At least 25,000 present and past employees of Walmart-owned e-commerce major Flipkart will likely benefit from its $700 million one-time cash payout, sources said, making it one of the biggest instances of wealth creation in India’s booming startup space.
The bonanza from India’s original startup poster kid Flipkart comes at a time when most startup employees have had a tumultuous 2022, as the heydays of funding and fat pay hikes gave way for sobriety and a reality check, as investors turned cautious.
To be sure, this will include past and present employees of Flipkart, Myntra and PhonePe, the people cited above said.
Last week, Flipkart announced a one-time discretionary cash payout of as much as $700 million to almost 25,000 of its former and current employees, who hold employee stock options. The top 20 employees of Flipkart, the most senior and early staffers of the e-commerce giant, will be getting as much as $200 million out of the $700 million payout, people familiar with the matter told Moneycontrol.
The wealth-creation opportunity given by Flipkart to its employees is one of the largest in the country to date in the private sector. Among listed companies, software major Infosys' pioneered employee stock programs, giving away about 19 percent of outstanding equity to non-founder employees amounting to Rs 1.3 lakh crore.
In an interview with Moneycontrol, last year, Infosys founder NR Narayana Murthy, said several peons of Infosys, who had kept shares, were worth at least Rs 10-15 crore today.
But Flipkart's one-time cash payout is different from a typical equity/ESOP (employee stock option plan) buyback as employees are not selling their options back to the company, but are rather getting the payout as a part of the PhonePe transaction.
Flipkart said that it has completed ownership separation of PhonePe, a payments and financial services unicorn, which the e-commerce giant acquired in 2015. Flipkart spun off PhonePe as a separate entity in 2020 to unlock value.
However, the e-commerce giant did continue holding a significant stake in the fintech unicorn. But on December 23, Flipkart said that it sold all its shares in PhonePe to its existing shareholders and to those of PhonePe, including Walmart. Effectively, Flipkart sold its entire stake in the financial services giant.
With Flipkart selling its entire stake in PhonePe, its share price had to be redetermined to reflect its value without PhonePe. According to a copy of Flipkart CEO Kalyan Krishnamurthy’s letter to employees viewed by Moneycontrol, the new share price of Flipkart was determined at $165.83 per option by its Board, which was previously $189.1, which also included PhonePe’s value.
So just as Flipkart sold its stake in PhonePe, its ESOP holders, too had to sell their stake in the fintech giant, and as per the share prices, PhonePe’s effective share price was $23.27 per option (if you deduct Flipkart’s new price without PhonePe from the company’s previous price). However, to reflect the increase in the valuation of PhonePe, the payout is happening at $43.67 per option, which also suggests that PhonePe’s valuation has nearly doubled.
The effective markup of PhonePe comes just days ahead of its largest-ever fundraise from General Atlantic, which would make it the most-valued fintech in the country. Moneycontrol was the first to report in October that the fintech unicorn is looking to raise a new round at a valuation of about $12 billion.
In the same month, PhonePe moved its registered entity from Singapore to India ahead of its plans to launch an IPO in the country. This is contrary to most consumer internet companies, including Flipkart, having an overseas domicile, for tax benefits.
In an interview for CNN News18’s Bits to Billions in June, PhonePe co-founder and CEO Sameer Nigam revealed that the company is in the process of moving its registered entity from Singapore to India. He had said that the board had already signed off on the plan and the completion of the process was only a matter of time.
PhonePe’s potential fundraise and its valuation markup comes at a difficult time for fintech companies in the country. PhonePe’s closest competitor, Paytm, has seen its valuation drop over 75 percent since it got listed in November last year, with public shareholders raising questions over the company’s ability to achieve company-level profitability. As of December 26, Paytm’s total market capitalisation was just over $4 billion.
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