Exclusive: Income Tax search at Ritesh Agarwal-led OYO’s headquarters in India

• Income Tax officials searched the sector 69 Gurugram office of OYO.
• Some of the employees were even asked to leave the office premises.
• OYO has been in the eye of a storm lately after a series of bad news around the hotel chain.

More trouble for Indian hospitality unicorn OYO. Income tax officials searched the headquarters of OYO in Gurugram today, three different sources told Business Insider. OYO has called it a “routine TDS survey”. TDS stands for tax deducted at source.

This will be a big blow to the seven-year old startup that is now valued at $10 billion, once seen as one of Softbank’s marquee investments in Asia. “The Income Tax officials came to the OYO office on Friday first half, following which a few employees from the office in Sector 69 in Gurugram were asked to go home,” the source told Business Insider.

OYO told its employees not to panic. A board member said he was unaware of the development but did not want to be named.

“There is a routine TDS survey in progress in one of our offices. We are cooperating with the authorities, and are committed to engaging with all relevant stakeholders,” said an OYO Spokesperson

For Softbank, this will be a big blow coming soon after the debacle at WeWork, where the valuation dropped from $49 billion to $8 billion as problems kept piling up at the global coworking giant.

Troubles are piling up ⁠— and so are the losses

While the scope of the current search is not clear yet, crisis has been brewing for some time at OYO. Recently, it was reported that the hotel chain was laying off 2,000 employees, the company however said that it had a performance grading system for employees through which it may “replace some candidates”.

OYO’s losses have increased to ₹2,384.7 crore.

But that is the least of its issues. Reports of unpaid dues, a death and an investigation ⁠— much has transpired in the last year. However, the company’s valuation soared to $10 billion after the promoter Ritesh Agarwal decided to buy back shares from existing investors at a higher price. Agarwal made the investment through a Cayman-registered company, RA Hospitality Holdings.

Growth at all cost

OYO, which claims to be the world’s third largest hotel chain, had got numbers on its side through quick expansion across boundaries, and bringing hotel owners on board. But as it ran faster, Agarwal’s firm kicked up a lot of dust.

Business Insider spoke to an OYO employee who confirmed that OYO had a ‘minimum guarantee deal’ which it offered hotel owners and failed to keep up with it. Through this deal, it offered a rate card depending upon the number of rooms, to calculate how much business a single property can make.

For example, if a property could make a revenue of ₹10 lakh, OYO confirmed and gave hotel owners a minimum guarantee for 60% of the revenue which would be ₹6 lakh . If the hotel didn’t make the minimum business, OYO would give them the difference amount. However, this is the amount OYO didn’t end up paying some hotel owners.

Business Insider has learnt that the ‘minimum guarantee’ is not offered any more but there has been no official communication about the end of the practice.

Recently, a New York Times article exposed the company’s financial issues where the start-up was putting hotel owners in contracts that it itself deemed unprofitable. The report further mentioned that OYO made up nonexistent guests so that it doesn’t have to pay the balance amount.

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OYO now plans to layoff 2,000 employees, the company says it may ‘replace some candidates’