Economic Times: August, 2015
New Delhi: Japanese conglomerate SoftBank has picked online aggregator of budget hotels OYO Rooms for its latest investment in India, by leading a Rs 630-crore ($100-million) funding round in the Gurgaon-based company.
Existing investors Lightspeed Venture Partners, Sequoia Capital India and Greenoaks Capital also participated in this investment round that is designed to help OYO establish a lead over rivals such as Tiger Global-backed Zo Rooms.
"The reason why we chose SoftBank was their ability to back early leaders and make them dominant leaders forever," said Ritesh Agarwal, 21, founder and chief executive officer of OYO Rooms. Paroma Roy Chowdhury, SoftBank's vice-president for public affairs, confirmed the investment to ET.
Agarwal expects to use this funding to increase the size of his network to 50,000 rooms across 100 cities by the end of this year.
"Long term plan is to have 500,000 rooms as a part of OYO brand network across 250 cities in India over the next two years and since it's a marketplace model, the more supply we are able to get on the platform the more demand we will get from consumers," said Agarwal. OYO works with local hotels and a preferred set of vendors to spruce up the amenities, spending approximately Rs 10,000-20,000 per room.
Its also helps hotel owners finance these costs by tying up with lenders. "While we see growth in bigger cities getting faster and stronger, tier-II market will also become big. We believe this is just Day 1," said Agarwal. The aggressive ramp up and adoption has left investors surprised. "When we invested in January 2014 it had four properties in Gurgaon with minimal revenues. Last month alone the company launched 25 cities and added 400+ properties," said Bejul Somaia, MD at Lightspeed India.
OYO expects to see nearly 50 per cent of the bookings in August from its mobile application on the back of increasing smartphone penetration.
"SoftBank's investment has further increased the interest in the space, as global investors now see this as a large market," said a venture capital investor. Other players in the space include Wudstay Hotels, Zen Rooms, Zip Rooms, FabHotels and GoStays. "Two thirds of the future supply is coming up in midmarket and budget segment. In the organised market, historically most of the hotels that came up were in the luxury segment and global players started with upscale brands which also justified the high real estate costs," said Mona Chhabra, executive director at EY.