Outbreak of novel coronavirus takes a toll on OYO’s China business

OYO is facing a drop in bookings in China, its largest market outside India, because of the outbreak of the novel coronavirus, now termed Covid-19, though the extent of the impact on its business is yet to be ascertained, senior executives of the hospitality startup said on Monday.

“China has seen a considerable growth in business but to what extent it will be impacted we will have to see,” Rohit Kapoor, chief executive officer (CEO), India and South Asia, and board member Aditya Ghosh, said in a conference call. “No one had expected something like this and we are tracking it on a day-to-day basis. Our larger focus is on our colleagues and stakeholders to ensure that they are safe,” Kapoor said.

Earlier in February, OYO founder and group CEO Ritesh Aggarwal had said in a blog that the company is taking various measures to address the challenges caused by Covid-19, including restricting business travel to the country, health monitoring of staff, and exemption of commissions for newly signed hotel owners.

Meanwhile, Ghosh on Monday said that OYO’s business expansion plans are being executed in three phases, depending on how long the company has been operational in the geography. “Entering a new market leads to costs of hiring and setting up and other expenses. There are markets where we have spent barely a year, including the US and Latin America. Second, there are markets where we have already established operations (Southeast Asia and China) where we are looking at improving gross margins. Finally, there is India, which is our most mature market where we are driving the best gross margins and chasing a path to profitability,” Ghosh said.

SoftBank-backed OYO said in May 2019 that it had become the second-largest hotel group in China after entering the country in late 2017. In just two years, on the back of rapid expansion, it already has around 9,000 properties in China, compared to 18,000 hotels in India, its largest market. A large part of Oyo’s $10 billion valuation has to do with its international expansion, especially in China.

OYO has made significant investments in China in the past two years. Two Chinese firms, Didi Chuxing Technology Co. and Huazhu Group, have invested in Oyo, but have together put up less than $150 million of the $2.5 billion raised by the company in the last two funding rounds.

After facing challenges in the first year of operations, it was making a comeback, improving occupancy rates by introducing a new model under which it provides technology and capital for improving properties.