Walmart's Flipkart IPO

Walmart’s Flipkart IPO is such an overwhelmed part of the US stock market that has no doubt. But before going to many details let us see the background first.

Is Walmart a Chinese company?

Walmart is a US-based company, whose shares are mostly held by Sam Walton’s family, with a large number of other shares owned by various entities including Berkshire Hathaway and dozens of mutual funds. … We do have many Walmart’s in China – but they are mostly in large cities like Shenzhen and Xiamen.

Walmart’s Flipkart IPO to launch in the USA

Walmart had stated in a US filing on May 9, 2018, that it may take Flipkart public in four years at a valuation no less than what it invested in Flipkart. Walmart had acquired 77 percent of Flipkart for $16 billion to take on arch-rival Amazon.

Digging Deep in Walmart’s Flipkart IPO:

Walmart-owned Flipkart’s initial public offering (IPO) is a certain thing but how soon it would be on the horizon is a matter that has always kept the Indian start-up ecosystem and its stakeholders on tenterhooks.

  • After all, Flipkart has been the e-commerce poster boy in India’s journey towards the digitization of at least its consumer-facing services.
  • Talks around Flipkart’s IPO have been happening for the past few years in the backdrop of different developments at the company even as it counts the listing event as part of its long-term strategy.
  • “An initial public offering has always been part of Flipkart’s long-term strategy. However, the focus at present is on growth and democratizing commerce in India through technology, while continuing to unlock customer value, Walmart-owned e-commerce company told Financial Express Online in a statement.

Major Focus areas in Walmart’s Flipkart IPO:

The biggest areas of investment for Flipkart will continue to be in technology, operations, and new capabilities,” it added.

  • Flipkart has reiterated its focus in the statement from last year when media reports about its possible 2022 listing in the US had surfaced.
  • The latest statement came amid business newspaper Mint’s report on Flipkart hiring Goldman Sachs to explore an IPO in the US to raise around $10 billion citing people aware of the matter.
  • Walmart, itself, had stated in a May 9, 2018 filing with the US Securities and Exchange Commission that it may take Flipkart public in four years (around 2022) at a valuation no less than what it invested in Flipkart.
  • Walmart had acquired 77 percent of Flipkart for $16 billion to take on arch-rival Amazon.

Amazing historic stats in Walmart’s Flipkart IPO:

Walmart's Flipkart IPO
Flipkart Pricing History

Flipkart had driven the international net sales for Walmart’s Q3 ended in October 2021.

  • “Strong growth in net sales at Flipkart was helped by a record number of monthly active customers,” Walmart had said last month announcing the quarterly results.
  • Its net sales went up 1.3 percent year-on-year to $29.6 billion in the August-October period.
  • During the recent festive month of mid-October to mid-November 2020, Flipkart Group, including PhonePe and Myntra, had emerged as the top e-commerce marketplace with around 66 percent share of the overall gross merchandise value (GMV) worth $8.3 billion, according to a Red Seer report.
  • Jeff Bezos Amazon’s India business, on the other hand, had cornered 34 percent share. The festive month saw overall online sales up 65 percent from the year-ago sales worth $5 billion.

10 key things to know about Walmart’s Flipkart IPO mega-deal:

The American giant Walmart is very likely to revolutionize Indian retail with low prices and a vast variety of consumer goods.

  1. Flipkart founder Sachin Bansal will now exit completely. He has sold Walmart his entire 5.5% stake. Sachin, along with co-founder Binny Bansal, once worked as an intern at Amazon. They started Flipkart in 2007 in an apartment in Bengaluru’s Koramangala.
  2. The deal has made India’s online sellers very jittery because they fear Walmart could wipe them off. The American retail behemoth has long had a reputation for killing small businesses with cut-throat pricing.
  3. Walmart had been trying to enter India for years. Strict FDI rules have so far kept its presence limited to just the cash-and-carry segment. It currently has 21 stores in India.
  4. With Walmart buying into Flipkart, the fight for India between Amazon and Flipkart is set to grow more frenetic.
  5. Flipkart has maintained a leadership position in fast-growth categories like fashion, electronics, mobile, and large appliances. Flipkart, along with its fashion units, controls nearly 40% of Indian online retail. Amazon is close on its heels.
  6. A more intense battle between Flipkart and Amazon is likely to create a huge supply chain infra, along with a large number.
  7. Deep discount — effective but cash-burning — has been Flipkart’s main strategy to fight Amazon. Walmart would give Flipkart not just more funds for the fight but also a formidable ally with great experience in retailing and logistics.
  8. The deal is set to bring about a big change in Indian retail. While Walmart is sure to bring its cut-price game to India, Amazon’s counter push may ensure that merchandise prices in India’s head even lower.
  9. Analysts say Flipkart is expected to generate meaningful losses for at least the next few years, so this looks like a shot at the future. Lending credence to this view, Walmart shares plunged 4% and m-cap went down by $10 billion after the formal deal announcement was made.

Why did Flipkart sell itself to Walmart?

Walmart said in a media release that Flipkart will leverage Walmart’s diverse retail expertise, merchandise supply-chain knowledge, and financial strength, while Flipkart’s “talent, technology, customer insights, and agile and innovative culture” will benefit Walmart.

