AQ064-3-3-CFIN INDIVIDUAL ASSIGNMENT Page 1 of 4

This assignment is an individual assignment and is worth 30% of your total assessment. Your
assignment must be type written using font Times New Roman size 12, 1.5 spacing, justified
alignment, 1 inch margin on both sides of each page and properly bound. Cover page of the
assignment must include name, student ID, and subject code. You are required to use Harvard
Referencing methods for this assignment. The numbers of words should not be less than 3,000
words. Submit before 14 January 2019 by 7.00pm

India’s OYO Aims to Distrupt Global Hotel Industry

Ritesh Agarwal was born to be an entrepreneur. The 24-year-old founder of Oyo Hotels was in
elementary school when he started computer programming. Today, his app-based hotel chain is
India's largest, and he is now preparing to expand into Europe and the Middle East following
huge growth in his home country and China. Agarwal was 13 when he started his "first business
in life", selling mobile-phone SIM cards and fast-moving consumer goods on the street in his
small hometown in the eastern state of Odisha. A year later, he declared to his middle-school
classmates that he wanted to become an entrepreneur, even though he had not yet fully
comprehended its meaning. "If you want to be the cool kid in the class, you say something
nobody else understands," Agarwal told the Nikkei Asian Review. Digging up the definition in a
dictionary, he read that an entrepreneur is "somebody who solves a problem and creates a
business in the process." The problem he set out to solve presented itself when Agarwal was just
19. He realized that almost none of the world's major hotel chains run properties with fewer than
100 rooms, but more than 90% of hotels fall into that category and he saw big potential in that
huge under-cultivated inventory. "Nobody had ever tried," he said. "So I decided to tackle that
segment, thinking to myself that an entrepreneur would take a 5% chance." Oyo, which is owned
and operated by parent company Oravel Stays and based near Delhi in Gurgaon, was founded in
2013 by Agarwal, who turns 25 next month. Since then, it has become India's largest hotel chain
by number of rooms and enterprise value, or market value plus net debt. When the company
secured $1 billion in venture capital funding in September from the existing shareholders,
including SoftBank Vision Fund, Sequoia Capital and Lightspeed Venture Partners, it valued the
company at about $5 billion. That is more than twice as big as India's largest publicly traded
hotel operator, Indian Hotels, owner of the upmarket Taj hotels, whose market cap was roughly
$2 billion as of Oct. 19. After the latest funding round, Agarwal is estimated to hold less than
10% of Oyo.

The business strategy is based on the fairly simple principle of bringing common standards and
processes to the highly diverse small budget hotel sector. Run by individuals and families, these
hotels have been largely underdeveloped and ignored by major chains. But Agarwal is offering
these independent hoteliers the opportunity to benefit from the economies of scale that these big
hotel operators enjoy by joining his rapidly growing Oyo franchise. "Once joining the Oyo chain,
room quality and service quality both improve while prices go down because of better
efficiency," Agarwal said, adding that the occupancy rate of a small budget hotel in India
typically increases from around 25% to 65%-70% within a month after joining. Room rates
typically range from $25 to $50 a night. The lowest-price-range brands of global majors
normally price their rooms above $50. In return Oyo receives franchise fees or a share of
revenue. Establishing that business model with the first Oyo hotel took almost two years, during
which time Agarwal spent nearly a year in Silicon Valley on a fellowship grant from Peter Thiel,

APU Level 3 Asia Pacific University of Technology & Innovation 201811

AQ064-3-3-CFIN INDIVIDUAL ASSIGNMENT Page 2 of 4

the co-founder of PayPal and an early investor in Facebook. During his stay in California,
Agarwal met many entrepreneurs, including Thiel, and "learned two things," he said. "One is that
being innovative is OK, and the second is to think big."

"In India, many people say you should copy American success models to be successful in India.
Also in India, you are taught to think just enough," he explained. "In California, I realized it is
OK to try original models, and I should be thinking global rather than just India." After returning
to India from California in 2014, Oyo's explosion began. The number of rooms in India under
Oyo's management soared in the two years ending June 2018, from 1,000 to 100,000. The
company then added another 33,000 rooms during the third quarter of this year. Meanwhile,
since entering the Chinese market in November 2017, its room inventory there reached 129,000
by the end of September. That pushed Oyo into the top 10 ranking in terms of room inventory in
China, putting it on track to surpass its home market in India in the near future. Worldwide, Oyo
added roughly 140,000 rooms to its network during the quarter ended September. That far
outstrips Marriott International, the world's biggest hotel operator, which added a little over
20,000 rooms in the quarter ended June. Marriott still had a far bigger global room inventory at
1.28 million by June this year. Oyo, by comparison, had an inventory of just 270,000 rooms as of
last month, spanning operations in India, China, Nepal, Malaysia, Indonesia, the United Arab
Emirates and the U.K. But, with growth accelerating both in India and China, and ambitious
expansion plans for the U.K., the UAE and Indonesia, Oyo's expansion is likely to continue at a
breakneck pace. It could even overtake Marriott by room number sometime in the near future.
Oyo is looking at other growth opportunities in the rest of Southeast Asia and continental
Europe. Oyo's secret for such rapid growth is in part due to the fact that it is not yet going head
to head with global hotel giants. But it is also thanks to its innovative approach. The company
has brought a "completely new model of running a hotel," Masayoshi Son, founder and chief
executive of SoftBank Group, Oyo's largest shareholder, noted in August at a news conference in
Tokyo. Oyo's success can be seen in the sharp increase in revenue reported in its annual
accounts. Consolidated revenue was declared at $19 million for the year to end of March
2017. Agarwal says revenue for the rest of calendar 2017 was growing at 130% over the
previous year and in 2018 it is up by between 200% and 300% on last year. But the company's
fast growth comes with some risks. A market-research analyst has warned that at Oyo's pace of
growth, "their organization can easily be overstretched, which may drag facility and service
quality down and damage their brand." Agarwal says that Oyo has established a virtuous cycle of
very rapid organic self-growth driven by individual investors and hoteliers by instantly providing
them with comprehensive support thanks to innovative technology and a high degree of human
organization. "We forward-invest in our capacity building," he said, in contrast to major hotel
operators, which typically invest following demand.

