FlipKart sale cues war for India's e-wallet

Competition gets hotter than a vindaloo as the global e-commerce and e-payments battle between Walmart, Amazon, Alibaba and Tencent enters India.

Competition to dominate the global e-commerce and e-payments market opened on a new front this week after Walmart purchased a controlling stake in Indian start-up, Flipkart.

The $16 billion acquisition not only pits the US retailer against its arch domestic foe, Amazon, which already has a strong hold in India, but also against Alibaba, the Chinese company it was unable to conquer on the latter’s home ground.

The ongoing presence of existing Flipkart investor, Tencent, also places the two Chinese rivals in competition against each other in a market that none of the four global players has a natural home advantage in.

That factor alone is likely to mean the ensuing fight for market share will be closely watched from all corners of the globe. And then there is the e-commerce and payments potential of a country, which is soon likely to overtake China as the world’s most populous.

One banker familiar with the deal told FinanceAsia that conversations to buy a majority stake in Flipkart began in December last year. “The Walmart and Flipkart teams then spent about four months refining the terms and determining which investors would sell,” the banker explained.

“The US retailer felt more comfortable taking majority control because now it has the option to introduce new investors,” the banker added.

Indeed, domestic analysts say that current regulations mean Walmart will need to either dilute its 77% stake, or seek partnerships with third party retailers to stay compliant.

Under the terms of the deal, Tencent, along with New York-based hedge fund Tiger Capital and US computer giant, Microsoft, will stay on the board of directors.


A long list of others, including Softbank and Naspers, cashed out.

Naspers, in particular, appears to have made a return of at least 15 times based on the price of its staggered investments in the company from 2012 when it initially purchased an 8.1% stake.

According to S&P Capital IQ data, the Internet and media group then purchased an additional 8.6% in July 2013 for $136.2 million giving Flipkart a valuation of $1.63 billion.

The data provider reports that its current 11.18% stake has been divested for $2.2 billion.

Flipkart co-founder, Sachin Bansal, also decided to sell his entire 5.5% stake in the company. His business partner, co-founder and long-term friend, Binny Bansal, meanwhile sold about one tenth of his 6% stake.

He will remain on the board along with representatives from Tencent and Tiger Capital.

A second banker said Tencent was keen to stay, because it already has a relationship with Walmart in China. “This is a strategic decision to stay and compete with Alibaba in India,” the banker stated.

In China, Walmart owns a 12% stake in JD.com, the Tencent-backed e-commerce player, which competes directly with Alibaba.

It also recently opted to remove Alibaba’s payment option, Alipay from all its stores in Western China in favour of Tencent’s mobile payments system.

In India, Alibaba and its affiliate Ant Financial own PayTM, the country’s biggest mobile wallet. The company has also been on an acquisition spree that includes a $500 million investment in three Indian start-ups: online grocery group, BigBasket, food ordering app Zomato and logistics group XpressBees.

But Walmart’s biggest competitor, over the short-term, will be Amazon.

In a research report, published Thursday, Kotak Institutional Equities said that, “Amazon has strengthened its hold over the well-heeled urban Indian consumer by offering Prime (services and video)” in addition to its core offering selling electronics, clothes and home improvement goods.

“Flipkart’s challenge would thus be to induce its existing customers to transact more and widen its customer base,” it concluded.

However, Walmart is no newcomer to the Indian retail sector. It first entered the market in 2007 via a joint venture with Bharti Enterprises. According to Kotak, it exited the JV in 2013; frustrated that foreign investment in B2C retail (offline stores) remained capped 51%.

Walmart India then became a wholly owned subsidiary in 2013 and it currently operates 21 Cash & Carry stores across nine states.


The Indian securities firm believes the New York-listed company has struck a good deal for Flipkart in terms of valuation. This was fixed at 2.8 times 2018 EV/GMV based on $7.5 billion sales.

In 2016, by contrast, it purchased online US retailer, Jet.com at 3.3 times.

Walmart’s takeover values Flipkart at $20.8 billion and includes a new $2 billion equity injection. It has effectively doubled the Indian company’s valuation in the space of a year given its last funding round was struck at $11.6 billion in April 2017 according to S&P Capital IQ data.

Flipkart, which was founded in 2007, has 100 million registered users, 21 dedicated warehouses and transacts over eight million shipments per month across 800 cities.

It remains unprofitable, but few doubt the potential for the Indian e-commerce sector. Morgan Stanley estimates that online retail will grow over 1,200% to $200 billion by 2026, up from $15 billion in 2016. 

By then, it will account for 12% of India’s overall retail market, up from just 2% in 2015.

Financial advisors for the M&A deal were: Goldman Sachs acting for Flipkart, alongside Barclays and JP Morgan for Walmart.


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