India Business and Finance, September 26th

Hotels, Bollywood, weddings, the productivity of sea turtles and other aspects of the Indian economy worth noting over the past week

The value of a place to stay

Oyo, once among the most hyped Indian startups, agreed to purchase the American Motel 6 chain for $525m from Blackstone, which acquired it in 2012 for $1.9bn. A report says Blackstone still managed to profit from the transaction because of the sale of numerous properties in the intervening years and to still generate returns without holding the underlying property so, perhaps, clever financial engineering. In Oyo’s case, optimism about its ability to create value through its approach to the business has taken a major hit, though it largely played out on paper rather than in the market. In 2019, it was said to be worth as much as $10bn but now, who knows. It may finally be turning an operation corner. During the most recent fiscal year it produced a profit of announced of $27m, albeit only because of extraordinary items and only after room counts increased by 40% but revenues decreased. That is less than encouraging.

The deal means different things in India and America. For Oyo, the deal reflects the most recent in a string of operating models draped around a core pitch of a hotel company built around technology (ie an advanced reservation system) rather than an operator of physical assets. The appeal of this core component ebbed when the two core constituencies for Oyo–those who booked rooms through it and stayed in its properties, and the underlying owners of those properties– became unhappy. Complaints from annoyed customers are easy to find on websites. Notwithstanding its problems at home, Oyo aggressively expanded overseas. A particularly ambitious  move into China was a disaster and has been shuttered. The acquisition in America represents another facet of this plan.

Venture capital funds came up with many new ways of defending the company’s worth, notably that even a one-star operator in a large country like India could be worth in excess of $1bn. Recently, though, Oyo has been opening higher-end hotels under a new brand, Sunday, and acquiring properties that at least appear to be opulent. So the thesis will need to be rethought. Twice in the recent past, most recently in May, Oyo has pulled filings for an initial public offering, suggesting something isn’t right. The IPO market in India at the moment is beyond hot. Instead, Oyo has raised money in the private markets, which are cold. Odder still.

Meanwhile, Blackstone has hardly distinguished itself as a manager of modestly priced hotels. Motel 6 is an iconic brand built around a reassuring, ubiquitous advertising message (“we leave the lights on for you”). As with Oyo, there are numerous complaints online. But unlike Oyo, it has apparently decided it is best to check out.

Start-up funding

Expanding on the facet of the item above concerning Oyo’s odd move to find private rather than public funding in the current environment, recent statistics show how badly this area of the financial markets has contracted. Only $140m was invested in September, by far the lowest number in a year and based on average monthly numbers derived from annual numbers, the worst since 2014.

There has been, however, a recent exception: Physics Wallah, an edtech company, is said to be in the process of raising $210m. The success is striking not only because the overall conditions are so difficult but also because the edtech industry has been hit particularly hard, with other companies on the verge of collapse. Physics Wallah began as a series of tutorials on Youtube but seems to have done a particularly good job. 

Other unpopular areas

After many reports about a post-lockdown recovery in cinema attendance, bleak reports are coming out about the state of Bollywood. Thirty to forty major productions have been shelved in the past year and a half, according to The Economic Times. Straight-to-digital releases have dropped from 105 in 2022 to 57 in 2023. The Financial Express says box office revenues have dropped 39% since 2022 for the stretch of the calendar years. A story in Mint says film producers are scrambling to find outlets for as many as 200 films made in recent years that remain unsold.

In many reports, high prices for actors are blamed for Bollywood’s woes but the bigger issue  seems to be that the Indian film industry, like much of America’s (looking at you, Disney), has lost the plot. The films aren’t touching the audience. In many Indian theaters, classic films are once again being screened.

The odd part is that this is occurring at a moment when India is packed with big themes and talented people who would shine on the global stage. Local Youtube productions are irresistibly distracting because of funny, popular, short takes tied to the contradictions, tension and love in the Indian family.  The Indian office is also a popular setting, built as it often is around tyrannical leaders and carefully seditious employees, innovative strategy, ubiquitous corruption, extraordinary ambition and sloth. Cunning bigshots manage to make vast piles of money from the Russia-Ukrainian war while managing to skirt criticism; cunning small shots manage to survive by circumventing innumerable obstacles in the Indian system. Can none of this be worth the price of a ticket?

What India wants

Coldplay. Fans crashed the biggest online ticket seller as 13m people attempted to get tickets for concerts being held in mid-January.

Weddings.The Confederation of All India Traders (CAIT) has announced its annual projection for India weddings, a number that may have a light factual foundation but nonetheless is widely cited because everyone is obsessed by weddings and knows they are important to the economy. During the key period between the beginning of November and mid-December, CIAT says there will be 3.5m weddings, up 9% from last year, with spending of $55bn which, if my calculations are correct, mean an average cost in excess of $15,000 in a country where the average per capita GDP is under $3,000.

Bank employees. Hiring at banks in many parts of the world has flattened out as technology replaces people but a study by The Economic Times and Zpheno, a staffing firm, found that employment at India’s ten largest private banks has grown dramatically over the last four years. HDFC Bank’s headcount expanded from 117,000 to 214,000, ICICI’s from 99,000 to 142,000 and Kotak Mahindra’s from 71,000 to 116,000.

Indian bosses. The Business Standard noted that multiple global private equity firms are appointing Indian nationals, as opposed presumably to westerners, to head their Asian operations, and they are often based in Mumbai, rather than in Singapore and Hong Kong as had been true in the past.

The Indian shares of multinational companies. A study of valuations given to the shares of multinationals and of their separately listed Indian subsidiaries showed sharp divergence with the Indian operations often trading at multiples of earnings that are double those of their parents.

Productivity

India wants to improve productivity and output. The Olive Ridley Sea Turtle embodies this notational goal. In the past, it was common for it to lay 10,000 eggs on the Goan beaches annually. Last year, however, they laid 16,000; this year 45,000.

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