The Future of Oyo: Prospects and Challenges Ahead
Oyo, the hospitality startup that once soared to a $10 billion (₹83,431 crores) valuation, has been on a roller-coaster ride in recent years. Hit hard by the COVID-19 pandemic, the company has undergone significant restructuring and is now making a concerted effort to regain its footing and grow its business.
As Oyo seeks to raise a pre-IPO round of funding, the question on everyone’s mind is: What does the future hold for Oyo?
A New Strategy for Growth
Oyo is aiming to raise $80-90 million (₹667-750 crores) from HNIs and family offices, with commitments already reaching $24-30 million (₹200-250 crores) as of early June. Additionally, discussions with larger investors, such as Malaysia’s Khazanah, could bring the total round size to $150 million (₹1,251 crores).
Valuation and Market Position
Oyo’s current valuation stands at $2.3 billion (₹19,189 crore), a sharp decline from its peak. However, the company is optimistic about regaining its decacorn status, counting on aggressive business growth. Oyo’s operations are focused on two main areas: hotel aggregation primarily in India and home rentals largely in Europe. The company’s projections are ambitious, with a forecasted gross booking value growing from $1.3 billion (₹10,846 crores) in FY24 to $3.8 (₹31,704 crores) billion by FY28.
Financial Health and Profitability
| Particulars | FY24 (₹ in crores) |
|---|---|
| Gross Booking Value | 10846 |
| Net Revenue | 5648 |
| Gross Profit | 2561 |
| PAT | 102 |
| Adjusted EBITDA | 918 |
| Net Debt | 2786 |
| Cash Reserves | 834 |
Future Projections and Goals
- Focused on EBITDA growth by ~5x in the next 4 years:
- Gross Booking Value Projections:
- FY25: ₹15,016 crores
- FY26:₹19,690 crores
- FY28: ₹31,704 crores
- Debt-Free Target:
- Oyo aims to be debt-free by FY26.
Business Model Adjustments
Cost-Cutting Measures:
- Refocused on key markets.
- Centralized operations in India.
- Scaled back non-core businesses (e.g., wedding-related services, cloud kitchens).
Strategic Shifts:
- Transitioned to a franchise model in the hotel business.
- Reduced capital expenditure needs.
Positive Outcomes:
- EBITDA improved from -44% in 2020 to +9% in 2024.
- Projected adjusted EBITDA of ₹4,588 crores by 2028.
OYO: Transforming Global Hospitality Through Unprecedented Scale and Strategic Expansion
Positioned for rapid scalability with expertise in managing high volumes through a zero-capex model:
- Guaranteed 100% exclusivity with hotels within the OYO ecosystem, ensuring higher revenue assurance.
- Operating on a zero-capex model.
- Maintaining control over pricing decisions for storefront inventory.
- Ensuring strong collection efficiency with the OYO Secure Model (mandatory prepaid wallet) for continuous patron bookings.
- Pre-COVID network of over 20,000 patrons as a ready avenue for expansion.
- Minimal operating expenditures at the storefront level for enhanced efficiency.
OYO’s Global Market Presence and Expansion Strategy
Currently, OYO operates in core geographies including Europe, India, and Southeast Asia, while its non-core segments include North America, China, Central, and South America.
Significant Growth Potential in OYO’s Core Geographies by Capturing the Unorganized Market.
OYO’s Transformative Initiatives Towards Profitability
- Streamlining Operations:
- Focused on core growth markets with established leadership.
- Leaner operations in non-core geographies.
- Centralization of functions in India for hotels and homes markets.
- Scaled down non-accommodation businesses like weddings and cloud kitchens.
2. Revamped Commercial Arrangements:
- Transitioned to revenue share agreements, eliminating fixed payout commitments.
- Nearly all storefronts on revenue share in FY23 (compared to 85% in FY20).
- Shifted to a nearly 100% franchise model, eliminating capex requirements.
- Implemented “OYO Secure,” a prepaid wallet for patrons, improving collection efficiency.
3. Integrated Technology Usage:
- Adopted tech-led, asset-light business models with tools like Yo! Chat and Co-OYO.
- Delayering initiatives and alternate supply channels.
4. Systematic Cost Optimization:
- Optimized costs across key functions including tech/cloud cost optimizations.
- Restructured office spaces and centralized vendors to optimize G&A expenses.
5. Optimized Marketing Spend:
- Focused marketing spend on online performance marketing, moving away from offline channels.
Challenges and Concerns
1. Revenue Recognition Concerns:
- Questions about recognizing booking value as revenue in its hotel business in India.
- Oyo claims a 33% take rate, higher than industry peers (e.g., Treebo, MakeMyTrip).
2. Legal Issues:
- Lawsuits filed by hoteliers over unpaid dues.
- Disputes often related to previously promised fixed payouts.
- Resolving these legal challenges is crucial for Oyo’s public offering plans.
Ritesh Agarwal, Founder & CEO: OYO
- Received multiple awards, including the Business World Young Entrepreneur Award.
- Featured in Forbes’ “30 Under 30.”
- Recognized as a Thiel Foundation fellow.
Looking Ahead
Oyo’s future hinges on its ability to sustain growth, manage costs effectively, and resolve outstanding legal issues. The company’s ambitious projections and strategic shifts indicate a potential for significant growth, but it must navigate the challenges that come with operating in a competitive and complex industry.
As Oyo prepares for its next phase of growth, investors and industry watchers will be closely monitoring its progress. If Oyo can successfully execute its plans and address its challenges, it could once again become a major player in the global hospitality market.
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