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According to the reports, Walmart, the biggest retailer globally, is preparing for its Indian e-commerce unit, Flipkart's 10

Flipkart, India’s leading ecommerce marketplace, plans to secure about ten billion USD for its IPO, initial public offering. According to the report, Walmart has already hired an investment banker, Goldman Sachs, to explore IPO in the US market and plans to divest about 25% of its stake (1).

According to sources, work on an initial public offering is in full swing. The pandemic has only accelerated the process due to the spectacular rush in demand on ecommerce platforms.

Earlier in September, Reuters reported (2) that Flipkart is looking to go public in early 2021. It added that the listing could be overseas with a valuation of about 45 to 50 billion USD.

Kalyan Krishnamurthy, CEO of Flipkart Group (3), has stated that it was his dream to take Flipkart to an IPO, and he called it a ‘real exit’ in three years.

In 2018, Walmart had acquired Flipkart in a 16 billion USD valuation deal. It was one of the biggest acquisition to date for the Indian startup ecosystem. However, the deal also saw the exit of its founders Binny Bansal and Sachin Bansal (4).

In July 2020, Flipkart’s valuation rose to 24.9 billion USD after it secured 1.2 billion USD in a fresh funding round with Walmart as its lead investor (5). Recently, Flipkart and Walmart had jointly announced its fintech firm’s divestment, PhonePe, into an independent firm with a valuation of 5.5 billion USD (6).

The development also came in the backdrop of the latest draft regulations, allowing Indian companies to list directly in overseas markets.

Goldman Sachs Exploring IPO in the US

Walmart has hired Goldman Sachs (7) to explore Flipkart’s initial share sale in the US to secure about 10 billion USD, according to two people directly aware of the matter. Based in Bentonville, Arkansas, Walmart plans to sell about 25% of India’s largest online retailer.

There is no denying that online transactions in India have surged after the ongoing coronavirus pandemic as people have largely stayed indoors and avoided crowded markets and stores. It has propelled millions of new customers from India’s small towns and cities to switch to online platforms.

Consequently, it has boosted ecommerce companies’ valuations, such as Flipkart based in Bengaluru and registered in Singapore, competing with Amazon India unit and Reliance Industries, which is ramping up its JioMart business to challenge its rival in the online retail market.

If the IPO plans of Flipkart get successful, it would be the largest Indian company in an overseas exchange market. At present, Walmart owns an 82.3 % stake in Flipkart with US-based fund Tiger Management, China’s Tencent, Accel Partners, and Microsoft corporation among the key investors (8). The IPO would offer an opportunity for minority investors to either pare or sell their holdings.

The Indian entities of Flipkart are owned by Flipkart Private Limited, which was set up in October 2011 in Singapore. Walmart would sidestep restrictions on Indian companies listing on foreign stock exchanges by taking the Singapore company public in the US market.

Notably, the Singapore registered firm owns eight Indian companies, including Flipkart internet Private limited, the company that runs the e-commerce marketplace, Flipkart India Private Limited, the wholesale business Flipkart logistics Private limited, which runs e-kart.

According to a Flipkart spokesperson, an IPO has always been part of Flipkart’s long-term strategy; however, the focus at present is on democratizing ecommerce in India and growth through technology while continuing to unblock customer value. There has been no comment from Goldman Sachs regarding development, and Walmart has also remained silent.

The share sale proceeds would expand Flipkart’s business; when the ecommerce market is booming. Its payment unit PhonePe is also looking to break even by 2022 and is planning to go public by 2023 (9). The digital payment company competing with paytm, Amazon Pay, and Google Pay are also likely to list on a US stock exchange at a 10 billion USD valuation.

When Flipkart announce the new investment in Flipkart in July, Walmart also stated that PhonePe processes a total payment value of over 180 billion USD annually and has witnessed more than 50 million transactions each month in the app. The company is expecting at least 275 million users by the end of 2020.

It’s worth highlighting that over the past few months, Flipkart has not only expanded its customer base and supply chain, but it has also grown its reach to new pin codes across the country. It has also introduced multiple languages to attract customers who are not compatible with shopping using the English user interface. In July, Walmart merged all its Indian operations into Flipkart as the parent consolidated its operations.

The Landscape

Flipkart mainly competes with Amazon and the JioMart in India. According to a BofA Securities report (10), the Indian online retail market is worth about 33 billion USD. Amazon and Flipkart jointly hold about 80% market share, with Reliance gradually emerging as a competitor.

The report further stated that the battle for market share would focus on bringing the small grocers within their fold. Last week, Flipkart launched the 2GUD Kocal platform to bring small and traditional retail businesses as its partner. The new format would offer offline stores, branch, and shopping destinations, an opportunity to unlock the benefits of technology and a hybrid retail model.

According to the analyst of BofA Securities, digitizing these small grocers is a gradual process, and it could take over five years. Among all companies, analysts also find reliance strategy well-articulated and clear. However, they also need to build the trust of the customers.

