Indian start-up Oyo Rooms is to put $600m from new funding towards a drive to become the largest hotel chain in China, its founder said, after a $1bn cash injection that made it one of Asia's most valuable unlisted tech companies. The company, founded by then 19-year-old university dropout Ritesh Agarwal in 2013, boasts 125,000 rooms at its hotels in India, more than any other rival.
It has secured funding commitments of $1bn from investors led by Japan's SoftBank at a valuation of about $5bn — more than double the market capitalisation of Tata's Indian Hotels, previously the country's biggest hotel group.
Most of the new funds will be used to fund growth in China, where Oyo launched last November, Mr Agarwal told the Financial Times. The company aims to sustain its pace of expansion in China which, at 30,000 rooms per month, it says has already put it in the country's top 10 hotel chains by room numbers.
Ultimately, he predicted, Oyo would overtake rivals such as Huazhu Group to become the largest hotel chain in China. “We believe eventually we will get there,” he said.
Oyo grew rapidly in India by focusing on middle-class travellers forced to choose between stretching their budgets to stay at a major hotel chain, or opting for small independent lodges where quality could vary.
SoftBank made a rare entry into the hotel business when the group invested in Oyo in2015. During an earnings presentation in August, SoftBank chief executive Masayoshi Son spoke in depth about the company's business model, focusing on its use of artificial intelligence to boost occupancy rates and adjust pricing.
Of more than 10,000 branded hotels in its network, most are run on a franchise model by local entrepreneurs, who are required to have their properties refurbished to Oyo's specifications and pay a commission on each booking. The vast majority have no more than a few dozen rooms, in contrast with most large hotel chains.
“Worldwide, 95 per cent of hotels are 100rooms and smaller,” while nearly all hotel chains have focused on the remaining 5 per cent of the market, Mr Agarwal said.
“So you have this massive opportunity where there are so many assets that are small in size, and just because of this end up losing to the big chains.” In China, he said, Oyo was focusing on rooms priced at Rmb150-Rmb250 ($22-$36), well below the price range of most branded chains.
Oyo faces local competition at this end of the market — notably from market leader Huazhu, which operates several “economy” hotel brands.
But Mr Agarwal said that Oyo already offered more rooms than any Chinese budget chain.
While many Indian start-ups have received funding from Chinese groups such as Alibaba and Tencent, few have attempted to do business directly in the country.
Those that have pursued expansion internationally, such as ride-hailing app Ola, have tended to focus on mid-sized Asian markets or English-speaking ones such as Australia and the UK.
Oyo launched operations in the UK earlier this year, adding to its presence in Malaysia and Nepal, but is focusing investment on China and India. The company has dealt with the complexities of the Chinese market by giving wide autonomy to its local managers, most of whom are not fluent in English, Mr Agarwal said.
“We operate like a Chinese company, not a global company operating in China,” he said.
“If you go to one of our hotel owners in China and ask them where Oyo is from, they'll say it's Chinese.”
Additional reporting by Kana Inagaki in Tokyo
BY SIMON MUNDY — MUMBAI