Ritesh Agarwal, the 25-year-old founder and chief executive of Oyo Rooms, one of the country’s most valuable start-ups, believes that the success of his company can be attributed to its innovative business model. For the entrepreneur who started his business career at 17, back-packing across India and living in budget accommodations, the idea to start a hotel franchise model came naturally.
Oyo currently operates over 200,000 rooms in India and around 850,000 rooms globally. However, the group has now
locked horns with hotel operators, who claim that the company is hurting their businesses, rather than helping them grow. The Federation of Hotel and Restaurant Associations of India (FHRAI), the hotel industry body, had moved competition watchdog CCI with a series of complaints ranging from skewed contracts, denial of markets and predatory pricing. Read also: Oyo denies any exclusive arrangement with MakeMyTrip
But Agarwal refutes all these charges, highlighting his firm’s asset retention figures. “In the last few years, on an annual basis, Oyo has had 99 percent annual asset retention; which means 99 percent of asset owners who join our family stay with the family a year later,” he told CNBC-TV18 in an exclusive interview.
“Our business is a little bit like milking the cow. Come to your job every day, do the same thing we did yesterday - sign hotels, renovate hotels to look good, provide good quality service at the right price point, get the occupancy and hence get the margin and do the same thing every day but a little bit better than yesterday,” he added.
During the interaction, Agarwal voiced his views on the backlash from the hotel owners, IPO and the future of Oyo.
Edited excerpts from the interview:
What are your thoughts on the backlash you are facing from hotel owners in India?
In the last few years, on an annual basis, Oyo has had 99 percent annual asset retention which means 99 percent of asset owners who join our family stay with the family one year later. And one percent of them leave themselves or we ask them to leave because we have a 3C programme. Under the 3C programme, we decide whether an asset is good enough or not. So, first, this is a matter of credibility; our organisation is built with our underlying asset owners by data rather than just verbal perspectives.
Oyo has constantly pre-empted how we can continuously get better for our asset owners. A few months back, we launched the Oyo Open programme by means of which we respond and listen to the feedback of asset owners and understand what needs to be improved.
There are lots of very interesting videos, blogs, etc. that the asset owners have written about how they believe Oyo is increasingly becoming a stronger value proposition for them. We have enabled to disburse over Rs 100 crore in capex as well as interior design amounts for these assets to get better revenue pie.
Majority of the people who are communicating about the situations are folks who are not Oyo Hotel owners. some of them are actually asset owners who belong to some other brands and their intent is to try and create a price-fixing at a neighbourhood level, saying that at a neighbourhood level let Oyo also increase the price.Oyo was built with a principle of lowest prices and the ideal rating of the product we want to bring for our customers. So, we will never agree to
price-fixing and let the 25 percent price increase that some of them would like from us. We would like to deliver best prices at the right quality.
Another important subject that people are talking about today is IPO. Everybody is talking about doing an IPO in the next 2-3 years at least that is what people talk about. Do you have IPO on your mind?
No, that is the simple answer. We have a very good balance sheet, close to $2 billion. On top of that the business as you imagine is not very expensive to be able to build. So, with that combination our primary focus is to focus on fundamentals.
As I always say, our business is little bit like milking the cow. Come to your job every day, do the same thing we did yesterday - sign hotels, renovate hotels to look good, provide good quality service at the right price point, get the occupancy and hence get the margin and do the same thing every day but little bit better than yesterday. I feel once we are able to do it for reasonable amount of time we will consider what is the right time for a potential offering. However, at this point of time our focus is just on the ground execution. This is not just me, if you speak to any of our management they would say the same thing.
You bought back some of the shares. Why did you do so?
Some of your readers might have known about my story, majority not. I grew up in the southern half of Odisha on the Odisha-Andhra Pradesh border and right from the very early days my belief or aspirations were very limited. My family wanted me to go work at an engineering company. Oyo gave me the first opportunity of working for a company which is going to become a big impact, let alone the ownership.As I am so excited about it, because I want to serve and be a part of this mission for the next many years, what a lot of people perceive is a big risk, I actually feel it is fairly straight forward. That is if I am so confident about the value of the company, I should not try to make minor adjustments. Either we create big value or on the other hand I should be confident to get to those results. That is what inspired me to consider speaking to people. I am happy that we received support of some financial institutions to be able to make the financing and recently the Competition Commission also in-principle approved my investment in the company along with some secondary purchases.