NEW DELHI, Sept 7 (AGENCIES): Hotel aggregator Oyo has closed a $250 million (about Rs 1,600 crore) round of funding, which was led by its existing backer SoftBank, with new investor Hero Enterprise also coming on board.
The Tokyo-headquartered conglomerate has invested through its $100 billion SoftBank Vision Fund, making this the second major bet placed by the world’s largest pool of private capital in India over the course of the last two months.
In August, the London-headquartered Vision Fund, which is led by India-born Rajeev Misra, announced a $2.5 billion investment in Flipkart, the country’s largest online commerce company. SoftBank’s investment in Oyo has now seen the telecom-to-technology investor announce deals of over $4.5 billion in Asia’s third-largest economy since the beginning of 2017.
While company spokespersons did not disclose the exact terms of the latest round of equity financing, the transaction is believed to value the Gurgaon-headquartered company at $850 million-$900 million, a significant upside to its last reported valuation of $460 million in August 2016.
ET was the first to report SoftBank’s anticipated investment in Oyo in its edition dated February 27th. The world’s largest technology-focused investor had earlier pumped in $120 million in the company, across two rounds, in 2015 and 2016. Till date, Oyo has now raised about $436 million, across four rounds.
“Oyo has solidified its position in India as the leading accommodation brand for consumer affordability and high quality standards. We’re excited to continue to support Oyo as they further expand their position in India and bring the Oyo promise of affordability and elevated hospitality to other markets around the world,” Justin Wilson, SoftBank’s board representative in Oyo, said in a statement.
The latest transaction has also seen participation from Oyo’s existing group of backers, a list that includes Lightspeed Venture Partners, Sequoia Capital and Greenoakes Capital.
Also joining the company’s investor cap table is Hero Enterprise, the Sunil Munjal-led company that was carved out last year from the $6 billion Hero Group, which was founded by Munjal family patriarch Brijmohan Lall Munjal.
“The differentiated thinking and ingenuity that Ritesh and his team bring to this industry gives us confidence that OYO can scale, innovate and set new benchmarks in customer experience,” Sunil Kant Munjal, chairman of Hero Enterprise, said.
Oyo, which currently claims to operate 8,500 hotels and 70,000 rooms in more than 230 cities across the country, competes with the likes of Nasdaq-listed online travel operators MakeMyTrip and Yatra, as well as Treebo Hotels and Fab Hotels that have all raised significant amounts of risk capital in 2017.
India’s still-nascent, yet fast-growing budget hotel segment has seen frenzied capital raising activity by all the major players operating in the space.
Industry experts believe a discount war will continue among the organised players, as they look to build inventory, while grabbing a larger slice of the customer’s wallet, given the higher margins earned from the highly-fragmented budget hotel space.
“Some of our competitors have launched their own white-label brands to compete with us. But at the end of the day, are you able to deliver the customer service that the consumer wants, along with the asset management that partner is looking for, rather than a sales discounting service? Our numbers speak for themselves,” Ritesh Agarwal, chief executive of Oyo, told a news agency over the phone from China.
Agarwal said Oyo was recording book revenue run rate of close to $600 million, and its average daily realised room nights was growing at 30% on a quarterly basis.
“Our net take rate is in higher double-digits, and close to 15%-plus, which is an industry-leading metric, at a time when others are just raising capital and burning it,” Agarwal said.
A significant portion from the proceeds of the latest round of funding will be used by the company, which was founded by engineering college dropout Agarwal in 2012, while he was still a teenager, to expand its presence outside its home market.
“We will also take this product to other international markets. We have created this made-in-India model that can go out and impact the lives of people in other countries as well… We are excited to have an innovative business, which will, over time, be a global brand to reckon,” Agarwal said.
The south-east Asian region is likely to be the first geography where Oyo will look to further expand and then deepen its footprints. It had launched its Malaysian operations in January earlier this year, followed by its foray in Nepal later in April.
“We are looking at a few markets… South-east Asia is a clear favourite, because we are already operating there, and understand how it works. It will be a natural process, but we are also looking at more mature geographies,” Agarwal said.