Oravel Stays, which runs Oyo Rooms, an online aggregator of budget hotels, is clocking losses of Rs. 46.9 crore per month since January 2016, revealed the start-up’s COO, Abhinav Sinha. Sinha told FE that the business is reporting revenues of Rs. 19.2 crore per month.
However, the Softbank Group-funded company, which was started by Ritesh Agarwal as an Indian-version of AirBnB in 2012, is optimistic of turning profitable in 18-24 months after it strengthens its brand.
For this, the company has tweaked its business model last year. “We no longer buy inventory and pay a minimum guarantee to hotels. We reworked our business model last year, where we decided to phase out the inventory we held,” Sinha said.
Sinha said on an average, the start-up clocks 7-8 lakh bookings per month, with an average ticket size of Rs. 1,400-1,500. The company earns a 20% commission on each booking. Of the 8 lakh bookings per month generated by the start-up, only 40% (2.3 lakh) consumers return to the platform for a repeat purchase. Oyo Rooms also has a 20% cancellation rate per month.
The bleed is largely due to the high cost of customer acquisition, besides fixed cost. On an average, the company spends Rs. 500 to acquire a new customer. This means the company spends close to Rs. 24 crore every month to acquire 4.8 lakh new consumers.
“The upcoming festive season and the run-up to the new year is expected to play a crucial role in terms of generating business. We expect a 50% increase in number of bookings between October and January,” added Sinha.
At the same time, the company aims to add more real estate to its platform. Sinha said every year the company adds 250-500 properties on its platform during the lean period and 500-1,000 properties during the peak season.
The start-up reported a net loss of Rs. 351 crore for the April-December period of FY16, as compared to a loss of Rs. 20.79 crore for the whole of FY15, which is an increase of 17 times. However, industry observers say the main problem resides in driving repeat purchase from the current 40% to 80% to be able to start earning on every booking.
