Leading budget-hotels aggregator OYO has acquired Chennai-based service apartment company Novascotia Boutique Homes.

This is OYO’s first business acquisition since its launch in 2013.

With this acquisition, OYO will bring its distribution, operational, transformational and technological capabilities on board.

The acquisition will boost OYO’s portfolio by 350 rooms across locations where Novascotia has its footprints.

Commenting on the development, Ritesh Agarwal, Founder & CEO of OYO, said: “Though in the niche segment of boutique homes, Novascotia brings with it the expertise in catering to the corporate travel segment, an area we have seen great potential and established ourselves as the market leader with varied offerings across 230-plus cities including all major corporate hubs.”

“The acquisition forms an integral part of our inorganic growth plan, in line with our ambition to create beautiful and quality living spaces and adding value to every form of real estate. OYO is poised to deliver 180,000 keys by the end of 2018 and with Novascotia’s Strength, we will be adding service apartments to our existing portfolio – which includes budget rooms, OYO Townhouse, OYO Home, enabling us to offer a wide range of choices to our customers,” he added.

With 100% of its demand coming from corporates and a healthy EBITDA of 14%, Novascotia has built a strong portfolio for itself while providing executive furnished accommodation to corporates for their personnel stay in locations, including Chennai, Coimbatore, Hyderabad, Kochi and Trivandrum and OYO plans to expand these offerings to 12 cities by the end of 2018. These serviced apartments are located in the heart of business hubs equipped with spacious rooms, upscale interiors, meals, gym and dining area to cater all the requirements of business travellers.

G. Madhu Manohar and Girja Madhu, Co-founders, Novascotia, said, “Novascotia is a brand built over years with a lot of commitment and hard work. With OYO, we saw similar passion towards solving a problem and we are thrilled to become a part of the entity which is driven by perseverance and innovation. We are convinced that OYO with its wide experience in the hospitality business and hunger for delivering quality customer experience has every potential to take the Novascotia brand promise of ‘home away from home; forward. We are delighted with the support and professionalism received from OYO, its teams and our advisers at ANOVA Corporate Services for taking this to closure. We are excited to be onboard.”

OYO has operations in more than 230 cities across India, Malaysia and Nepal. With over 70,000 rooms in its network, OYO works in close proximity with its hotel partners while exercising full control over the hotels for ensuring a quality experience for travellers. Its network includes major metros, regional business hubs, top leisure destinations as well as pilgrimage towns.

OYO is backed by leading investors, including the SoftBank Group, Greenoak Capital, Sequoia India, Lightspeed India, Hero Enterprise and China Lodging Group.

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The company, the shares of which rose to a record $40.90 on Tuesday on the Nasdaq, will have a war chest of more than $500 million with the completion of its latest round of fundraising, allowing it to take on the likes of Booking.com and newer domestic player Paytm among others, reports Economic Times.

“The fundamental belief was to bolster our arsenal, and to have the war chest available,” said Deep Kalra, chief executive of India’s largest travel operator, which is raising the money as it closes an equity financing round for a 9 per cent stake. “The use of the funds, or proceeds, will largely be inorganic.”

Kalra did not specify exactly how much the Gurgaon­headquartered company plans to set aside for potential acquisitions, but it’s expected to have over $500 million on its books after the latest funding round.

Expected to close on May 5, this will see the company raise $165 million from its existing backers, MIH Internet SEA Pte Ltd, a subsidiary of multinational internet and media group Naspers Ltd, and Chinese travel operator Ctrip.com International. Both investors will maintain their current shareholding, which stands at about 11 per cent for Ctrip and 43 per cent for MIH Internet.

The company will separately raise an additional $165 million through a private placement, under the terms of which it will issue about 4.5 million ordinary shares at $36 apiece.

Morgan Stanley India is acting as sole placement agent for the transaction, it said, without disclosing the identity of the investors. MIH Internet SEA had made a pro rata cash infusion of $82.8 million in MakeMyTrip in February, bringing the total cash and cash equivalents and term deposits of the company to an estimated $236.6 million as down 4.9 per cent, on the Nasdaq on Wednesday morning local time for a market capitalisation of $3.49 billion.

On the prowl

“We want to have a good enough kitty that allows us the flexibility to look at inorganic opportunities,” Kalra said. “We’re still in a scenario, where we are investing in the hotel’s space. Like I have said before, it’s not going to flip overnight, and we have to make sure that we have the fire power to do what it takes, to not only maintain leadership but grow it.”

