OYO Rooms, the hotel aggregator with a listing of around 70,000 rooms under various chains, is open to partnerships with the Taj group among others. In a conversation with Ajay Modi, 22-year-old OYO co-founder and Chief Executive Officer Ritesh Agarwal talks about Tata group Chairman Cyrus Mistry's admission that OYO was a "threat", the company's relationship with Japanese investor SoftBank. Edited excerpts:
You started OYO to address the pain points faced by travellers. To what extent have you addressed the issues in three years of operation?
Three years ago, the problem was so grave that any effort would have improved the situation. People travelling to cities, especially smaller ones, had no idea what to expect. In the top 40-50 cities/destinations, there is a now a momentum to find a solution. We need to improve from here.
What has been the learning for you? How does a 22-year-old manage all this?
Most Indian institutions are copies of what has happened in the West or say China. We are fundamentally an India-first company. We had to make all the mistakes and learn. In me, everyone sees a young guy who wants to do things. But, behind me there is a sharp team of 10-15 people with ambitions to solve problems and experience to back that...
You have had dissatisfied guests and unhappy partners. What is the situation now?
The past few months have been the best time for building the organisation. Today, more than 60 properties of OYO are in the top 10 list of TripAdvisor in India. We are leading from a review standpoint. There's a marked difference in feedback. With our hotel partners, we have had 2.3 per cent churn. We had to take a tough stance on partners who felt it was okay not to deliver great service. But when we took action against some, things fell in place.
Did the improvement come on the back of revision in tariffs?
No. We haven't changed a lot of our tariffs. We have been very aggressive on that front.
Tata group Chairman Cyrus Mistry recently said OYO is a threat. How did you react?
I feel that the hospitality industry in India is at a nascent stage. Tata have been great innovators. We'll be able to learn together. It is a very good compliment and makes us stronger.
Is there scope for partnership between OYO and brands like Taj, which also operates a budget range of hotels?
We definitely believe there are multiple collaboration opportunities available with many of these players. Taj has a mid-scale brand with Vivanta and economy scale with Ginger. There are definitely opportunities to collaborate and both organisations will decide things on merit.
Start-ups are seen as burning loads of cash with no sign of profits. Where does OYO stand?
We consistently see our margins improving. But the market we have captured is very small. We might be the largest player in the online space, but if you combine offline, there is a lot more to be done. We want to be in an investment mode. Our plans are very aggressive, and we are capitalised enough to continue doing that. The good news is that we are among the few firms with good operating margins and there is a market waiting to be captured. We need to keep investing to bring more of the market online.
Is there a need for further fund raising?
We have announced that we have raised $126 million. There has been some more, but we are publicly not talking about these.
Most of our investments have been on customer service, technology or supplier acquisition. We have not had to invest a lot on customer acquisition. We will keep investing in these three areas. Some cities that are providing us returns are doing well. We are able to invest through accruals from these cities. There's no need to raise funds in the foreseeable future. But again, it depends on projects.
How has your relationship been with SoftBank after Nikesh Arora's exit?
Nikesh was one of those who would challenge me regularly to think bigger. I miss him as an investor, but he remains a good friend and supporter of Oyo. SoftBank has been a partner and has stood by its commitments. In the next few years, it is likely to have a bigger play in India.
What is your take on valuation trends in the start-up space?
No one talks about market cap of public companies, but everyone finds it attractive to talk of Flipkart's valuations.
Valuations of all these companies go up and down. If you build an attractive business, valuations will be good in the long run. In the short term, there may be a correction or bull run, but that is a function of macroeconomics.
Many players've entered the budget hotel space in the past two years. How is Oyo placed to compete?
Every organisation has a DNA. Our DNA is understanding the market and operating well. We continue to be the most capitalised in this space. We are market leaders by a large margin.