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Goldman checks into FabHotels with $25 million cash

The hotel franchise company also operates a professional training academy for hotel staff and on the ground quality control teams

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Budget hotel franchise chain FabHotels, which reported a loss of Rs 13 crore for fiscal 2016, has raised $25 million (around Rs 161 crore) in a series B investment led by Goldman Sachs Investment Partners. Existing investor Accel Partners also participated in the fundraising that will be used to accelerate nationwide expansion, FabHotels said in a statement.

FabHotels (Casa2 Stays Pvt Ltd) partners with budget hotels with a room inventory of 20-40 and currently operates over 5,000 rooms across more than 225 franchise hotels in over 20 major cities across India, including Mumbai, the National Capital Region and Bengaluru. The company reported revenues of Rs 20.98 crore with a loss before tax of Rs 18.44 crore and a loss after tax of Rs 12.94 crore.

Interestingly, FabHotels claims to use its proprietary technology platform to deliver superior yields to franchisees. The hotel franchise company also operates a professional training academy for hotel staff and on the ground quality control teams.

Vaibhav Aggarwal, co-founder and CEO, FabHotels, said the company has built its technology framework and operations with three core objectives.

"Delivering a superior return on investment to our franchise partners, providing consistent high-quality experiences for hotel guests and building a strong sustainable business for everyone involved," he said in a statement, adding that the latest investment will further strengthen its market leadership position, brand and expansion.

However, industry experts said the company's cash burn requires funding of that nature. "It appears that FabHotels is still burning capital with losses close to its revenue. In such a situation it needs a war chest to continue funding its growth till such a time unit economics work.

With a strategic investment by MakeMyTrip-Goibibo, which seem to be moving away from their hotel neutral approach, investors may be banking on India's largest online travel agent (OTA) operators powering their investments in FabHotels. The fiscal 2017 balance-sheet will reveal if the burn is narrowing or remains static," said a senior executive from a leading hotel chain.

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