­med ourselves as a tech product-focused company trying to do things in scale, but in a stable fashion. We make payments to our partners twice a week and are pushing to make it daily, thereby resolving all concerns of  partners on payments.”

 

Kapoor added that while OYO will provide its partners with the tools and indicate the best price for a room, they will now be given the flexibility to  tweak the tariff between 20 and 40 per cent, both above or below that price. The company gets between 28-30 per cent revenue share on the room rate from its hotel partners.
 
Though OYO did not talk about its plans to go for an initial public offering (IPO), sources say that the company is looking to hit the market sometime next year. It recently raised $660 million from global institutional investors like Fidelity, which was primarily meant for debt refinancing. While the company achieved Ebitda breakeven in Q1 21 in India , the pandemic and the consequent losses in the hospitality business affected them. It has over 190,000 merchant partners across the world.

 
It did not comment on raising funds from Microsoft which could value the company at $9 billion. According to Crunchbase, the company has raised over $4.1 billion in funding and has over 26 investors. OYO is also moving towards the premiumisation. As much as 30 to 40 per cent of the rooms currently being added are under its premium brands such as OYO TownHouse, Collection O and the upscale Bellavilla, amongst others. It has also roped in over 8000 corporate customers.
 
In the global arena, Kapoor said that OYO’s strategy is twofold: First, to concentrate on markets like Southeast Asia and Europe where it has a reasonable market share and gross margins, with a clear upside. The second area of focus is in geographies like the US and China, where it has to prove the model, build a partner franchise and generate gross margins.

 
“These are attractive markets in the mid and long term and we have a reasonable presence. But if you are saying that we should double down and push now, the answer is no. We are building them for the future,” Kapoor added.
 
The company is also launching a programme for hotel owners who run more than 10 properties. “We have 40 such partners and they have virtually created a chain. To help them, we are launching a OYO Partner Academy which will help them find appropriate locations, help in leasing, apart from running multiple properties through technology.”