OYO’s successful business transformation during COVID-19 has made it gross margin positive
OYO becomes first India based global consumer tech brand to raise INR 8430 cr (~$1.2 bn^^)
● OYO focused on its core markets including India, South East Asia and Europe Homes; as well as rationalized non-core geographies leading to improving EBITDA by ~79%
● OYO has improved its adjusted gross margin from 10% in FY20 to 33% in FY21
● The company focused on revamping its relations with patrons, with ~77% improvement in satisfaction levels quarter on quarter in Q4’21, doubling down on technology, and conserving cash with trade payable days reducing to becoming 105 days in FY2021
● OYO underwent a strategic transformation during the pandemic which contributed to building an even stronger foundation for its business
● OYO’s IPO consists 83% fresh issue (INR 7000 cr) and 17% offer for sale (INR 1430 cr)
Global travel technology company, OYO (Oravel Stays Limited) filed its draft red herring prospectus (DRHP) for its initial public offering (IPO) of INR 8,430 cr ($1.2bn) with the Securities and Exchange Board of India (SEBI) in September this year.
Over the past year, OYO has implemented a number of measures as a part of its COVID-19 response strategy, including accelerated development and adoption of technology and products to reduce operating costs. The Company also streamlined strategic and shared services functions, such as revenue management, supply, human resources, legal and finance, from country teams to regional teams to create more efficiencies and reduce costs. As a result of various initiatives that the Company took, its Adjusted Gross Profit Margin improved from 9.7% in Fiscal 2020 to 33.2% in Fiscal 2021 along with ~79% reduction in EBITDA losses from FY20 to FY21 despite the pandemic.
OYO was the 3rd^ most downloaded travel app globally in 2020. With over 9.2 million subscribers just in India, OYO Wizard, is the largest loyalty program among online hotel or food brands in India.
OYO is also able to ensure higher repeat rates of its customers at around 68%, in comparison to various other travel direct-to-consumer D2C players in India as well as globally*. This is driven by OYO’s wide choice of storefronts, affordability, strength in D2C channel offering and the trust it has been able to generate in the customers’ mind over time, amongst other factors.
OYO aims to increase its Patrons’ revenue generation potential by providing them with access to a large Customer base through its D2C direct channels, coupled with its suite of innovative products. In India, Indonesia and Malaysia, as per Redseer study, OYO storefronts that joined the platform in 2018 and 2019, performed better* than independent hotels of similar sizes in 2019 on average. After 12 weeks of joining the OYO platform, OYO hotel storefronts generated 1.5 to 1.9* times more revenue on average compared with the average revenue estimated at an independent hotel of a similar size. In Europe, OYO home storefronts earned an average of 2.4* times more revenue compared with the average revenue estimated at an independently managed home in 2019.
In an attempt to mend relationships and build new ones, OYO utilized the peak pandemic time to introduce equal patron policy, organize surveys and virtual town hall events to improve trust with its patrons. This helped in conserving cash with trade payable days reducing to becoming 105 days in FY2021. It also led to ~77% rise in patron satisfaction levels q-on-q in Q4 ’21, by query resolution thru technology, quicker and simpler account reconciliation, and twice a week payouts.
The company now has an asset light business model and a lean cost structure. As of March 31, 2021, 99.9% of the company’s storefronts did not have contracts with minimum guarantees or fixed payout commitments from the company, with any investments, capital expenditure, storefront employee costs borne largely by Patrons. This enables the company to be capital-efficient and scale its business with minimal marginal costs.
With over 70% of OYOpreneurs and most of the core engineering team based out of India, OYO is building its best in class technologies and products from India for the world.
OYO has proposed/plans to use the net proceeds from the fresh shares Issue towards funding the prepayment or repayment, in part, of certain borrowings availed by certain Subsidiaries; (ii) Funding organic and inorganic growth initiatives; and (iii) General corporate purposes.
