Oyo's valuation set to cross $4 billion

Tinuku - The Gurgaon-based startup which has been aggressively expanding in China is in talks with two consortiums, SoftBank Vision Fund and WeWork, and a set of US-based strategic investors in the travel space. The hotel chain is in advanced talks to raise up to US$1 billion in a deal that could usher the company into India’s crowding Unicorn club with a valuation of over $4 billion.

A pre-money valuation above $4 billion would vault Oyo, founded by 24-year-old college dropout Ritesh Agarwal five years ago, to the league of most valued Indian internet companies behind Flipkart ($20 billion) and Paytm ($10 billion). Ola, India’s largest taxi-hailing service, is estimated to be worth about $4 billion.

Tinuku Oyo's valuation set to cross $4 billion

Oyo is yet to finalise the investor consortium and the capital it will raise, which, according to sources, may be between $500 million and $1 billion. Depending on this, the company could be valued at between $4.5 billion and $5 billion. Oyo was previously valued at about $850 million when it raised about $260 million from SoftBank and other in September last year.

Oyo had mandated merchant bank JP Morgan to scout for new investors. A number of global private equity firms, including General Atlantic and Warburg Pincus, and strategic investors including Tencent had expressed interest. However, talks with them did not progress.

Besides raising capital for parent company Oravel Stays Pvt Ltd, Oyo is raising capital also for setting up a joint venture for its recently launched operations in China, a market notoriously difficult for international companies to crack. The money will be used to deepen the presence in China and also other international markets like Southeast Asia and the Middle East.

Earlier this month, Oyo said in a statement that it had expanded in China and had 50,000 rooms in the country across 50 cities, having started operations there nine months ago. In India, where Oyo says it is close to reaching profitability, the company has an estimated 100,000 exclusive rooms under its management, with a presence in 230 cities.

Between January and June, Oyo hotels in India clocked 17 million booked rooms nights. What has also helped the company is that it has nearly doubled the commission it charges from hotels to over 20% from 11-12% last year, according to industry sources.

While Oyo initially began by taking under its management a few rooms in associated hotels, over the last two years it has moved to a fully franchised model where it takes control of the entire property with standard amenities. This has helped improve customer experience.

Japan’s SoftBank is already the largest shareholder in Oyo, holding around 45%. Other major shareholders are Lightspeed Venture Partners with 15% and Sequoia Capital India with around 11%. Agarwal holds 11-12%. In recent months, SoftBank CEO Masayoshi Son praised both Oyo and Agarwal, describing as a “next-generation hotel company” that’s undertaking “the most advanced hotel management” globally.

In June, while speaking at SoftBank's 38th annual general meeting, Son said the Japanese investment giant planned to support OYO through a possible joint venture for its China business, a strategy it has undertaken with a few of its most prominent portfolio companies including WeWork, Uber and Didi Chuxing.