Why did Walmart spend so much on Flipkart?

“India is one of the most attractive retail markets in the world, given its size and growth rate,” Walmart’s president and CEO Doug McMillon said in a statement.

  • Walmart is betting on the fact that India’s e-commerce market, pegged at a modest $38bn in 2017, is expected to grow up to $200bn by 2027.
  • E-commerce currently makes up less than 4% of the retail market in India, but that’s predicted to change as the number of Indians using smartphones (and the internet) increases rapidly in the next decade.
  • Although Walmart has 21 “cash-and-carry” wholesale stores in India that sell to businesses, it has no other retail presence in the country.
  • So this acquisition allows the company to jump straight into a small but growing e-commerce market with about 100 million customers.
  • This deal is also a new front in Walmart’s battle with Amazon, the global leader in online retail, which accounts for 44% of the US e-commerce market.

How big is Flipkart?

The company sold products worth a total of $7.5bn in the financial year that ended in March 2018 – the sales had grown by 50% since the previous year. Its net sales, after discounts, returns, and cancellations, were worth $4.6bn.

Amazon, too, made a bid for Flipkart but the merger could have faced severe scrutiny from India’s antitrust regulator as their combined sales would have added up to almost 90% of India’s e-commerce market.

When did Flipkart acquire Walmart?

In August 2018, U.S.-based retail chain Walmart acquired an 81% controlling stake in Flipkart for US$16 billion, valuing Flipkart at $20 billion.

Did Flipkart buy Walmart India?

Flipkart has acquired the Indian operations of Walmart Inc. … The acquisition brings Walmart’s entire portfolio in India under the Flipkart group, two years after it bought a majority stake in the homegrown e-tailer for $16 billion. The 28 Best Price stores will remain operational.

Why did Walmart’s stock crash after the deal was announced?

  1. Analysts believed that Walmart overpaid for its stake in Flipkart. This widely-held view was echoed on Wall Street, where Walmart shares dropped to their lowest intraday price since October 2017, wiping $10bn off its market capitalization.
  2. This is because Flipkart is not expected to be profitable for some years and the Indian e-commerce market is small by global standards – 100 million customers in a country with about 1.3 billion people.
  3. But the deal still gives Walmart the fastest entry possible into one of the most promising, albeit difficult, e-commerce markets.
  4. Walmart said in a media release that Flipkart will leverage Walmart’s diverse retail expertise, merchandise supply-chain knowledge, and financial strength, while Flipkart’s “talent, technology, customer insights, and agile and innovative culture” will benefit Walmart.

Is this a good deal for Flipkart?

Yes, according to most experts. After Walmart bought the controlling stake, Flipkart is valued at more than $20bn.

  • The deal also saves Flipkart, which was running out of cash in its battle with Amazon. Both competitors have been “burning cash” in massive sales and discounts pegged to Indian festivals in a bid to acquire more customers.
  • Amazon runs a profitable business worldwide, thanks to its cloud computing service, and it has the cash to take on newer markets.
  • Flipkart, however, needs the financial strength Walmart offers. It has also managed an excellent valuation, by all accounts, giving both its co-founder Sachin Bansal, and several of its key investors, profitable exits.
  • This is the highest price any foreign company has paid for a stake in an Indian company. New York-based angel investor Gautam Gandhi said Flipkart’s founders had been elevated from “role models to demi-gods for aspiring entrepreneurs”.

Was this a good deal for Flipkart’s other investors?

  • Given Flipkart’s high valuation of $20bn, investors who exited got a good deal.
  • Venture capital firms Accel and Tiger Global invested more than eight years ago when Flipkart was valued at just $50m – and they have now exited with more than 400 times what they invested.
  • The SoftBank Vision Fund led by Masayoshi Son was a big beneficiary of the deal – it had invested $2.5bn in August 2017 for a 20% stake and it exited with $4bn.
  • Flipkart co-founder Binny Bansal retains his stake. So do Microsoft, eBay, and China’s Tencent, who invested a total of $1.4bn in April 2017.

What does Walmart bring to the table?

  • Apart from capital, Walmart brings expertise in online groceries and a strong food supply chain.
  • “We aim to become the best food retailer in the world, and that needs investment in supply chains to build those capabilities,” Rajneesh Kumar, corporate affairs chief at Walmart India told the BBC.
  • Walmart, he added, will also focus on sourcing from India for its global operations. “We are already sourcing handicrafts, apparel, food products like rice, from India…we will ramp that up.”

The acquisition bandwagon

  • In line with acquisitions being the globally proven strategy of tech firms to grow, to build assets, or to keep competition at bay, the playout is happening in Indian retail too.
  • Reliance’s 2020 acquisition book shows five companies/brands worth Rs 3,000 crore. Walmart-Flipkart is consolidating the cash-and-carry business of Flipkart wholesale and with investments in fresh produce supply player Ninja cart.
  • While the FDI rules bar foreign retailers to own physical stores, Amazon has succeeded with some smart investment arm structuring.
  • Reliance’s investments extend beyond retail to encompass tech investments in AI, VR, and voice recognition, to name a few. The Tata group is talking of launching a super app to make its case for digital besides proposed investments in Big Basket.

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