They added that Amazon and Flipkart are presently looking at small grocers as a last-mile delivery place. At present, online competition is largely between Amazon and Walmart owned Flipkart, where Reliance is emerging as a formidable competitor in the online retail space.

Each of the companies brings its strength. Amazon has global expertise with better technology, and Flipkart is strong in fashion and electronics. At the same time, Reliance could leverage its online presence to deliver an omnichannel experience.

Riding the E-commerce Boom

Walmart’s plans to take Flipkart public could have been blasted by the surge in e-commerce sales since the covid-19 pandemic. The massive increase in e-commerce services, corroborated by Flipkart’s statistics as it witnessed a ten-fold increase in shipments during its festival sale in 2020 (11).

In addition to witnessing a massive service in its order this year, the ecommerce giant is also busy making acquisitions from augmented reality startups to fashion companies.

Flipkart has been busy this year after acquiring Walmart’s mass India operations in 2020. The ecommerce Giant also dabbled in social gaming and augmented reality spaces with the acquisition of Scapic (12) and Mech Mocha (13). It has also made a few investments in the fashion space, including USPL, which houses Virat Kohli’s Wrogn. It has also invested in Arvind Fashions and Aditya Birla Fashion Retail (14). The ecommerce giant is also expanding its collaboration with Kiranas, or Mom and Pop stores, which delivered more than 3.5 million orders during its recent Big Billion Days sale.

Recently, PhonePe, another entity of the Flipkart group, had raised 700 million USD in a fresh fundraising round at a post-money valuation of 5.5 billion USD. The new financing round is considered as a partial spinoff of the payment company. Walmart led the latest fundraising and also participation from some existing investors.

According to Sameer Nigam, The Founder and Chief executive of PhonePe (15), the partial spinoff gives PhonePe access to dedicated long-term capital to pursue their vision of offering financial inclusion to billion Indians. At the same time, it gets to operate as a separate entity.

As it becomes a separate entity, it would constitute a new board of directors. Also, PhonePe would create a tailor-made ESOP, equity incentive program for its employees.

On the development, Kalyan Krishnamurthy, the CEO of Flipkart Group, stated that the move would help PhonePe maximize its potential as it moves to the next development phase. Moreover over, it would also maximize value creation for Flipkart and its stakeholders.

The statement also added that Flipkart’s stake in PhonePe would come down as a result of the deal. Still, it would remain the majority stakeholder in the company, and the two companies will continue to collaborate closely.

Two firms, even though they are both owned by Walmart, have different paths leading to different outcomes. While PhonePe focuses on payment, Flipkart would focus on lending and buying and selling on The ecommerce platforms easily and affordable and offering loyalty and cashback through super coins.

Flipkart and PhonePe have two different universes of users. For Flipkart, it is all about increasing transaction revenue and growing GMV. On the other hand, for PhonePe, it is all about digitizing personal payments, says India stack developer former head, Nikhil Kumar, the Co-founder, and Chief Evangelist at Setu (16).

Meanwhile, PhonePe is out there in the market to raise money and has been talking to investors for a large fundraising round. But it is still a startup inside the large Walmart Incorporation. “As a founder, you make choices. Sameer has made that choice as PhonePe’s founder, and Walmart understands that,” says the source.

The situation is quite similar to what is happening in Facebook, WhatsApp, and messenger both my get into payment, but they will have different problems to solve and different users to go after, and their market my also be different, and it is normal,

A Certain Thing

While it has become clear that Walmart on Flipkart’s IPO is a certain thing but how soon it would be on the horizon is a matter that has always kept its stakeholders and Indian startup ecosystem on tenterhooks, especially when Flipkart has been the poster boy of India’s e-commerce and its journey towards digitization of at least its customer-facing services.

Talks about Flipkart IPO has been happening for over the past few years in the light of other development said the company and even as it counts the listing event as part of its long-term strategy. At the same time, the company has stated that it is presently focusing on the growth and democratization of ecommerce in India via technology and unlocking customer value. The biggest areas of Flipkart investment would continue to be in technology operations and new capabilities.

While the media reports about possible IPO listing of Flipkart surfaced since last year, the latest statement came amid a business newspaper Mints report on Flipkart hiring Goldman Sachs to explore an IPO in the United States secure 10 billion USD.

Moreover, Walmart itself stated on May 9, 2018, filing with the US securities and exchange commission that it may take Flipkart public in the upcoming four years around 2028 evaluation no less than what it has invested in it. Walmart had acquired 77% of Flipkart for 16 billion USD to take on its arch-rival, the tech giant Amazon.

Earlier in 2020, Brett Biggs, the Chief Financial Officer of Walmart (17), was speaking at the UBS Global Consumer and Retail Conference in March has stated in response to a question that, “Yes, we have talked about long-term that IPO is a potential for that business I can tell you, it runs pretty independently right now, and that’s when you buy a business like that’s what you want it to do.”