Kalra engineered the largest M&A deal in the Indian internet space last year by merging his company with closest rival Ibibo Group. MakeMyTrip’s revenue from its hotels and standalone basis, contributing almost 67 per cent to overall revenue for the three months period.

The company is believed to be in talks with a number of ventures for potential investments and outright acquisitions. Last week, The Times of India reported that the Nasdaq­listed company was in talks to invest in smaller rival, online budget hotel operator FabHotels. This interest comes as MakeMyTrip has realised that building a good supply of hotels rooms is important for the business.

“In India, the challenge is not in terms of discovery of hotels, but the quality. That is why the hotels business can be built the way overseas players have built it,” said an investor briefed on the matter.

Global players check in

This comes as global travel operators such as Expedia and Priceline Group­backed Booking.com have set up shop in the country and are rapidly expanding their bouquet of services across the country. Apart from global players, local operators such as Oyo Rooms and Treebo Hotels have established a strong presence in the budget hotels space.

Newer entrants, such as Alibaba Group­backed Paytm have allocated a significant amount of cash to grow its travel business. In March, media reports stated that One97 Communications, which operates Paytm, had earmarked.`300 crore to ramp up its travel marketplace, while also expanding its team to more than 250 over the next twoquarters. “This (market) won’t become a bed of roses overnight,” Kalra said. “There will always be players, Indian or international, throwing their hat in, and hoping to get a piece of this very lucrative pie.”

After the merger with Ibibo Group, MakeMyTrip has also outlined aggressive plans to establish its dominance in the budget hotel segment. The online travel market is expected to grow from $11 billion in FY16 to $18.9 billion by FY20, according to an October 2015 Goldman Sachs report.

In the space, hotel bookings earn 15­20 per cent commission while air travel gets 6 per cent, making hotels a much more profitable proposition. In the last two years, action has shifted to this market.

In an earlier conversation, MakeMyTrip India chief executive Rajesh Magow had said that the company was forecasting up to 75 per cent of its overall top line to come from the hotels and packages segment over the next three to four years.

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In an economical move that would be welcomed by many, the traditional practices of hotels charging for one day is changing with hospitality chains offering hotel rooms on an hourly basis at pocket-friendly prices.

The move targets pilgrims and travellers who halt for a few hours. It is indeed a desirable move because a room for a night costs as much twice than a room rented out for a shorter stay. For instance, booking a room at Hotel Imperial Palace at Andheri in Mumbai would be Rs 2,637 per room night as opposed to Rs 630 for two hours which is certainly pocket-friendly.

Striking the right chord, FreshUp, a hospitality startup, rents out hotel rooms to pilgrims in Tirupati on hourly basis with packages starting at just Rs 299. “We have bunker beds, meeting rooms and relaxation lounges suited for guests who would just like to freshen up for a couple of hours or more,” said Vinil Reddy, founder, FreshUp which is based out of Hyderabad and looking to expand.

Traditionally, almost all the hotels have been following the 12 pm check-in rules. However, with the coming of aggregators like OYO Rooms, the trend has changed. OYO rooms allow customers to check-in from 6 am.

Even Lemon Tree hotel chain has started to follow the trend as the startups renting out on an hourly basis are giving the bigger chains a run for their money.

Instead of waiting in lounges of airports and railway stations, passengers or travellers can now opt to rent a hotel room at a very economical price.

While the move seems to be welcomed, the management must also watch out for the risks coming along in renting out hotel rooms on an hourly basis and watch for illegal activities taking place.

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Here are how startup industry veteran reacted to various proposals in the Budget

Bhavish Aggarwal, Co-founder and CEO of Ola

The budget is progressive and forward looking with a clear focus on digital India and skilling. These are welcome moves in the interest of India’s unique and growing needs.  The Minister’s announcement to skill one crore youth under PMKVY in three year’s time is a shot in the arm to large local businesses like ours, to come forward and help realize this goal. Further, the Finance Minster’s commitment to building long term digital infrastructure and the cashless ecosystem for the country will also help accelerate quality of services and innovation at large.

Ritesh Agarwal, Founder and CEO of OYO

The launch of the Incredible India 2.0 campaign will result in greater tourist interest and inflow from overseas, creating a huge demand and opportunity for the Indian hospitality industry. The proposed creation of five special tourism zones in partnership with state governments will also provide excellent fillip to domestic tourism. It is encouraging to note the government’s focus on infrastructure development as it forms the backbone of tourism and hospitality sector. Furthermore, reduction in tax rate for SME and the push towards digital economy by de-incentivizing cash transactions will support new-age businesses and startups.

