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5 things to know about the Walmart-Flipkart deal
The middle of May often means one thing for shoppers all across the country: The Flipkart Big Shopping Days Sale. While you are shopping for your favourite apparels and gadgets at discount prices, it might be worth noting that another mega-sale occurred at the highest level. The US retail giant, Walmart bought Flipkart for $21 billion!
This may come as a surprise to those who know that Flipkart registered a loss of Rs 8,771 crore for FY2016-17. While the company has been earning revenues at a fast pace, it is yet to see profits. Keeping this in mind, many can be puzzled why a company like Walmart wants to acquire the loss-making Flipkart for such a large sum of money.
Here are five things you need to know about this deal.
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The deal:
Walmart is the world’s largest retail company and Flipkart is among India’s biggest e-commerce companies. This is a very interesting combination, especially since Flipkart is not a publicly-traded company. However, Walmart’s recent filing with regulators indicates that Flipkart could go public with an IPO in less than four years.
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Explosive growth:
Despite its losses, Flipkart’s revenues have witnessed an ‘explosive’ growth over the past few years. For the year ended March 2018, the company reported net revenues of Rs 30,000 crore. This is a significant rise from Rs 20,000 crore reported only a year back. The growth trajectory is similar to American company Amazon which took 10 years to see profits.
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Walmart’s forays into India:
For a very long time, Walmart has been trying to enter the Indian market space. However, global retail giants have many restrictions due to the existing laws in the country. For instance, Walmart can only set up wholesale retail shops in the country. Through these shops, it can sell its products to kirana stores and shopkeepers but not to individual customers directly. The Flipkart purchase allows Walmart to expand its presence in India through the e-commerce network.
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Wholesale networks + e-Shopping:
Walmart is known for its foothold in the retail space but when it comes to online shopping, the company’s presence isn’t very strong. Through Flipkart, Walmart can strengthen its online presence and present strong competition to Amazon in the Indian market. And with more people using their smartphones for making purchases, Walmart is betting on large growth in the future.
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Future prospects:
The company would invest over $2.5 billion in Flipkart, as per a report released by Walmart. This sets up a clash of the two retail giants: Amazon and Walmart. In fact, Walmart expects Flipkart to continue making losses right until March 2020. As a result, more money would need to be pumped in for the business to keep running.
As for individual investors, a chance to participate in the growth story would occur only when Flipkart goes public through an IPO . The retail market remains attractive but as an investor, you may want to remain cautious before making a move.
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200 billion
Currently, the e-commerce market in India is worth around $30 billion. However, within the next decade, it is expected to grow to as much as $200 billion, according to a report by Bloomberg Quint. This immense future potential in the Indian market is one of the major reasons why Walmart was ready to acquire Indian online company Flipkart for nearly $21 billion.
