OYO Rooms is reported to be scouting for a fresh round of funding which could see the hospitality company being valued at a staggering $4 billion.
That would not only mean that OYO would join the elite startup club of Unicorns, but at that level of valuation it will be the third largest in the Indian context. Flipkart at $20 billion and Paytm at $12 billion are the only other Unicorns valued above this though cab aggregator Ola is almost there at around the same $4 billion mark.
But one should hasten to add that if this funding exercise of $500 million to a $1 billion gets successfully concluded, OYOâ€™s value could cross $5 billion. The last valuation was $850 million about a year back.
As per media reports, OYO is currently holding discussions on the possible funding opportunity with two separate investor groups. One is a consortium led by Japanâ€™s SoftBank Group (through SoftBank Vision Fund), which is already the largest stakeholder in OYO and the other is a US based group which is engaged in the travels business. Existing investors, Sequoia Capital and Lightspeed Venture Partners are also reported to be in the list of investors in this new round.
Reports also indicate that besides the funding for the parent or holding company, OYO is looking at making a wider expansion of its operations in China and part of the proceeds from this round of investment will be earmarked for that purpose. One round of discussions with certain other prospective investors is said to have borne any results.
OYOâ€™s presence in China is being defined by 50 cities and 50,000 odd rooms under management, while in India, OYO has over 100,000 rooms spread over 230 cities. With over 17 million booked room nights, OYO claims it is close to reaching profitability in its Indian operation. The Chinese market may pose an entirely different set of challenges in terms of the business practices being followed there but having already spent more than a couple of years, observers feel OYO would have learnt all the lessons to be learnt.
The profitability in the Indian operations could be more due to its move to double the commission it charges the hotels foe providing its services from 10 to 11% to 20% in the span of the last one year.
In addition, OYO has finetuned its basic business model itself where it takes complete properties under its franchise in place of the earlier practice of managing just a few rooms.
The other aspect to be kept in view is that if this new round of investment does go through with the SoftBank led consortium, the Japanese investor could end up with a controlling stake in OYO. But that may not change the management arrangement with the Founder Ritesh Agarwal remaining at the helm. It has been seen that the Chairman of SoftBank, Masayoshi Son has a soft corner for Agarwal and has spoken very highly of him.