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Flipkart-Walmart Deal Overpriced, but Good for India’s Growth: Market Experts

US giant Walmart Inc on May 9 said it is buying 77 percent stake in Flipkart for about USD 16 billion (Rs 1.05 lakh crore), its biggest deal which will give the retailer access to Indian e-commerce market that is estimated to grow to USD 200 billion within a decade.

Rounak Kumar Gunjan | News18.com@Rounak_T

Updated:May 19, 2018, 9:07 AM IST
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Flipkart-Walmart Deal Overpriced, but Good for India’s Growth: Market Experts
The logos of Walmart and Flipkart. (New18 creatives)
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New Delhi: The billion dollar Walmart-Flipkart deal was overpriced with a justification of high growth prospects, according to multiple market experts.

They believe the acquisition may be a green signal for more global giants to foray into the Indian startup space. “It seems that the valuation Walmart has given to Flipkart is on the higher side, which affected adversely the market cap of Walmart in the US market showing a decline in market cap of close to around 10 million dollars on that particular day. Its seems that from the US capital market perception it was an overpriced valuation,” said Ashwajit Singh, Managing Director of IPE Global

US giant Walmart Inc on May 9 said it is buying 77 percent stake in Flipkart for about USD 16 billion (Rs 1.05 lakh crore), its biggest deal which will give the retailer access to Indian e-commerce market that is estimated to grow to USD 200 billion within a decade.

The deal, wherein co-founder Sachin Bansal and Japan’s Softbank Corp Group are exiting, values Flipkart at USD 20.8 billion. It is the biggest M&A deal in India this year.

“From the Indian point of view, what is good is that the trickle-down effect of this positive investment would have an impact on other industries as well. We saw that 15-20 years ago major investment was made into China, including acquisitions at good valuation. The same feel good factor seen in China as a fast growing economy now seems to be moving towards the Indian economy and Indian businesses,” added Singh

Multiple headhunters informed News18 that they are witnessing a lot of traction, including at leadership levels, to get back to this sector. This includes professionals from FMCG and other traditional sectors, those who had retracted.

Employee stock option plan buyback is gaining prominence as well.

Flipkart employees have been informed that the company will repurchase up to 30% of stock options vested with former employees at a price ranging from $125-129.

“I do not know the exact details of how they are offering the ESOPs. However, ESOPs which are normally used to retain employees are vested over a 3-4 year period to the employees and can be encashed within a year of the company going public. These could be encashed in case of a secondary market sale as well,” Singh told News18.

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

They are also in discussions with additional potential investors who may join the round, which could result in Walmart’s investment stake moving lower after the transaction is complete.

“We could expect high valuations in a growing economy like India. Since Walmart is not looking at immediate returns, we will not get to know in the next 10-15 years whether the valuation paid off. So, from our end, we are hoping to see a good experience for Walmart,” said Singh.

The deal would bring over 175 million users to Walmart, which has been eyeing the Indian market for a few years. So far it had been handicapped by India’s retail policy that does not allow overseas companies to sell directly to consumers (except in wholesale cash-and-carry segment).

Companies like Flipkart and Amazon operate as e-commerce marketplaces a segment that allows 100 per cent foreign direct investment (FDI).

Walmart runs 21 Best Price wholesale stores in the country that sell everything from fast-moving consumer goods to furniture to other retailers and institutions. It could potentially use those Best Price stores as pickup and delivery points.

“India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading the transformation of eCommerce in the market,” said Doug McMillon, Walmart’s president and chief executive officer.

Amazon was also said to have put in an aggressive offer to buy 60 percent of Flipkart but the board of the Indian firm is said to have favoured the Walmart offer.

Launched in 2007 and envisioned as the ‘Amazon of India’ before the latter came to India, Flipkart owns country's largest online fashion retailers — Myntra and Jabong — both of which it had acquired.

Together, Flipkart-Myntra-Jabong hold 70 per cent market share of the online fashion business in India. It also owns eBay’s India business as well as popular mobile payments app, PhonePe.

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