Oyo seeks to raise $1.5B in latest financing round

Oyo Las Vegas
Oyo now has more than 7,500 rooms in 60 U.S. cities and 21 states, including its newest Las Vegas property. Photo credit: Oyo Hotels & Homes

India’s Oyo Hotels & Homes is raising an additional $1.5 billion as part of its Series F funding round. 

As a part of this next step in the company’s growth, Oyo Founder/CEO Ritesh Agarwal, through RA Hospitality Holdings, plans to “infuse” approximately $700 million as primary capital in the business, with the $800 million balance being supplemented by other existing investors. 

A significant part of the funds will be shifted toward continued growth in the United States, Oyo’s fastest-growing market, and in strengthening the company’s position in the vacation-rentals business in Europe.

The company has made substantial investment in both markets. In June, the company earmarked $300 million for growth, headquarters talent, competency building and infrastructure development across the U.S., and partnered last week with Biz2Credit to provide working capital and loans to existing and potential hotel partners across the country. The company now has 7,500 rooms across more than 112 hotels in 60 cities and 21 states.

In May, Oyo acquired European vacation-rental company @Leisure Group, adding 115,000 holiday homes to its portfolio. Not long after, Oyo's Agarwal told Hotel Management the company’s revenues from Europe now make up 20 percent of its income. The company has 3,500 rooms in the U.K. alone.

Increasing the Stakes

In July, Agarwal, through RA Hospitality Holdings (Cayman), signed a $2 billion primary and secondary management investment round, increasing his stake in the company from 10 percent to 30 percent.

In order to facilitate the transaction, Lightspeed Venture Partners and Sequoia Capital announced plans to sell part of their stake in Oyo while remaining “invested and committed” to the company’s long-term mission. “With the [Competition Commission of India] approval now in place, the company will get a capital infusion of approximately $1.5 billion to support this mission, supported by me and other shareholders,” Agarwal said in a statement. According to CNN, citing an anonymous source, the latest investment values Oyo at $10 billion.

Related: Oyo's Agarwal triples stake in company for $2 billion

Oyo raised more than $1 billion in its last financing round in September 2018, led by SoftBank through its SoftBank Vision Fund, with participation from existing investors Lightspeed, Sequoia and Greenoaks Capital and supported by new partners like Airbnb.

“Our immediate goal…is to make forward-looking investments so we can achieve our mission while delivering on our fiduciary responsibility to our investors by building a sustainable business,​”​ said Agarwal. Representatives for the company would not comment on the latest valuation.

Growing Pains?

Since Oyo launched six years ago, the company has expanded to more than 80 countries, and has 1.2 million rooms under management across its hotels and homes verticals. 

Related: Oyo's Ritesh Agarwal talks journey, tactics 

In August, the company reported year-over-year revenue growth of 3.8-times and EBITDA growth of 50 percent with a balance sheet of approximately $2 billion across its group companies. A “significant part” of this will be further invested in the business, the company said. “The losses as a percentage of [net realizable value] have also been on a steady and significant declining curve,” Agarwal added. ​

But even as the company “pushes toward profitability,” as a new report from Reuters describes it, an “increasing number” of Oyo’s India-based hotel operators are complaining about fee increases that allegedly take up half or more of room revenues, a significant increase from the 20 percent franchise fee on room revenues the company discloses. Two hoteliers in Karnataka reportedly filed separate police complaints last month accusing Oyo of “deceitfully increasing commissions,” according to the Reuters article.

Speaking to Reuters, Agarwal claimed the company retains 99 percent of its owners per year, and argued that if hoteliers were unhappy with the company, the retention rate would be lower. Amitabh Mohapatra, a member of the Gurugram Guesthouse Welfare Association, told Reuters that 300 hotels left Oyo’s India network this year. 

Oyo Responds

Responding via email to Hotel Management's request for a comment on the complaints, an Oyo spokesperson called the accusations “incorrect, misleading and baseless,” and wrote they were based on claims from 22 hotel owners in 10 Indian cities, while the company currently has more than 10,000 hotels across 500 cities in the country.

“The comments, therefore, are by a small fraction of our owner base but being sensationalized by vested interest groups and owners running competing hotels,” the spokesperson wrote, asserting that across India and South Asia, the company's annual retention rate is as high as 99.5 percent. “Our franchise fees (wrongly referred by few as commission or fees [sic]) are not only in line with the industry but it also enables us to create and maintain a world-class distribution platform for our asset owners. We manage two-star and three-star hotels that usually run on market-led RevPARs, similar to other branded chains, while maintaining what is ideal for customers and generates fair yields for our assets [sic] owners. We are able to deliver predictable and affordable tariffs to our customers because we are able to reduce our cost of operations as compared to other traditional hotel companies."

Commensurate to the leased and franchising requirements the company follows in India, every Oyo hotel has an individual contract that guides and guarantees the terms of the arrangement, including benefits, support and fees, the spokesperson continued. “Depending on the services and offerings chosen and availed by the hotel owner toward improving visibility and consequently resulting into potential of additional earnings, charges accrued will differ on a case-to-case basis. Everything, including our fees, are what the individual owners have signed a legal agreement and agreed to pay, so such arbitrary claims are unjustified. Having said that, we continue to engage with our owners on a one-to-one basis and work toward resolving issues, if any."