Investors including Ritesh Agarwal, Lightspeed Venture Partners, Sequoia Capital, Star Virtue Investment Limited (Didi), Greenoaks Capital, AirBnB, HT Media and Microsoft are not diluting their shareholding. The offer for sale comprises of aggregate shares from a small part of SVF India (Softbank), A1 Holdings Inc. (Grab), China Lodging, and Global IVY Ventures LLP.
The Global Co-ordinators and Book Running Lead Managers to the offer are Kotak Mahindra Capital Company Limited, J.P. Morgan India Private Limited and Citigroup Global Markets India Private Limited. The Book Running Lead Managers to the offer are ICICI Securities Limited, Nomura Financial Advisory and Securities (India) Private Limited, JM Financial Limited and Deutsche Equities India Private Limited.
APPENDIX
OYO at a glance
● OYO is a global brand with a unique two-sided technology platform bringing together 157K+ hotels and homes to our customers across 35 countries
● OYO offers 40 integrated products and solutions that drive an immediate and sustained increase in revenue and profits from operational efficiencies for our patrons who run storefronts across the world
● These products include CO-OYO, OYO OS, OYO Yo!, OYO Tariff Manager, OYO Secure, OYO Wizard, and the consumer-facing OYO App, among others
● OYO storefronts perform 1.4x–2.4x higher than independent operated hotels and homes
● OYO operates in a highly fragmented market of 54 million storefronts globally with a large consumer TAM opportunity of $1.9 trillion by 2030
● With over 100 million downloads across geographies, OYO is the third most downloaded travel app globally
● OYO is a technology-led asset-light business model with high Gross Margins
● OYO has a high share of 80% global direct demand for its hotels across geographies
OYO’s technology and product suite
● OYO has a comprehensive tech and product suite of 40 integrated solutions and offerings that create a strong value proposition for both patrons and customers
● Our Patrons use our robust, full-stack technology platforms, through our flagship Patron OYO OS and CO OYO applications, to increase their revenue generation potential, improve Customer experience and optimize their operational costs.
● OYO OS – the company’s operating system is used by over 94% of partners and property staff across the globe for check-ins and everyday operations
● OYO’s AI and ML-based dynamic pricing and image sciences has enabled OYO and its partners to capture a higher market share, maximise revenues and reduce pricing escalations
● 73% of customer queries are automated via chat + IVR
● OTA Powerplay simplifies a plethora of promotions and boosters offered across multiple OTAs, further improving storefront ranks on OTAs and leading to higher conversion rates
● Discover OYO, a Customer acquisition engine funded by Patrons, helps our Patrons to increase their revenue by enabling them to offer discounted room rates to first-time Customers of a particular storefront.
Value proposition for patrons
● OYO offers one stop property management solution with self-service modules for all mission critical operations
● OYO gets listed on more than 7 different OTA channels; these storefronts show higher demand performance even on OTAs
● OYO’s direct platform customers are notably sticky, with over 80%+ revenues on the OYO platform coming from repeat & organic customers
● OYO’s partner satisfaction score has improved by 47% in Q1-2021
● Today, more than 2700+ patrons have more than 1 storefronts
Value proposition for customers
● OYO’s 3 click booking process, flexible cancellation policy and seamless payments and invoicing has led to superior customer experience
● OYO brings reliable ubiquitous supply at compelling prices on a fast, intuitive booking app
● As per Kantar, OYO is the #1 Travel and Hospitality brand in India for 2020
● With over 9.2 million members, OYO Wizard is the largest travel/food loyalty program in India and has the second, highest-paid members across programs
● Giving ease of mind to consumers with COVID-19 led innovations such as:
○ VaccinAid: Vaccinaid tag on the OYO app shows consumers if all staff members have received at least 1 dose of the Covid-19 vaccine
○ Contactless Check-ins: Contactless, digital check-in and SOS services
○ Sanitised Before Your Eyes: Hygiene focussed initiative
○ Yo! Chat: OYO’s 24*7 real-time chat assistance
○ OREO: Automated instant refund engine
