A

CASE STUDY

On
“OYO HOTELS AND ITS CHALLENGES”

Submitted To

In partial fulfillment of the requirements

For the award of the Degree of

POST-GRADUATE DIPLOMA IN MANAGEMENT

BY

CHANDNI JAIN
(MM1820126)

SRI BALAJI SOCIETY’S

BALAJI INSTITUTE OF MODERN MANAGEMENT (BIMM)

S No- 5/2-7, TATHAWADE, WAKAD, PUNE-411033

 TABLE OF CONTENTS

S.NO TOPICS PAGE NO.

1. Executive summary

2. Introduction

3. Objective

4. Case Scenario

5. Analysis

6. Conclusion

7. Key Learnings

8. Sources
 Executive Summary

IndiGo, largest airline in India by both passengers carried and the fleet size, headquartered in
Gurugram, Haryana, was founded as a private company in 2005 and commenced its operations
from 4th august 2006. InterGlobe Enterprises is the parent company of IndiGo holding 51.12% of
shares and Caelum Investment holds 48% stake. IndiGo captures 49.9% domestic market share
(as on Nov. 2019). One of the major reasons for IndiGo’s huge market share is its promptness in
deploying capacity timely, providing no frill customer services and also its on time service
continuously. In additiomn to that, IndiGo went public in the name of InterGlobe Aviation ltd. in
2015.

The main objective of the study is to understand the factors contributing to success of IndiGo in
India. To get a deeper understanding on the success factors a descriptive study has been
conducted showing analysis on the financial aspect of the IndiGo. The data used to complete the
study was Secondary data provided by the company website and other reliable sources.

After collection of data, analysis and interpretation of data has been done. On the basis of that,
the following findings are arrived at:

 Adopted Sale-and-Leaseback model with a strategy of starting one aircraft and adding
one after every 6 weeks helped in analysing the financial changes more minutely.
 Services provided as per the convenience of the customer making it economic for middle
class customers.
 On-time arrival and departure, Cleanliness, Consistency in operations created a brand
image in the minds of the customers.
 Only 1% Revenue is spent on marketing and promotional performance, thus creating
more scope for usage of revenue.

The major limitation of the Study was time period. Although, maximum care has been taken in
order to arrive at appropriate findings and solution.
INTRODUCTION
ABOUT
Oyo is fastest growing chain in hopitality sector in India and has been founded by Mr. Ritesh
Agarwal in 2013, headquarted in Gurgaon, Haryana.The OYO hotels and Homes has its presence
in over 800 cities and nearly 18 countries with 23000+ rooms in only 7 years, with employing
around 17,000 employees overall. Initially started with only budget hotels it gradually expanded
to Oyo Life, Oyo Homes, Oyo Townhouse etc. Oyo has particularly been focusing on stays of
different classes of persons. The Oyo’s valuation currently is approximately 10 bn USD.

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HISTORY
Oyo Hotels was previously known as Oravel Stays Private Ltd.Oyo has been started in 2013,
with a funding of USD 1,00,000 provided by Thiel Fellowship in which the founder, Ritesh
Agarwal, was selected. First series A funding has been received by OYO in 2014. In 2015, Oyo
App has been launched which has made easy for the customers to process their bookings.

INDUSTRY
Oyo falls in the Tourism and hospitality sector. It is a huge sector which encompasses stays,
services of food and drink, event planning, theme parks, transportation, travelling etc. But, Oyo
particularly deals in arranging lodging i.e.,stays of persons with all the required facilities.

Oyo Rooms’ top competitors are

 Fabhotels
 Treebo etc.

PRODUCTS OF OYO
 Oyo hotels (Economic)
 Oyo Townhouse (mid segment)
 Oyo Luxury

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Oyohotels.com
  Oyo SilverKey (Corporate Apartments)
 Oyo Living (Millennial Housing)
 Oyo Homes (Vacation Rentals)
 Collection O (mid segment)

FUNDINGS
YEAR AMOUNT FUNDING SOURCE
2015, March USD 25 Mn Lightspeed, Sequoia and others
2015, July USD 100 Mn Softbank
2019, February USD 100 Mn Star Virtue Investment Ltd
2019, October USD 1.5 Bn Softbank, Sequoia ,Lightspeed,
Venture Partners and others
(source-www.oyohotels.com)

BUSINESS MODEL
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Oyo Rooms Business Model had been that of a hotel aggregator with provision quality services
to the people. However, with passage of time , it shifted to Franchise Model because of its Brand
Equity. The Company -

 Leased a part of hotel’s inventory beforehand.

 Organized those under its Brand name.
 As stated in Contract with Oyo, the partner hotels provides the standardized services to
Oyo Customers.
 Booking would be made through websites or mobile apps.

