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Last Updated : May 11, 2018 03:11 PM IST | Source:

Walmart Flipkart tie-up: Industry consolidation amid a strong growth landscape

While Flipkart’s revenue is only around 1 percent of Walmart’s, the American retail giant will be paying a sum equivalent to nearly 7 percent of its own market cap for the acquisition.

Neha Dave @nehadave01
Krishna Karwa @krishnakarwa152

The eagerly anticipated $16 billion Walmart-Flipkart deal was finally made official, consequently making it the biggest foreign direct investment (FDI) transaction ever witnessed in India. Walmart acquired 77 percent stake in Flipkart, valuing the Indian e-commerce major at $20.7 billion.

After a failed alliance with Bharti in the past, for Walmart, the entry gates to one of the world’s fastest growing retail and consumption economies opened again. Flipkart, that lost market share rapidly amid Amazon’s aggressive funding and scale-up of operations in India, couldn’t have asked for anything better.

How does Walmart benefit?

Network leverage

Walmart is well-poised to take advantage of Flipkart’s existing customer base (nearly 54 million) and strong logistics platform (ekart) without the need to invest heavily in distribution arms in the initial stages.

Product platform

Flipkart’s market leadership in fashion wear (through Myntra and Jabong), coupled with a wide portfolio of cellphones and appliances should provide Walmart with a well-established base to sell its own products.

Payment partner

PhonePe, an application run by Flipkart, is a payment mechanism that Walmart can blend with its existing settlement programs effectively in connection with online purchases and bill payments.


Growing internet penetration, declining data costs, higher disposable incomes and greater coverage by organised retail pan-India are some of the key drivers that Walmart can capitalise on.

How does Flipkart benefit?

Foray into grocery

Flipkart’s plans to make inroads in the food retail space could see the light of the day as it can integrate Walmart’s warehousing infrastructure and efficient staple sourcing expertise with its operations.

Strong shareholding

Though Walmart, by virtue of its capital infusion, will hold the majority stake in Flipkart, the latter will continue to be backed by renowned shareholders such as Tencent, Tiger Global and Microsoft.


Mounting losses and negative cash flows have continued to plague Flipkart’s financials for quite some time owing to its steep discounting model. Walmart’s arrival and probable industry consolidation may help in addressing these issues.

Walmart vs Amazon – how will the battle shape up in India?

India’s retail landscape will change with Walmart’s entry into the Indian e-commerce space. The Amazon vs Walmart battle is expected to intensify and will now extend beyond their home turf to India.

The battle brewing between the two giants in the United States was to determine which one offered the preferred platform, online or offline. Amazon clearly emerged the winner, with its revenue growing at a compounded annual growth rate of 28 percent. In contrast, Walmart managed a CAGR of just 3 percent over the past decade.

Amazon’s market capitalization skyrocketed as a result, while Walmart’s just about managed to crawl. The world’s largest brick-and-mortar retailer saw a substantial number of consumers making the shift to online as their preferred platform for shopping.

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Walmart’s market cap is around half its revenue, while Amazon’s is roughly four times its revenue. This is an important metric as it underscores the popularity of online retailers, and the natural advantage they enjoy over offline ones in terms of immediate mass reach.

But the battle between the two giants in India is unlikely to be a similar one, primarily for two reasons. Firstly, India is a unique market. Even after e-commerce players have offered heavy discounts season after season and burned huge amounts of cash, the country has only 50-70 million active online customers.

Secondly, in the food and grocery segment, which accounts for 67 percent of all retail sales, offline retailers like D-mart have created a moat for themselves. So selling food and grocery online to Indian consumers would probably be one of the most difficult things to do an online retailer.

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The financial side: Expect more investments

By paying $16 billion, Walmart is valuing Flipkart at 4.5 times its sales. The valuation doesn’t look too stretched in comparison to some of the most successful listed players in the space.

Offline retailer Future Group’s valuation looks relatively more attractive. In fact, immediately after the Walmart-Flipkart deal was announced, Future Group announced that it intended to sell 10 percent stake to a global retailer.

Having ceded ground to Amazon in the United States, the retailing behemoth will look to reverse its fortunes in India. In a pursuit to make further inroads in the Indian retail space and to not finish a distant second to Amazon, we expect Walmart to consistently infuse funds and even consider picking up stake in offline retail players to keep competition at bay.

While Flipkart’s revenue is around a percent of Walmart’s, the American retail giant will be paying a sum equivalent to nearly 7 percent of its own market cap for the acquisition. In light of this, Walmart will have to manage the expectations of its own shareholders better in the short term. Although the investment in Flipkart has to be viewed from a long-term perspective, and in context of the huge market that is India, Walmart’s shareholders will be watching its moves very closely.

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Potential consolidation in the retail space

We see a larger trend of strategic foreign players dominating the Indian retail space, as further consolidation in the domestic retail space now seems a real possibility. With the competition between Amazon and Walmart intensifying, some of the unlisted e-commerce incumbents like Grofers, BigBasket, and Shopclues may get a good opportunity to exit, as online retail will ultimately get reduced to two or three large players.

Not to mention, Alibaba, another retail giant, may jump into the fray to gain access to a fast-growing market.

Also, some of the offline retailers like D-mart, and Future Group, who have held their home turf really well so far, stand to gain from the potential increase in online-offline partnerships.

Overall, the Walmart-Flipkart deal will drive efficiencies and investments in the sector, and will ultimately be positive for the Indian consumer.

For more research articles, visit our Moneycontrol Research page
First Published on May 11, 2018 02:16 pm
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