OYO would see a further reduction in losses this year: Ritesh Agarwal

The founder and CEO says, 'In our kind of businesses, as they scale, revenues continue to increase but cost does not'

Oyo Rooms, the online marketplace for budget hotel stays, raised $250 million from investors, led by SoftBank of Japan, in September. Ritesh Agarwal, founder and chief executive officer, speaks to Ajay Modi on future plans. Edited excerpts:

After the latest funding round, Oyo is seen as more aggressive. There are 50 per cent discounts on bookings. What is driving this?

Our focus has been upgrading and making beautiful living spaces and bringing these to people at low cost. Our unit economics continue to be at 17 per cent net margins. We are able to provide these prices because of the high occupancies. In hotels, the marginal cost of operating is too low. We have a liquidation preference strategy, which means you get more attractive prices closer to the date of stay. 

We are definitely more aggressive in investing but are doing so in upgrading spaces faster, on technology and so on. We would prefer to invest a dollar in hospitality, rather than discounting. Hospitality has three problems — location, quality and price. We should always be 30 per cent cheaper to the same quality hotel in the area. Along with location and quality, it should be a steal for users. 

For SoftBank in India, Oyo is now one of its biggest bets. What is driving this confidence? 

I can’t comment on their behalf. I feel two core things drive the confidence of our investors. First, India is a market where real estate and hospitality as a gross has always had such large opportunities. It is such a no-brainer that India needed economy and mid-market hotels that could solve the problems of travellers or city dwellers. Nobody went ahead and tried to solve it at the scale we did. Second, the management team at Oyo, the entire C (top) level team, has been stable, with no C-level exit. 

Oyo reduced its losses by a third in FY17, to Rs 325 crore. Will we see a further reduction during FY18?  

We believe this year will again see a decent reduction in losses. In our kind of businesses, as they scale, the revenues continue to increase but cost does not. In the next coming years, it will continue to show improvements.

The company had gross booking value (GBV) of $100 million in the first quarter. Has that further looked up? 

In the current quarter, the run rate is $150 mn. We will continue to see sequential growth, linked to growth in supply and occupancy. Our GBV could be $450-500 mn this year.

Does the performance of Oyo Townhouse give the confidence to look at select luxury or slightly premium offerings? 

The opportunity exists across categories. However, at this point, India’s biggest market is the economy segment, followed by mid-scale and luxury. We currently cater to the first two bigger markets. In the future, we will definitely look at other categories. Good products are created over years of hard work and effort. 

How is your international presence? Is the company entering China?  

We are in Malaysia and Nepal. We used Malaysia as a test bed for how international operations should work. Being there for the past one and a half years, we are less naïve. We have a playbook now for the international market. That is why we went to Nepal this year. We have a great partner in China, with China Lodging. We learn from them and do knowledge sharing. 

In terms of international strategy, we will look at countries where a model like Oyo will solve the problems of the masses and small hotel owners. It could be any market but we will look at those where the opportunity is bigger.