Oyo employs about 700 software engineers out of a total 8,500-strong workforce. This
engineering team releases about 20 new pieces of software every day, including new mobile apps
and updated versions of existing apps. One of the company's most effective apps, dubbed
ORBIS, instantly calculates a hotel's projected occupancy rates and revenue after joining Oyo by
analyzing "hundreds of thousands of items of data in that particular local lodging market,"
Agarwal said. Traditional hotel chains typically take 10 or 11 months to sign a franchise or
management-contract deal with a property owner, he said. "At a major chain, a negotiator needs
to call his city boss, and then the city boss calls the country boss, and the country boss calls the

APU Level 3 Asia Pacific University of Technology & Innovation 201811

AQ064-3-3-CFIN INDIVIDUAL ASSIGNMENT Page 3 of 4

regional boss, and so on," he said. "At Oyo, ORBIS on his mobile phone is the boss." The app
calculates all the risks involved in a deal and makes a decision on whether to approve it. "It is
data science," Agarwal said. "We typically sign a deal 10 days after the first meeting with a
property owner." After signing a deal and renovating rooms, the hotel owner can run his hotel by
using dedicated mobile apps, which handle everything from inventory management to
bookkeeping to housekeeping. The company also has an army of workers to convert existing
rooms and buildings into Oyo branded ones. "We have 700 civil and construction engineers
working 24/7 in India and China to make sure renovation and construction works are completely
under our control," Agarwal said. The booking software behind the website analyzes large
amounts of real-time data and continually calculates the demand-supply situation. It resets room
rates in a given area millions of times a day to optimize occupancy. At the same time, a few
thousand sales people make bulk deals with local businesses. With that combination of
technology and human power, Oyo says it is able to boost occupancy rates for new member
hotels within weeks.

While small budget hotels have given him his start, Agarwal has now begun experimenting in the
slightly higher value end of the hotel industry. Last year, the company launched Oyo
Townhouse, whose room rates range from $30 to $70 and which targets business travelers with
meeting spaces and other amenities. But instead of bringing independent middle market hotels
under Oyo's umbrella, the company directly manages properties. Indian consultancy RedSeer
said in a recent report that Oyo Townhouse's room inventory growth is three times as fast as
existing chains in the Indian middle-segment hotel market. Oyo is entering the U.K. in the
middle segment with the same format, too, and is aiming to convert unbranded hotels into Oyo
Townhouses. In mid-October, it announced that it was entering a full expansion phase in the
UAE and Indonesia. Agarwal said he wants to have around 300 hotels in U.K. by the end of
2019, and 150 in the UAE by 2020. It has already opened 1,000 rooms at 30 hotels in Jakarta,
Surabaya and Palembang and plans to expand into 35 cities in Indonesia by late 2019. If Oyo
succeeds in establishing itself in the U.K., he will think about tackling continental European
markets, "one by one." Oyo's efforts to penetrate richer markets and higher value segments have
already begun. Japan could even be next. "Japan is a market which I am personally very
passionate about, as every hotel is sold out all the time," he said. "So we will bring our product
hopefully very soon." Oyo may not yet be big enough to present a threat to the world's major
hotel chains. But they will almost certainly be watching the boy who was born to disrupt.
(Sourced from: Nikkei Asian Review, 19 October 2018)

You are required to refer to journals, articles, magazines, newspapers and other relevant
materials. Please attach or save all your journals, articles, magazines, newspaper and other
relevant materials in the CD and submit together with your assignment.

QUESTIONS:

1. Write an overview on corporate finance.

(Hint : it is required to define, past conceptual understanding, current application, future
and future orientation )
(10 marks)

APU Level 3 Asia Pacific University of Technology & Innovation 201811

AQ064-3-3-CFIN INDIVIDUAL ASSIGNMENT Page 4 of 4

2. Discuss the success insight of OYO Hotel from corporate finance perspective.
(Hint : inclusion of raising capital, capital structure, capital budgeting, mergers and
acquisition and any other analysis is important to support your answer using academic
standard of writing)
(40 marks)
(Total: 50 marks)

To attempt this assignment successfully, student need to display a wide range of corporate
finance understanding and required to apply knowledge learned throughout the subject. Every
question should be assessed critically and rationally. Citation from references from books,
articles or academic journals are required and marks will be reducing if none of the
conditions apply. Any enquiries in relations to the assignment should be put up one week before
the submission.

APU Level 3 Asia Pacific University of Technology & Innovation 201811