This is how Oyo is becoming the dark horse of SoftBank’s investments

Imagine this! Expanding from 11 hotels in two cities to 7000 hotels in 2000 cities in a little more than three years isn’t an easy task. But Ritesh Agarwal of Oyo has achieved that. Not just the growth in expansion, revenue has boomed as well.

Last year at annual general meeting of the Indian Hotels Company, Cyrus Mistry, the erstwhile Tata chief admitted that going like this Oyo may be a clear ‘threat’ to hospitality space where Tata owns groups like Taj, Vivanta, Gateway and Ginger.

Talking to the Economic Times, Agarwal said that Oyo will be closing $250-300 million round of funding from SoftBank, which will take its valuation to over $850 million and a step closer to the unicorn club. At a time when most of the SoftBank’s investments in India are bleeding including Snapdeal, Ola and Grofers, Japan’s conglomerate is expecting a big gain from India’s hotel aggregator.

Agarwal told the ET, that losses are a ‘part of investment’. What investors are looking at is also growth more than profits. They hate high burn rates but they hesitate to fund a profit making company with slow growth rate.

While Oyo seems to be the dark horse of SoftBank’s investments in India, it needs to be checked how it fares in the long run. Oyo’s new initiative Oyo Townhouse will cater to the upscale clientele. The Townhouse model, according to ET news report, will call for investment - an estimated Rs 3.5 lakh in each room, with each property having up to 20 rooms - as the company goes about setting up 250 Townhouses over the next six months.

However what needs to be seen if customers prefer Oyo Townhouse versus a Sarovar or a Lemon Tree.

Agarwal told ET that Oyo has more than doubled its growth. Its burn rate has come down by as much as 60%, customer service rating is at the highest, and losses have come down from Rs 496.31 crore in March-ended 2016 fiscal to Rs 325.26 crore a year later. The venture, he maintains, has found the right momentum, has shunned incentivisation as a long-term, customer-acquisition strategy, and has the backing of its investors.