May 9, 2020

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Oyo Business model that you should consider for your business in 2020

Oyo business model

Oyo business model is a proven business model that will help you to stand a profitable business in the market. From a single hotel service in India, Oyo has now become the third-largest hotel chain in the world.

Oyo, Earlier called as Oravel. It stands for On Your Own rooms and is India’s Biggest Hotel Chain, with 18000+ hotels in 500 cities of India, UAE, Nepal, China Indonesia, and Malaysia.

Owner of the Oyo:-

Owner of Oyo- Ritesh Aggarwal

Oyo was started by Ritesh Aggrawal in 2011. He was just 18 at that time. Ritesh Agarwal, the founder, and CEO of OYO Hotels & Homes buys back $2billion worth of stake from the investors which explicate the founder’s confidence in the company. The decision made by Agarwal has attracted many leading investors and promoters across the world.

 Oyo Business Model:

Earlier: Oyo took Hotels on Lease & offered them to customers at its own decided price.

Now: Oyo Runs on a commission-based Business Model. There’s a commission of 22 % that is Oyo charges from its partners. The value and percentage vary from city to city.

Must read – 20 Key Strategies for Marketing Plan to get on Top of your Business

Funding of Oyo:

March 2015: OYO raised funding $24 million from Lightspeed Venture Partners, Sequoia Capital, Greenoaks Capital, and DSG Consumer Partners.

August 2015: OYO raised another $100 million from Softbank Group an existing investor

August 2016: OYO raised $90 million from Softbank Group, Innoven Capital and existing investors.

September 2017, $250 million of funding led by Softbank Group, new investor Hero Enterprises, Sequoia Capital, Greenoaks Capital, and Lightspeed Venture Partners.

September 2017: $10 million from China Lodging.

April 2019: Raised funding of 1.7 Billion $ after 13 funding rounds.

Investors:

Oyo is funded by 20 investors. The latest is Airbnb & Raj Luhar. In the latest deal of Airbnb and OYO, the former will be listing 10000 Oyo villas and homes in its hotel list in India, Dubai and other parts.

What’s Happening

Oyo’s ‘Relationship Mode On’ was an initiative by OYO to support easy Stays of unmarried couples who find it difficult to stay at general hotels due to moral policing in India.

But in January 2019, OYO announced Digitalisation move by OYO where OYO will be sharing Digital information of all its customers with the state governments. Although this move may benefit government control over safety and law & Order, This might bring down the numbers of main visitors of OYO: The unmarried Couples.

The Smart Move: Oyo From 10% to 30 %

Japanese Financial institutions Mizuho and Nomura are the major lenders who are supporting the buyback of shares by Ritesh Agarwal. However, the identity of the third Japanese financial institution funding Agarwal is yet uncertain. This 3 years loan which is granted against shares has now caused a stir amongst the banking circles. They are expected to be repaid when the company’s proposed Initial Public Offering in three years time.

Ritesh Agarwal has proposed to buy back his company’s share worth $1.5billion from early investors like Sequoia Capital India and Lightspeed Venture Partners and has proposed to invest the remaining $500million in the company. The buyback by Ritesh Agarwal is estimated to be the biggest buyback initiated by an Indian entrepreneur till date.

The founder of India’s most valuable Hotel chain, Ritesh Agarwal is pledging his entire stakeholding of 10% in OYO to Japanese financial institutions as collateral security, and buybacks $1.5billion worth of shares which brings Agarwal’s stake in OYO to 30%. The buyback funds will be carried to RA Hospitality Holdings, a registered Special Purpose Vehicle (Cayman).

The buyback of shares made by Ritesh Agarwal is regarded to be a bold move, says an expert. The most obvious reason for Indian start-ups do not end up in big businesses is that promoters do not have key control over their business. The popular method of procuring funds by start-ups is through founders giving up their equities to investors. Ultimately the promoter is left with a minor stake. Therefore if promoter opts for buyback of shares, they get more control over the company which in turn benefits the growth of the business.

Softbank Corp of Japan holds around 45% of the stake of OYO. After the buyback, the stake of Ritesh Agarwal (with 30% stake) will grow closer to the biggest investor Softbank Corp and will have the second-largest stake in OYO. OYO is reflected to be valued at around $10billion post buyback of stake by Agarwal and it is further expected to list in the US market. To attain potential growth, the company is expected to boost its expansion plan in India, China, the US, UK, and other south-east Asian markets. When the company enters new markets, the value of the company will only go up.

Conclusion:

This year the company has marked a 4.4X Year-on-Year (YoY) growth revenue in June 2019 upon June 2018 and it has over 200000 rooms in India. Experts say that more and more promoters like Ritesh Agarwal should buy back the shares from investors and get more control over the company to exercise restriction-free decisions. Soon Ritesh with his OYO team will embark on its next phase of growth globally.


 

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