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Oyo's loss rises sevenfold but says no brakes on expansion

Ritesh Agarwal-founded Oyo saw consolidated revenue jump to $951 million in FY19 (Photo: Bloomberg)Premium
Ritesh Agarwal-founded Oyo saw consolidated revenue jump to $951 million in FY19 (Photo: Bloomberg)

  • The hospitality firm reported widening of its consolidated net loss to $335 mn for the financial year ended March 2019, mainly on account of international expansion
  • Oyo’s loss in its oldest market India narrowed to 14% of revenue in the last fiscal from 24% in the year-ago period

Bengaluru: SoftBank Group-backed Oyo Hotels and Homes will continue its expansion into international markets such as Latin America, China and the UK, senior company executives said, even as its losses surged sevenfold last fiscal.

The hospitality startup will also focus on turning profitable in its home market India, where its margins improved 4.1% in 2018-19, Oyo board member Aditya Ghosh said in a conference call with reporters to discuss the audited financial results for FY19.

Ghosh did not say when Oyo could start making profits.

Oyo’s consolidated loss ballooned to around $335 million in 2018-19 from $44 million in FY18. The company, one of the world’s largest hotel chains, currently has 18,000 hotel partners and an inventory of 270,000 rooms across India.

The Bengaluru-based startup attributed the increase in losses to inherent cost of establishing new markets, including those related to talent, entry into new markets and operational expenses.

Consolidated revenue jumped to $951 million in FY19 from $211 million in the previous year. It included $604 million in revenue from India operations.

Around $348 million was contributed by overseas operations, primarily China.

Oyo operates on a franchise model where it takes over a hotel asset, renovates the space and sells individual rooms under the Oyo branding. It claims to have hosted more than 180 million users between January and December 2019.

The startup said it has around 43,000 hotel partners and a million rooms on its inventory, including 99,000 rooms across 300 cities in South Asia, 17,000 rooms in West Asia, 12,000 in Japan and 16,000 in Latin America.

Oyo said China and other international markets, which were in “development and investment mode", accounted for 75% ($252 million) of losses during the year.

Net loss as a percentage of revenue grew to 35% in FY19 from 25% a year ago.

However, in its oldest market India, the startup narrowed its losses to 14% of revenue in FY19 from 24% a year ago.

In addition, the startup said gross margin in India improved to 14.7% in FY19 from 10.6% a year ago, although it did not detail the margin figures for international operations.

The announcement of the audited financial performance comes at a time when Oyo has been laying off employees across India and other geographies to keep costs in check.

The retrenchment process, which Oyo describes as a “right sizing" and restructuring exercise, has happened over the last couple of months.

Addressing recent media reports of corporate clients opting out of Oyo, Rohit Kapoor, chief executive of Oyo India and South Asia, said only two-three corporate clients have left so far.

“Our corporate business grew around 80% in FY19… we currently have around 7,500 clients on the corporate base. In 2019 itself, we added 4,000 new clients to our corporate base," said Kapoor.

During 2019, Oyo claimed to have generated over 90% of its revenue from repeat customers and organic users, with repeat customers contributing to 73% of total revenue.

“We have crossed an important milestone of achieving global revenue of $951 million in FY2019, a 4.5 times increase on a year-on-year basis," said Abhishek Gupta, Oyo’s global chief financial officer. “As we work towards consistently improving our financial performance, ensuring strong yet sustainable growth, high operational and service excellence and a clear path to profitability will be our key to our approach in 2020 and beyond."

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