Neha Alawadhi Moneycontrol News
Shares of Walmart, the US-based retail giant fell as much as 4 percent on Wednesday, losing nearly USD 10 billion in market cap after it confirmed plans to buy Indian e-commerce platform Flipkart.
The fall was largely on account of an expected decrease in profit, and low investor confidence that the company will be able to pull off a turnaround in Flipkart’s as well as its own fortunes.
“If the transaction were to close at the end of the second quarter of this fiscal year, Walmart expects a negative impact to FY19 earnings per share of approximately USD 0.25 to USD 0.30, which includes incremental interest expense related to the investment,” the company said in a statement on Wednesday.
The company further expects an EPS headwind of around USD 0.60 per share in fiscal year 2020.
Walmart bought India-based e-commerce platform Flipkart for USD 16 billion, with an initial stake of 77 percent. The retailer plans to leverage Flipkart’s payments system, logistics and apparel business to drive growth.
Post the deal, S&P global Rating on Wednesday revised its rating on Walmart to “negative from “stable”. It cited a higher execution risk as the retailer invests heavily to expand its online and global reach, while continuing its share buyback programme, according to Bloomberg.
“S&P says there is a one-in-three chance Walmart’s strategic repositioning to compete with encroaching retail players including Amazon.com through more aggressive global deal-making and a possible financial policy shift may result in a downgrade over the next two years,” Bloomberg quoted S&P Ratings as saying.
Walmart and Amazon have been competitors in their home market- the United States- for over two decades.
While Walmart has retained its top position as the largest retailer in the world, it has often been accused of waiting on the e-commerce sidelines for far too long.
In February this year, the company's executives said that the company will double down on its investments in e-commerce and online grocery sales.
It bought Jet.com in the US in 2016 for USD 3.3 billion, hoping to get greater muscle in the e-commerce game, and compete more effectively with Amazon.
Also Read: Walmart adds Flipkart to its cart: The beginning of a new bout between Walmart and Amazon
The deal is likely a positive for India’s retail and fast moving company goods sectors.
In a note to clients on Thursday, Edelweiss Securities said after the deal, “online & offline partnerships are likely to get a fillip; online discounting may not necessarily increase (as Walmart may drive private labels rather than focus only on GMV); and FMCG companies are likely to benefit as Walmart’s expertise lies in hypermarkets/grocery retailing (plans to tie up with kirana players).”
Shares in Walmart closed 3 percent lower at USD 83.06 on Wednesday on the New York Stock Exchange.
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