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Oyo eyes a $26 billion opportunity in India by 2030, Bernstein says

Oyo eyes a $26 billion opportunity in India by 2030, Bernstein says 1

Oyo’s decision to focus on markets with the best scale and economics, namelyIndia, Malaysia, Indonesia, and Europe instead of 35 countries helped the hotel roomaggregator survive during the Covid-19 pandemic, said global equity research firmBernstein.

The short-stay accommodation market’s global total addressable market opportunity isexpected to increase from $1,267 billion in 2019 to $ 1,907 billion by 2030. Oyo sees a$26 billion opportunity in India by 2030 as it considers India its main growth area, whichcontributes over 90% to its revenues, the research firm said in a report.

“The global travel and tourism industry and the short-stay market have several favourable trends for Oyo. The world is getting wealthier, increased per capita income, and growingmiddle-class means increased traveling demand,” according to Bernstein.

According to Bernstein, Oyo’s unit economics has improved with contribution profit,increasing from 5.1% in FY20 to 18.4% in FY21, driven by stable take rates, lowerdiscounts, and no minimum guarantee. Oyo’s gross booking value grew 170% in FY20, ledby an increase in storefronts but declined 67% in FY21 due to storefronts ceasingoperations due to Covid-19. Gross margins stood stable at 33%, with substantial costmanagement, said the research firm.

Oyo Hotels & Homes filed its draft prospectus with the country’s capital market regulatorlast week, aiming to raise Rs 8,430 crore ($1.2 billion) through a public issue as it joins agrowing number of local startups tapping the public markets. The hospitality startupexpects to raise around Rs 7,000 crore ($950 million) through new shares, while thebalance will come through secondary share sales (offer for sale or OFS).

The company’s total income fell by nearly 70% to Rs 4,157 crore in FY21 due to thepandemic, but it also made progress in cutting down on its losses. Its loss for the sameperiod narrowed to Rs 3,943 crore compared to Rs 13,122 crore a year ago.

However, strong return on investment for hotel/homeowners helped them increaserevenue by 1.5 times to 1.9 times compared to revenue at independent hotels, saidBernstein.

For Oyo, one of the main ways to acquire consumers has been through marketing andpromotions, and it cut down on this vertical as well in FY21. It spent Rs 542.6 crore formarketing and promotions in FY21 compared to Rs 1,879.7 crore a year ago. Oyo said itcut down its employee benefits expenses by 63% to Rs 1,742.1 crore in FY21 against Rs4,765.2 crore in FY20.

“Oyo’s strong revenue retention cohort is a clear demonstration of its customer stickiness.Over 80% of the company’s revenues come from repeat and organic customers. Themeasure of direct demand on the platform measured as a percentage of booked nights was90% in India,” said Bernstein.

Oyo addresses the pain points of hotels and homes across key markets. The companyoffers offline to online on-boarding tools, 3rd party distribution and demand, onlinerevenue management, operations management, and customer service, all integrated into asingle place.

Putting aside Covid-19, the world is more accessible due to the increased connectivity andawareness of tourist destinations via social media. New generations are traveling more asthey have a higher propensity to travel, and there are more affordable travel options.

The research firm said that Covid-19 had brought higher prominence to domestic travel,especially with the work from home formats. “Globally stayed nights per capita in 2019(total of all room nights divided by population) is expected to reach 1.67x in 2025 from1.5x in 2019. Global trips are expected to expand to $16.7 billion in 2025 and stay nightsto $13.6 billion.

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