Walmart Makes Flipkart Investment Official

  • Walmart Makes Flipkart Investment Official

Walmart Makes Flipkart Investment Official

Buying a stake in Flipkart, which sells everything from soaps to smartphones and from books to clothes, gives Walmart access to the vast Indian e-commerce market that, according to Morgan Stanley, will potentially be worth an annual $200 billion in a decade.

As per media reports, Walmart will be retaining Flipkart's management led by co-founder Binny Bansal, while Sachin Bansal will be leaving the company selling his entire 5.5% stake to Walmart. It also said that it will back Flipkart's goal of going public at some point as a majority-owned subsidiary corporation.

The retailer said it expects India's ecommerce market to grow at four times the rate of the overall retail industry.

"This investment is of huge importance for India and will help fuel our ambition to deepen our connection with buyers and sellers and to create the next wave of retail in India", Binny Bansal, Flipkart's co-founder and group chief executive officer, said.

Walmart's investment includes $2 billion of new equity funding, which will help Flipkart accelerate growth in the future.

To finance the investment, Walmart intends to use a combination of newly issued debt and cash on hand. It's actually investing $2 billion of cash at first and is still holding discussions with other parties who might want a piece of the Flipkart pie, so its stake might reduce later on. The deal is expected to close later in the year. Walmart is reportedly paying about $15 billion for around 70% of Flipkart, valuing India's most valuable startup at more than $21 billion.

E-commerce sales in India hit $21 billion previous year according to market research company Forrester, and are expected to soar as its population of 1.25 billion people make greater use of internet access.

For many, Flipkart was supposed to be Softbank's main platform to build its India growth story "SoftBank was looking for a long-haul with Flipkart but, with WalMart buying it, the Japanese giant will have to look for other investment opportunities in the online retail space here", Satish Meena, Senior Forecast Analyst at Forrester India, told BusinessLine.

A man pushes shopping trolleys at a Walmart India's Best Price Modern Wholesale store in Jammu on May 8.

Softbank, one of Flipkart's biggest investors, held an earnings presentation on Tuesday and let news of the deal slip slightly early. McMillon has led Walmart's efforts to boost worldwide business.

Let alone offline retailers, Walmart's foray could even impact online sellers on Flipkart as well. Online sales in the world's second most-populous nation are growing about 35 percent a year, according to data tracker Euromonitor, fueled by a rising middle class and urbanization that present an attractive environment for e-commerce.