In a bid to offset pandemic-induced losses and turn profitable before its imminent initial public offering (IPO), hospitality aggregator OYO is re-aligning its businesses and verticals.
OYO’s Frontier vertical, which includes properties under co-living brand OYO Life; co-working brand OYO Workspace; hotel, home, café, and store inclusive brand OYO Townhouse; and holiday homes and villas brand OYO Homes, makes up about 40% of the company’s India revenue.
In an interview with TechCircle, Ankit Gupta, CEO for OYO Frontier in India and South Asia, and a global management team member, said that the company’s co-living and co-working spaces business verticals “continue to be high margin business for OYO (contributing) around 20-25% gross margins.”
The SoftBank-backed company recently exited several “unviable” co-living and co-working properties, but has invested in similar properties elsewhere under the same vertical, based on the demand pattern.
“We continue to invest in these businesses given its growth prospects, apart from unit profitability on high margins. We have not shut down or cut back, we have just exited unviable contracts as a part of Covid journey, but we continue growing through other contracts,” Gupta said.
The Gurugram-based startup has moved from fixed lease and minimum business guarantee model to a revenue sharing contract model.
According to the Gupta, OYO Life’s supply has increased 1.5X through the revenue share contracts since the Covid-19 unlock began in May, growing at 10-20% month-on-month. He declined to share numbers stating internal governance restrictions.
In September 2020, OYO Life offered a 20% discount on monthly rent, starting from the fourth month of the long-term stay. Discounts and brand campaigns with celebrities such as Sonu Sood helped the unit gain 80% demand, compared to pre-Covid levels.
OYO Life’s student housing-focused co-living service, called OYO Campus, has grown 3.5X in terms of revenue and 5X in terms of the number of beds in the system, compared to pre-Covid levels, Gupta said.
“Our app adoption in major IITs is almost close to 70% now. Apart from core services, our value added services is helping us generate additional revenue. We’ve also seen a big demand for services such as canteen, laundry, salon, printing, etc,” he said.
OYO Life currently operates in nine cities, including Gurugram, Delhi, Noida, Kolkata, Hyderabad, Bengaluru, Chennai, Mumbai and Pune.
OYO Workspaces has witnessed 70% occupancy overall since the offices reopened post lockdown, Gupta said.
“We have added three new centres in the last 1.5 months in Noida and Bengaluru to sustainably grow this business. Currently, we have presence in all the major metros, and our margins are continuously increasing and close to 25% at portfolio level,” Gupta said.
In the last three-four months, the demand for co-working spaces has increased 60%, compared to pre-Covid levels, according to OYO.
OYO’s Flexi Pass product, which offers customers flexible access to co-working spaces depending on their needs, has seen a nearly 30% growth in demand, compared to pre-Covid data.
Focus on core, in-house technology
Apart from taking measures to improve its balance sheet and turn profitable, the Ritesh Agarwal-led company wants to focus on its core operations and streamline businesses. It looks to outsource ancillary functions related to financial shared services and operations to accounting major and consulting firm KPMG.
OYO has also been building technology in-house to offer platforms such as Co-OYO app, which allows its partners to list their properties. Through this app, owners can analyse how their property is performing, and what needs to be fixed to ensure business and scalability.
“The owners will know details of predictive demand pattern, current occupancy rate, average rate at which the property is selling -- (it is) kind of a feedback from customers to enhance services,” Gupta said.
Additionally, the OYO OS solution can be deployed at the property manager’s end to help them fulfill customer needs, whether it is a complaint resolution or an order.
“Across all our Frontier brands, we have pivoted to an industry-first partner-operated model, innovative product design, customer experience score methodology to measure customer delight and are continuously developing capabilities for remote tech-led operations,” he said.