OYO Rooms is the most valuable “hotel chain” in South Asia after Softbank investment

• After being valued at between $850-$900 million at the end of last year, OYO Rooms, is now worth five times more than that courtesy a $1 billion funding round led by Softbank’s Vision Fund.
  
• Infact, with its latest valuation of a little under $5 billion, the Gurugram-based company is now the most valuable hotel chain in South Asia.
  
• OYO’s founder, 24-year old Ritesh Agarwal, will use the funds to continue the hotel operator’s overseas expansion as well as making further inroads in India.
  

After being valued at between $850-$900 million at the end of last year, OYO Rooms, which was founded in May 2013 by 24-year old Ritesh Agarwal, is now worth five times more than that courtesy a $1 billion funding round led by Softbank’s Vision Fund.

Infact, with its latest valuation of a little under $5 billion, the Gurugram-based company is now the most valuable hotel chain in South Asia, easily leapfrogging the Taj and Oberoi chains, which are valued at around $2 billion and $1.2 billion, respectively. It is also the country’s second-most valuable startup after Paytm. Flipkart has been ruled out of consideration following its acquisition by Walmart.

Solid growth

While it’s latest funding round could be an indication of the valuation bubble that India’s startup ecosystem finds itself in, the company has recorded a commendable level of growth since its founding. It currently offers nearly 211,000 rooms in 350 cities in five countries. It has about 8,500 hotels across 230 cities India with around 87,000 rooms in 171 cities in China.

This marks an impressive turnaround for a company that was struggling with vacancies and complaints of poor customer service just a few years ago. This caused it to shift gears from the AirBnb model of connecting customers with hotel operators to a franchising model.

Through its Townhouse brand, which was launched in early 2017, OYO Rooms focused on offering budget hotel experiences to customers in properties that were fully operated by the company employees. Hence, it got full control of its inventory of rooms in order to improve the customer experience.

Under the latest funding round, OYO will receive around $800 million upfront with an additional commitment of $200 million. Softbank was joined by OYO’s existing investors Sequoia Capital and Lightspeed Ventures in the latest round.

What will OYO use the money for?

The investment will help OYO Rooms accelerate its overseas expansion. It has been expanding its operations outside India into China as well as Southeast Asian countries like Indonesia, Thailand and Malaysia and also it has its sights set on Europe and West Asian markets like the UAE.

Earlier this month, Agarwal told Reuters that he planned to invest $5 million to launch in 10 cities in the UK by 2020. OYO plans to offer 5,000 hotel rooms by then, backed by a staff of 100 people. The company is set to open its first two properties in London next month.

However, the bulk of OYO’s financial resources will be focused on its two main markets - India and China. Agarwal reportedly plans to invest an additional $600 million in gaining further ground in China, especially in Tier-4 and Tier-5 towns.