High occupancies leading to higher discount: Oyo founder Ritesh Agarwal

Oyo Rooms, the online marketplace for hotels, has been aggressive and offering more than 50 percent discount on hotel bookings. This has been possible due to the low marginal cost of operating in the hotel business, said Oyo's founder and CEO.

"Our unit economics continue to be at 17 percent net margins. We are able to provide these prices because of the high occupancies. In hotels, the marginal cost of operating is too low. We have a liquidation preference strategy, which means you get more attractive prices closer to the date of stay," said Ritesh Agarwal, founder and chief executive officer in an interview to BS.

"We should always be 30 percent cheaper to the same quality hotel in the area. Along with location and quality, it should be a steal for users," he added. He also thinks India's biggest market is the economy segment, followed by mid-scale and luxury.

Founded in 2013 by Ritesh Agarwal, Oyo claims to operate 8,500 hotels and 70,000 rooms in more than 230 cities in India. Over the years, it has tried many business models. It also started, OYO Townhouse, which is similar to the franchise model employed by chains like Treebo and Fab Hotels.

The company is also testing WhatsApp's enterprise solution, where customers will have the choice to receive their booking confirmations along with cancellation and navigation details for locating a hotel via WhatsApp.

Oyo losses

Oyo hogged headlines for racking up huge losses without any significant revenues.

It posted a loss of Rs 496 crore on a revenue of Rs 32.8 crore in the financial year 2015-16. It had accumulated losses of Rs 517.9 crore as on March 2016 as against shareholders’ funds of Rs 789.7 crore, as per data and research platform Tofler.

However, Oyo reduced its losses by a third in FY17, to Rs 325 crore. Agarwal believes this will go further down in coming years.

"In our kind of businesses, as they scale, the revenues continue to increase but cost does not. In the next coming years, it will continue to show improvements," he added. The company had gross booking value (GBV) of $100 million in the first quarter. It aims to achieve $450-500 mn this year.

Besides, in September this year, SoftBank invested $250 million in the hotel aggregator. In India, SoftBank’s portfolio includes the likes of Paytm, Flipkart, Hike, Grofers, and InMobi.

Oyo forayed in the international market with services in Malaysia and Nepal in January and April this year, respectively. The company claims to have around 8,500-plus hotels in more than 230 cities across India, Malaysia, and Nepal.

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