Hospitality firm Oyo recently closed a $1 billion round of funding backed by its existing Japan-based investor Softbank, Chinese cab-hailing giant Didi Chuxing and Singapore-based ride services provider Grab.
Interestingly, both Didi and Grab also have Softbank as an investor on their respective boards.
Q. So you have Softbank, Grab and Didi as new investors, all of whom have aSoftbank connect. Was this a conscious effort?
A.Ritesh Agarwal: We don’t typically differentiate it that way. We are very thankful to have a broad group of shareholders whether it is Sequoia, Lightspeed, the Munjal Family, Grab, Didi and of course, Softbank Vision Fund. All of them have been great partners for us.
We look at every investor from the lens of the value they can add to us. For instance, when the Munjal family participated in it (round of funding), I think the view that we took was their incredible depth of understanding of the Indian consumer from running world’s largest two-wheeler company. Or if you think about the size of capital (close to $100 million) which was invested by Sequoia and Lightspeed, it showcased to us that even our early stage investors who generally do not invest in this size of capital raises, were investing pretty aggressively.
So our view is that we are lucky to have a broad range of capital table, but at the same time, having a connected relationship within companies is only a good thing. That ways Sequoia is also an investor in Didi. We do not view these very differentially. We view every shareholder on their own merit.
Q. Oyo plans to invest $200 million in India and South Asia market, with $600 earmarked for the China market. Where would the rest of the money go?
A. For a timeline of one calendar year, a $200 million investment India is the only one on the cards, with all the other figures being allocations for multiple markets.
Q. The company has been in the news for getting into the food business. In what forms and manner will that happen? Will it only be for the guests staying at Oyo or you are also considering moving into the food delivery space?
A. Today Oyo is a full scale hotel operator. Now hotels would have accommodation, food, banqueting as three of the key facilities. We already run F&Bs in over 500 of our buildings across the country and as we run them, we are increasingly seeing that this is an important part for the customer in terms of experience. People love great home cooked meals. But at the same time, it (food and beverages) also contributes upto 25 percent of our revenue share in some of our brands. Which means there’s a large enough impact it can create for us. Now with that said, we are very focused on our in-hotel, in-room dining sort of an experience at this point in time. If we do consider to distribute our food produce in a different way, we will let you know in the future but our mindset remains that of the real estate operator and the food producer for now.
On whether we will make the same for people in the neighborhood by means of third party distribution … Once we have a view on that we will absolutely share it with you.
Q. Can you confirm the report that Oyo is in talks to acquire FreshMenu?
A. It is part of our policy that we do not respond on any speculation but if we acquire any company I assure you will reach out to you.
Q. Over the last couple of years, the brand has expanded in many different ways. Where do you see Oyo going from here in the next couple of years? What sort of an expansion is lined up in the next couple of years in how the brand would look like?
A. When we started Oyo hotels, we actually started as a full scale hotel operator but as you may remember in 2015, we also started aggregating some assets. Early 2016 was the year when we basically said that we will be a full scale hotel operator and since then that has been the single focus area that we have had.
Now any full scale hotel operator worldwide has a value proposition. The franchise hotel, leased hotel carry out management contracts. They send general managers to every hotel, some buildings put up with capex, and the asset owner puts capex in other buildings. Some buildings have a single brand and corporations have a multi-brand strategy.
So from our view, our mission will continue to be the same, which is being able to make sure we bring great quality product at lowest prices, building a full scale hotel operator in years to come. So by 2023, we will evolve into becoming the world’s largest hotel operator. We believe in making sure that we deliver better spaces for people who come to us. Hence every business that we operate follows the same philosophy, that is, upgrade the space that existed earlier so that is sort of how you will see the brand evolve in the years in terms of brand.
Q. What has been the growth in your real estate business. Given that these are mostly new properties, wherein the infrastructure is good and less capex is required are these properties giving Oyo a good return on the money?
A. So we break it into two parts, the first part is this (Oyo’s business) is fundamentally real estate, given that we operate buildings worldwide. But within the real estate business, the specific bit that I think you are referring to is the green field real estate. That is just land that is getting constructed. In that specific area there is a very interesting opportunity.
We already are seeing roughly 15 percent of our portfolio in India and South primarily being new builds. The new builds are seeing very interesting traction because a lot of people who bought land during the economic real estate boom in India have the land but they are uncertain of getting a yield on something they construct. Now with Oyo Townhouse or Oyo Hotels, they get a indication of securing get good yields. Which makes it relatively much easier for them to go and construct the buildings for us.
Q. Last time we also discussed about malls and high rise buildings which weren’t doing well so the owners wanted to make them into an Oyo. How’s that business doing?
A. So far we haven’t done any malls. However, there are a lot of high rises that have become Oyo’s especially because of Oyo Life as an product that we have. Oyo Life primarily operates in long term housing that ensures that we can operate very actively in that segment which is primarily for residential high-rises but at the same time there are a large number of mixed land-use high-rises for which we have signed multiple projects under Silver Key executive apartments and other executive apartments businesses. We have high-rises primarily in long term housing scheme but there are some high rises which are essentially service apartments. There are service apartment brands is the leading opportunity.