Oyo Hotels has $1 billion cash, expects losses to continue in FY20

Oyo Hotels has $1 billion cash, expects losses to continue in FY20

Oyo Hotel's net losses have reached USD 335 million in 2018/19 which 6.4 times higher than last year, according to the company's latest annual report. Even after 7 years, the company doesn't expect to turn profitable.

Oyo Hotel Oyo Hotel

Even after almost seven years of its existence, Oyo Hotels & Homes is not expecting to turn profitable in the current financial year - 2019/20. The start-up recently released its annual report for 2018/19 that showed its net losses ballooning to USD 335 million (Rs 2,330.6 crore) in 2018/19, which is 6.4 times higher over the previous year. Revenues too grew to $951 million (Rs 6,616.1 crore) in 2018/19 from $211 million (Rs 1,467.9 crore) a year ago.

In an email response to Business Today, Oyo spokesperson said that "while we do not give forward-looking guidance, we acknowledge that we do expect losses to continue in March 2020, at a consolidated group level." The spokesperson also noted that Oyo has been continuously improving on its losses in mature markets (India and China) over the past three financial years, and expect the same in 2020.

Oyo also says that it has over USD 1 billion of cash on its balance sheet. "We have a healthy balance sheet of cash and cash equivalents over USD 1 billion... The business has always been clear on reducing cash-burn or losses and improving revenue and gross margins," says the Oyo spokesperson. Oyo has thus far raised close to USD 3.2 billion in different rounds of funding starting March 2015. Its last round in October 2019 saw founder Ritesh Agarwal pumping in some USD 700 million into the company.

Between 2014/15 and 2018/19, which is practically all of the start-up's lifetime, Oyo has posted consolidated net losses of Rs 3,564.4 crore. A large part of these losses can be attributed to the fast expansion in newer geographies and newer businesses, deep discounting, building technology and renovating the hotels. In addition, Oyo has spent substantial amount on eight acquisitions, most of which have happened over the past two years. Its reported acquisition bill for just five companies - Innov8, Danamica, @Leisure Group, Hooters, Novascotia Boutique Homes - stood at USD 591 million.

Oyo operates through a group of companies. The parent Oravel Stays has two joint venture entities with Japanese investment firm SoftBank, which is about 48 per cent owner of Oyo, to acquire and refurbish properties. For instance, the propco JV called Mountainia Developers owns assets operated by Oyo. Some of the recent hotel acquisitions in India - one in Jaipur, Ahmedabad, and Chandigarh each - have been done through this JV.

In December, Oyo carried out a large global restructuring exercise that resulted in about 2,000 people losing jobs in India alone. It also exited nearly 200 Indian cities out of 800 cities previously. More retrenchments took place across China and the US operations. "The layoffs (last year) were business decisions prompted by reflections to annually improve, right from focussing in right cities, centralising partner experience for consistency and swiftness, the improvement in losses is just one of the outcomes. The goal of (restructuring) exercise was never to reduce losses and neither is it reflective of a reduced outlook for the business," says the Oyo spokesperson.

Oyo says that its growth philosophy is centred on three phases. In the first stage, the focus is on scale and presence which is followed by creating a strong brand resonance and ensuring improved gross margin. In the final stage, which is where Indian operations are, the focus is to maintain strong brand preference while ensuring clear path to profitability, enabled by accretive growth, operational excellence, and strong gross margin.

Although Oyo has been silent on its potential timeline to turn profitable, it had filed a valuation report with the ministry of corporate affairs (MCA) last year which said that it would turn profitable by 2022. After Vijay Shekhar Sharma-run Paytm, Oyo is currently the second-most valuable start-up in India with a valuation of $10 billion. In the history of hospitality sector, it's hard to find any comparables to the home-grown Oyo. Founded in 2013 by Agarwal, Oyo has many firsts to its name. Last year, the chain crossed over a million hotel rooms in over 800 cities, making it the second-largest hotel chain globally.

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