Adhil Shetty, CEO and Co-founder of BankBazaar

Often, for startups and MSMEs, the smaller funds at critical points have the potential to change their operating landscape. The budget has several provisions for startup that can help them conserve that amount. Taxes for startups and small businesses have seen a dip, with the profit-linked deduction available to start-ups for 3 out of 5 years extended to 7 years now. The Income Tax for MSME up to 50cr turnover has been reduced to 25% and the presumptive income tax for enterprises whose turnover is up to Rs.2 crore has been reduced to 6% from 8%. These measures bring down the operating expenses and give startups a little more breathing space and room to conserve resources and grow.

The FM also mentioned potential amendments to the excise and labour laws, which could further boost ease of doing business. There is increased investment in education and skill development, which will help generate a more skilled workforce and fill a very important gap. The reforms in FDI policy have also streamlined the entry of FDI into the country, leading to a 36% increase in FDI inflow despite a 5% dip in global FDI inflows. The further FDI reforms on the cards mean that this is great time for investors to enter the country and do business with us, which could boost the start-up sector even more.”

Saurabh Kochhar, CEO, foodpanda India

The Union budget 2017-2018 seeks to boost growth and employment generation with a clear focus on the rural segment. Jaitley has crafted an effective and a balanced budget aimed at an all-inclusive growth. With increased focus on digitalization of economy and to regulate electronic payments, a payment regulatory board in RBI has been proposed in the budget 2017.  This move will definitely benefit the business of online players in the industry and will ensure smooth transition from a cash based economy to a cashless economy. The government has also announced a mission to be set up with a target of 2500 crores digital transactions for FY 2017-18 through UPI, USSD, Aadhar Pay, IMPS, and debit cards which is a boost to initiatives like Digital India.

With the announcement made by the the Finance Minister, the government has underscored its focus on the Indian startup ecosystem. Lowering of Corporate tax for MSMEs with revenue under Rs 50 cr at 25% are welcome and are steps in the right direction. Accordingly, indirect tax on devices related to digital infrastructure is exempted to give a boost to the industry. The budget has set a solid foundation for the implementation of GST.

The budget emphasizes on tax simplification, lower corporate tax, and infrastructure spend which is the need of the hour. We believe that program such as Digital India and Start-Up India need a strong technological infrastructure that must be supplemented with budgetary support from the government. The major focus of the Budget 2017 is infrastructure and agriculture.

Swati Bhargava, Co-founder, CashKaro.com

Good part about the budget is that it is extremely focused on the core that forms Indian economy: Rural, Agriculture, SME and Middle Class. As a woman entrepreneur I also appreciate the special emphasis has been given on women empowerment in the Budget as the FM has allocated Rs 1.84 lakh crore for women skill development. The budget is focused on propelling the digital economy of the country though benefits to startups could certainly have been more. Concessions to startups have been limited and only startups which are recognized by DIPP will pay tax on profits for three out of seven years, increased from three out of five years. The budget has not offered big tax sop to corporates but has announced reduction of the corporate tax rate from 30 per cent to 25 per cent for those with an annual turnover of up to Rs 50 crore.

Sashank Rishyasringa, Co-founder and Managing Director, Capital Float

This budget is transformational at its core, aimed at propelling India towards becoming a digital economy while increasing employment opportunities and having a determined focus on rural development. The government’s push for digitizing infrastructure is heartening. Incentivizing cashless transactions at fuel stations, hospitals and railways, rolling out 1 million POS terminals by March and proposing a payment regulatory body to the RBI will help create a robust architecture for digital transactions. Activating Aadhaar Pay and providing referral bonuses and cashback schemes to promote BHIM will drive digital money in Tier 2 and Tier 3 markets.

Reducing income tax by 5% for MSMEs with under Rs 50 crore in turnover will provide a huge boost to the spirit of entrepreneurship in the country. Additionally, by abolishing FIPD, the Finance Minister has made FDI much simpler and faster. E-commerce and retail will especially benefit from increased foreign investments, thereby fortifying India’s trade strength.

Sudhakar Reddy, CEO and Founder, Abhibus.com

Road and highways are one of the most important components of infrastructure and has always been the focus of governments. Increased allocation for National Highways and moves to set up 5 special tourism zones in partnership with States are positive announcements for our sector.

Withdrawal of service charges on e-tickets booked via IRCTC, focus on digital infra development and announcement of AadhaarPay are positive moves for entire travel ecosystem. As Finance Minister emphasized cashless reservations have gone up. Post demonetization, we too have seen significant rise in online ticket booking and digital payment. We are confident these moves will help the sector to keep up the momentum.

Image Credit: Pixabay

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