Walmart’s Reported Flipkart IPO Plans Make Sense Amid Fight With Amazon

Walmart is reportedly looking to raise $10B for the Indian e-commerce and digital payments player by selling a roughly 25% stake.
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The tech IPO market is white-hot right now, and Amazon.com  (AMZN) - Get Report continues investing heavily in its Indian operations.

All of that gives Walmart a strong incentive to do an IPO for its Flipkart unit -- one of India’s two preeminent e-commerce players, along with Amazon -- sooner rather than later.

Indian website Mint reported overnight that Walmart is working with Goldman Sachs on a U.S. IPO for Flipkart that would aim to sell about a 25% stake in the business for around $10 billion. That in turn would imply a roughly $40 billion valuation for Flipkart, or nearly twice what Flipkart was valued at when Walmart paid $16 billion in 2018 for a 77% stake in the company.

Today, Walmart’s stake in Flipkart stands at 82.3%. Other investors in the company include Microsoft  (MSFT) - Get Report, Tencent  (TCEHY)  and investment firms Tiger Management and Accel Partners.

Flipkart recently reported revenue of 346.1 billion rupees ($4.69 billion) for its fiscal 2020, which ended in March, up a moderate 12% annually. However, with COVID acting as a tailwind for Indian e-commerce growth in recent months, and with Walmart making a point of highlighting Flipkart’s contribution to its international growth during its Nov. 17 earnings call, Flipkart’s current growth rate might be higher.

In addition to its e-commerce operations, Flipkart also owns PhonePe -- a leading player in the Indian digital payments space, along with Google  (GOOGL) - Get Report Pay and Indian firm Paytm. PhonePe recently reported having 100 million monthly active users in October, as well as handling 835 million transactions involving India’s UPI mobile payment system.

PhonePe, it should be noted, said earlier this year that it’s planning to do an IPO of its own by 2023. Recently, the company raised $700 million from Walmart and others in a funding round that featured a $5.5 billion valuation, and which served to lower Flipkart’s stake from 100% to 87%.

Like PhonePe, Flipkart has a strong incentive to raise capital that could help it better compete against both a U.S. tech giant and local rivals.

Drawn by India’s relatively low e-commerce penetration rates and growing middle class, Amazon has committed several billion dollars to the the world’s fifth-largest economy. The company has also been selling Amazon Prime memberships in India at a price of just 999 rupees ($13.55) per year.

Most recently, Amazon, which runs an e-commerce marketplace in India but doesn’t directly sell goods in the country, said it planned to invest $1 billion to help small and mid-sized Indian businesses move online, and aimed to drive more than $10 billion worth of Indian exports by 2025.

Forrester Research estimated Flipkart and Amazon controlled 31.9% and 31.2%, respectively, of Indian online retail sales in 2018. A host of smaller Indian e-commerce firms accounted for much of the rest.

In addition to Amazon and smaller Indian e-commerce firms, Flipkart now faces competition from JioMart, the e-commerce unit of top Indian mobile carrier Reliance Jio.

JioMart, which for now is focused on grocery and apparel sales, launched in 200 Indian cities and towns in May. Its parent company, meanwhile, raised $15.2 billion earlier this year from Facebook  (FB) - Get Report, Google and other deep-pocketed foreign investors.

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