It’s worth highlighting that during the recent festive month of mid-October to mid-November 2020, Flipkart group, including Myntra and PhonePe, had emerged as the top ecommerce Marketplace with around 66% share of the overall GMV worth 8.3 billion USD according to a RedSeer report. On the other hand, Jeff Bezos Amazon’s Indian business had cornered a 34% share. The festive month so overall business sales up to 65% from the year-ago sales worth 5 billion USD.

As it turns out, the spinoff of its payment entity, PhonePe, is another part of the development as Walmart is planning for Flipkart’s IPO in the upcoming year.

Dampening Factors

The 40 billion USD valuation for Flipkart looks like a huge jump within a short period. However, it’s worth noting that some listed ecommerce companies’ share prices are emerging in the market and have skyrocketed in 2020. Sea Ltd of Singapore has observed a rise in its shares by about 280% compared to its pre-pandemic highs. At the same time, Argentina’s MercadoLibre Incorporation has doubled its share prices.

There are high chances that in the post-COVID-19 world, investors would be enthusiastic about these companies’ prospects. However, it must also be noted that these two firms are more profitable compared to Flipkart.

Several experts also believe that Flipkart’s IPO is a bit premature considering where things are standing right now on the profitability front. It is unlikely for the company to raise funds from large investors in pre-IPO rounds.

Whether it’s an IPO or pre-IPO funding, Flipkart has the tailwind of an upswing in ecommerce transactions in 2020.

“Most internet segments have seen an acceleration in online penetration with improving unit economics. Redseer highlighted that online retail penetration rose from 3% pre-covid to 10% in October and could settle at 5-6% levels eventually—still twice of pre-covid levels.”

– Jefferies India Pvt. Ltd (18).

Moreover, according to Walmart, in its September quarter earnings calls, Flipkart’s monthly active customers are also at an all-time high.

Nevertheless, a 40 billion tag looks like a stretch since not too long ago; Reliance Retail Ventures was valued at 57 billion USD, far lower than the 75 to 80 billion USD valuation some analysts had anticipated. It is also worth highlighting that Reliance Retail is the largest retailer in the country and is profitable.

While there are high expectations from Reliance’s ecommerce wing, JioMart, investors seem to have tone down their enthusiasm considering the cut-throat competition from Flipkart and Amazon.

Moreover, foreign direct investment regulations tend to suit domestic companies over foreign ones, and it is an added headwind for Flipkart.

Even though investor interest in ecommerce has surged post-covid-19, some factors may dampen the sentiment for Flipkart.

Why Flipkart IPO Plans Make Sense?

The Tech IPO market is hot right now, and Amazon is continuously making heavy investment in its Indian operations.

It gives Walmart a strong incentive to an IPO for its Flipkart, one of India’s prominent ecommerce players along with Amazon, sooner rather than later.

According to reports, Walmart is working with Goldman Sachs on US IPO for Flipkart, and it would aim to sell about a 25% stake in the business for around 10 billion dollars.

It employs a roughly 40 billion valuation for Flipkart on nearly twice what Flipkart was valued when Walmart paid 16 billion USD for a 77% stake in 2018.

According to a recent report, Flipkart has reported 346.1 billion INR or 4.69 billion USD for its fiscal year 2020, ended in March, up a moderate 12% annually.

There are speculations that Flipkart’s current growth rate might be higher because of the COVID-19 acting as a tailwind for ecommerce growth in India in recent months and with Walmart highlighting Flipkart company contribution to its international growth during its November 17, 2020, earnings call.

“Flipkart continues to perform well and recently completed its best-ever Big Billion Day sales event in October. Their Q3 GMV (gross merchandise value) continued to reflect strong demand post-covid lockdowns with significant growth in monthly active customers.”

– Walmart (19).

Flipkart is aiming to raise capital to give a robust competition against Amazon and local rivals. Notably, Amazon has committed several billion dollars to the world’s fifth-largest economy, considering India’s relatively low ecommerce penetration and growing middle class. it is also worth highlighting that the US tech giant is also selling its Amazon prime membership in India at a price of only 999 INR or 13.55 USD per year

Amazon, which runs India’s one of the biggest e-commerce marketplace but doesn’t directly sell goods in the country, has planned to invest over 1 billion USD to help small and medium-sized Indian businesses move online. It is also aiming to drive more than 10 billion USD worth of Indian exports by 2025.

According to estimates of Forrester Research (20), Flipkart and Amazon controlled 31.9% and 31.2% online retail market, respectively, in 2018. The rest of the online retail sales accounts for the host of smaller Indian ecommerce firms.

Flipkart is now also facing competition from JioMart apart from Amazon and smaller Indian e-commerce firms. JioMart is an ecommerce unit of the top Indian mobile carrier Reliance Jio led by billionaire Mukesh Ambani.

Jio Mart, who is presently focused on grocery and apparel sales, launched in 200 Indian cities and towns in May. Meanwhile, its parent company raised above 15.2 billion USD in early 2020 from Facebook, Google, and other deep-pocket foreign investors.

Considering all the points and the fight with Amazon and JioMart, Walmart Flipkart IPO plans now make much sense.