With the current mode in progress, the leasing doesn’t take place and partners to operate
them as complete franchise.
With this model in mind, Oyo made a portfolio of more than 35,000 hotels and over 1.2
Mn rooms across 80 cities.I

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www.economictimes.in
3
TIMELINE

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www.entrepreneur.com
MAIN CONTENT
OBJECTIVE OF THE STUDY:
 To understand the challenges faced by Oyo in India.
 To analyse the reasons behind the challenges faced by Oyo.
 To do a competitive analysis of Oyo with its competitors.

PROBLEM STATEMENT
The rising losses of Oyo and the reasons behind the challenges faced by Oyo.

CASE SCENARIO
CHALLENGES FACED BY OYO AND IT’S REASONS
 1) 4Indian Hotel Partners filed complaints of unpaid dues-In Dec 2018, the news of the
conflicts of hotels, associations and Oyo started to come in light. By January 2019, the
FHRAI,abody of hotel owners and operators (pan india), reported that around 200 hotels
exited from the agreements with Oyo in charges of contract mismanagement, disputes etc.
and many other hotels are trying to exit from the contract. The main issue is for a minor
error Oyo charges such huge penalties that at the end of the month, hotels owe money to
Oyo.

2) Hoteliers made Police Complaints-The hoteliers made charges of changes in contract

without consulting them. And thus, charges like breach of trust, conspiracy, cheating etc
were by them against Oyo.

3) Lack of Profitability-Oyo’s operational expenses are more than its revenue which creates
a lack of working capital and hence decreases the profitability.

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4) Expansion without knowing the stability of previous product- The Oyo teams expands
to almost 260 citites, 8700 buildings and 1,73,000 rooms. Launch of Collection O in 2019
for midsegment hotel cahin Brands.

YEAR REVENUE TOTAL LOSSES

EXPENSES
2015-16 Rs. 32.8 Crores Rs. 530 Crores Rs. 496.80 Crores

2016-17 Rs. 108 Rs. 463 Crores Rs. 355 Crores

9027.53Crores
2017-18 Rs 326 Crores Rs. 638 Crores Rs. 360 Crores
Rs 686 Crores
2018-19 Rs. 6642.85 Crores Rs.9027.53 Crores Rs. 2384.69 Crores

(source- businessstandard.com , www.oyohotels.com, www.yourstory.com)

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Entrepreneur.com

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Yourstory.com
10000
9500
9000
8500
8000
7500
7000
6500
6000
5500 Revenue
5000
4500 Total expense
4000 Loss
3500
3000
2500
2000
1500
1000
500
0
2015-16 2016-17 2017-2018 2018-19
6

CONSEQUENCES-
 Buy back of shares worth $ 1.5 Bn
 Stake of Agarwal rose from 10% to 30% because of the exit of Lightspeed
Venture Partners and Sequoia Capital.
 Multiple transaction set the Company’s Valuation at $10 Bn.

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www.economictimes.in
ANALYSIS
The analysis on the challenges faced by Oyo are detalied below-

 As seen from the revenue and losses figures it is evident that Oyo’s Revenue increased
and its losses decreaesd in 2016-17 and 2017-18. The reason behind this was the high
operating leverage enjoyed by the company in these years which led to the economies of
scale.But, it is also to be noted that the expenses increased by huge amount which Oyo
didn’t pay heed to.

 Expenses of Oyo is majorly composed of 2 components- Operational Expenses and

Employee expenses.
Employee Expenses – Rs 1538 Crores in 2019 and Rs 266 Crores in 2018.
Oyo tried to cover it and announced mass layoff of employess which impacted 1200
employees across India out of total 12000 employees. This was done without any prior
notice and various complaints have been lodged about non-payment of dues by the
employees which greatly impacted the Goodwill of the Company.
Reports also say that in the second round of layoff almost 2000-3000 employees overall
to be impacted again.
This layoff was due to the reason of uneven expansion and massive growth which
increased the expenses and thus, Oyo had to cut the cost on Employee.

 The analysis also shows that there was a major change in Oyo ina very short span in
terms of its financials. This came from the uneven expansion undertken by Oyo at a very
fast pace and the launch of almost 7-8 products for catering the different needs and for
increased profitability. But, the cost became much heavy for Oyo to balance.


CONCLUSION
 Huge complaints from hotel partners posed a great challenge for Oyo.

 Lack of Profitability led to the dismissal of 3000 around employees.

 Huge expansion without any attention to the previous field of expansion created a
challenge for Oyo to prove its viability to its stakeholders.
KEY LEARNINGS
 The amount of cash being burnt should be always lesser than the amount of return from
the cash burnt in order to run the business smoothly.

 There should always be a reason to expand and a clear vision of how to expand rather
than expanding anyway.


SOURCES

 https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/oyo-to-raise-1-5-billion-in-
latest-round-of-funding/articleshow/71476785.cms

 https://inc42.com/features/what-are-the-current-problems-being-faced-by-oyo/