Indian budget hotel chain start-up Oyo, valued at $10 billion in its latest fundraising round, has faced a number of gripping headlines, including multiple reports of hotel owners in India and China not getting adequate compensation from the company.
In an exclusive interview with CNBC’s Seema Mody on “Squawk Alley” on Tuesday, Oyo’s CEO and founder, Ritesh Agarwal, dismissed those complaints and instead touted Oyo’s business model.
“One of the things that’s consistent, if you speak to hotel owners or customers across the world, is that the proposition of Oyo is very valuable for each one of them. Everybody understands that having a large number of independent hotels improve in terms of infrastructure, provide good technology and increase the occupancy is very valuable,” said Agarwal.
The rise and fall of SoftBank-backed WeWork has thrust Oyo, also backed by SoftBank’s $100 billion-dollar Vision Fund, into the spotlight. While SoftBank has a nearly 46% stake in Oyo, the Indian entrepreneur downplayed its control of the company, pointing to his efforts to diversify the company’s board.
“Oyo is a board-run company. … Softbank, of course, has a representation on the board. But beyond that we have independent board members like Betsy Atkins who drives a large part of the decision-making.” Oyo announced in late November the hiring of Atkins, CEO and founder of Baja Corporation, as an independent director to its board.
Oyo has been expanding aggressively into new markets with 43,000 hotels worldwide. With Agarwal’s relentless focus on expansion, Oyo’s consolidated losses widened in fiscal 2019 to $335 million from $52 million.
As costs rise, Oyo has announced a number of layoffs, from China and India to the U.S., where it has cut one-third of its workforce.
Agarwal addressed the layoffs, saying, “At the end of every year our management regroups and thinks about things we did right and what we could improve. We as leadership acknowledged these restructuring efforts, early part of this year. There are three important perspectives behind this: Make sure we focus on locations and cities that are more profitable, we focus on making sure we reduce the duplication of efforts across countries, and third and most important we make sure that consistently we use technology to be able to be able to serve our customers.”
Agarwal added that after the restructuring efforts, Oyo still has more than 25,000 employees across the world.
Still, the company says it is keeping its path to profitability in mind.
“It’s important for me to acknowledge there is very strong feedback that high-growth companies have gotten worldwide regardless of who their shareholders are … that profitability is the direction that people want to see,” he said. Oyo currently has $1 billion on its balance sheet.
After India, China is Oyo’s second-biggest market, with 9,000 hotels across the mainland. Marriott and Hilton both warned this earnings season that hotel occupancies in China are down significantly due to the coronavirus.
Oyo, like its peers, has seen a drop in occupancy, however, it is trying to keep select locations open at reduced prices in the provinces most affected by the virus to support visiting doctors and people who’ve been stranded by travel restrictions, said the founder.
“We’re trying to keep as many of our hotels open as possible, including in Wuhan and in Hubei,” said Agarwal.
The virus adds to Oyo’s challenges on the ground in China. In Oyo’s 2019 annual report, the company’s financials show that China contributed roughly 75% of its losses in fiscal 2019.
Founded in 2013 by Agarwal when he was 19, Oyo has since become what the company says is the second-largest hotel chain in the world.
Experts say time will tell whether Agarwal can improve the company’s financials and prove to investors that its model works.
— CNBC’s Hannah Miller contributed to this report.