OYO’s Big Swing

Our investor survey for H1 2024 showed Swiggy is the most hotly anticipated IPO of the year. But if OYO had been an option, many investors might have chosen the hospitality giant over Swiggy.

However, Ritesh Agarwal postponed OYO’s IPO plans earlier this year, and since then the focus has shifted to why OYO took this step. Unlike 2021, this was not about market conditions, but rather about going for an IPO in a much better financial state than ever before in OYO’s lifetime.

There is a lot of buzz around OYO these days and with good reason. With a profitable FY24 and a strong start to FY25 with a fresh infusion, OYO seems to be ready for the next chapter in its life. If the first few years were about standardisation, the past two years for OYO were about premiumisation.

This swing has proved vital for Agarwal’s plans to take OYO public sometime next year. So this Sunday, we are looking at how this transition has set OYO apart from the rest of the hospitality startups in India, but after a look at the top stories from our newsroom this week:

• The People Driving Ola Electric: Ola Electric is looking to create a vertically integrated EV stack and the company has brought on some key experts to lead the charge across the various arms. Here’s a look at Bhavish Aggarwal’s inner circle 
• Ather’s IPO Ride: Despite having a first-mover advantage, Ather Energy has fallen behind Ola Electric due to the latter’s speed in expanding market reach and scaling up infrastructure and sales. Here’s our analysis
• VCs Asked To Spill The Beans: Markets regulator SEBI is said to be looking into matters related to side letters or contribution agreements, that govern preferential terms for some LPs in a venture fund which have led to an uneven playing field. We dive into this matter

The New OYO 

As reported this week, FY24 has proven to be the turnaround year for OYO. It reported a profit of INR 229.57 Cr, a huge change from the loss of INR 1,286.51 Cr in FY23. We cannot remember many startups in India that have shown such a major swing from loss to profits. Agarwal said OYO is looking to triple its profit after tax to INR 700 Cr in FY25.

To get there, OYO raised INR 1,457 Cr (around $175 Mn) led by Agarwal floated Singapore-based entity Patient Capital, along with J&A Partners and ASK Financial Holdings. The round also included INR 417 Cr investment from Incred announced in July.

The latest funding saw OYO’s valuation fall to $2.37 Bn from $10 Bn at its peak in 2019. And this is the valuation that OYO is likely to take to the IPO next year.

As per sources in the company, the plan for the year is to focus on international travel to cater to large events. The acquisition of Paris-based premium rental company Checkmyguest for roughly $28 Mn is a part of this push.

In recent years, OYO has looked to bolster its presence in Europe and the US, where the company earns higher revenue due to larger ticket sizes. The idea was to focus on markets that were actually bringing in money and pull back from China where the company was struggling to compete with local players.

Where The India Biz Is Heading

In India as well, the focus has changed from budget hotels to the premium category. In April 2024, OYO teamed up with SoftBank to launch a luxury hotel chain called ‘SUNDAY’, targeting top-tier cities. The company also expanded their Palette chain of premium hotels and resorts.

Last month, OYO partnered real estate firm M3M India to introduce a premium hotel under the ‘SUNDAY’ brand in Gurugram. Starting with Gurugram, considered a significant hub for social events, domestic tourists, and long-stay international guests, SUNDAY will expand to other cities by next year.

The SUNDAY brand of hotels was launched in May 2023 with properties in Jaipur, Vadodara, and Chandigarh, as well as international locations in London and Dubai.

If the OYO of the past was all about budget hotels and small properties, the new OYO is closer to a large hotel chain, distinguishing itself from startup ecosystem players such as FabHotels and other budget hotels and hostels.

One employee close to the CEO added that this has been a conscious effort by OYO as the brand itself can be leveraged to tap the premium category. “Particularly, when you look at business travellers, OYO is now playing against the likes of Ginger Hotels or Lemon Tree Hotels. The days of cheap OYO Rooms are over because the company wants to prioritise revenue, even though it has a presence in the budget segment,” the employee added.

For instance, in the budget category, OYO has increasingly focussed on sports-related travel where it has not only looked to grow its footprint in cities that host cricket stadiums but also for sports at the grassroots level. Case in point is the recent tie-up with ‘India Khelo Football’.

The startup said it has catered to the requirements of more than 40,000 sports officials and players at various athletics and sports events, and the next step will be to more than 100 cities and villages across India. “These athletes usually live in bad conditions when travelling, and OYO has the experience of standardising budget hotels. So, they are taking this to categories that desperately need the budget options,” one of our sources said.

As per a report by The Arc, OYO said its overall take rate is 33%, whereas rivals such as Treebo and MakeMyTrip charge under 30% at the higher end. At the moment, most of OYO’s hotels fall in the budget category, a fact that the company is actively trying to change. On average, customers in the budget category pay Rs 1,500 per night, which can go up to INR 2,000 for mid-range hotels and up to INR 2,500 for premium hotels.

This is how OYO has continued to cater to the masses, while the international business and a sprinkling of premium hotels bring in the revenue.

Getting Back To The IPO Table

From our in-depth look at the people that have led this turnaround, it’s clear that Agarwal has revived the company by balancing the business model changes with a core team of leaders. The core group of executives or CXOs at OYO have stuck around for years, and many have seen the company go through unprecedented crises such as the pandemic.

Now, as it prepares for the IPO, the profitability combined with the healthy leadership layer makes OYO a prime candidate for public markets success.

In fact, when you compare OYO to Swiggy from purely an IPO perspective, OYO has better fundamentals, whereas Swiggy has attracted attention due to the booming quick commerce business which is key strength today over and above food delivery.

Plus, OYO has the market on its side now. A profitable company with a big brand name and a high-profile investor base will naturally attract a lot of attention from public markets investors. Plus, travel as a category has grown very robustly in the past two years.

All in all, the stage is set for Ritesh Agarwal to take his startup public. One of the most celebrated founders in the Indian ecosystem, Agarwal will follow the likes of Deepinder Goyal, Vijay Shekhar Sharma, Bhavish Aggarwal and hundreds of other entrepreneurs to the public market.

For many years, OYO was criticised for not having the ambition to grow beyond the budget category. Now that it has done that and also shown profits, the only thing left is the IPO.

Sunday Roundup: Tech Stocks, Startup Funding & More

• Funding across the Indian startup ecosystem entered the slow lane as startups cumulatively raised $227 Mn across 22 deals, marking a 34% decline from the previous week
• It’s convenience over catalogue this festive season as the quick commerce segment is expected to see a growth of 70%-80% this quarter as per experts
• Following Zepto’s path, IPO-bound Swiggy has launched ‘Cafe’ to deliver snacks and beverages in 15 minutes in Bengaluru

• Listed major Delhivery claims rival Ecom Express used incorrect information about Delhivery multiple times in its DRHP filed with SEBI
• Gaming giant Nazara will acquire a 47.7% stake in online poker platform Pokerbaazi for INR 831.5 Cr in what is its biggest deal so far
• CCI has alleged Samsung, Xiaomi and other smartphone makers of colluding with Amazon and Flipkart to exclusively roll out their products on these ecommerce platforms in breach of antitrust laws