OYO In China May Get Big Boost From Didi Chuxing

China’s conglomerate Didi Chuxing is reportedly planning to invest in the homegrown hospitality company OYO — in what would be the ride-sharing platform’s second bet on an Indian startup after Ola. The development comes after OYO began its operations in China in May this year.

The proposed investment is likely to be channeled into OYO’s China business — which is growing rapidly having started in November last year, two people familiar with the development told ToI.

A response from OYO could not be solicited to Inc42’s email query at the time of publishing this report.

China is officially the third overseas market for the hospitality company. It ventured into the international market in January 2016 with a foray into the Malaysian market. In May 2017, the startup ventured into Nepal as well.

Here’s a quick run-down of all OYO has been doing in China:

• Till now, the budget hotel brand has focused on tier-2,-3 and -4 markets in China
• The company already claims to runs 1,000 hotels in the mainland China
• Its average price point is $20-25 per night
• Most investors find China attractive for the untapped opportunity in the branded hotel segment
• The startup had held discussions with other Chinese strategics like Tencent as well, but fell through as the valuation offered was about $2 Bn.
• After China and Indonesia, the company has been speculated to be exploring the US and UK markets as well

OYO: In Line To Be The Next Unicorn

Inc42 recently reported that OYO is in talks with two consortiums — a combination of Softbank Vision Fund, coworking giant WeWork, and a set of US-based strategic investors in the travel space, as part of its ongoing closing of new $500 Mn – $1 Bn financing round.

According to sources, Didi and WeWork are routing their investments through OYO Global, but it is primarily for China.

It is being reported that the overall funding could run up to $1.1 Bn between the two countries—  $500 Mn for its India business housed under its parent OYO Global and $500-600 Mn for China unit.

With this investment, homegrown OYO might be valued at $4.5 Bn, while its Chinese subsidiary may dilute 50% as it is expected to snag a valuation of about $1.2 Bn.

According to startup’s regulatory filings, it recorded a decrease in its losses in FY 2016-17 to $54 Mn (INR 363.7 Cr). The company recorded a revenue of $19.2 Mn (INR 125 Cr) in FY 2016-17.

SoftBank, which already holds around 42% in OYO, will see a similar shareholding in the China subsidiary, sources said. Other existing investors on the company include Sequoia Capital and Lightspeed Venture Partners.

With Unicorn status inching closer to the company, here’s a quick run-down of all OYO has been doing:

• Between January and June, its hotels in India booked 17 Mn rooms
• The company has doubled the commission to over 20% from 11-12% last year
• It has adopted a franchise model to take control of the entire property with standard amenities
• The company claims that its current GBV run rate has touched the $400 Mn mark
• The company has made three acquisitions — Weddingz, Novascotia Boutique Homes, AblePlus
• OYO board has approved ESOP Plan 2018 focussed for its employees in India