One of the largest and much-anticipated deal has been finally sealed. Walmart has acquired 77% stake in Flipkart for $16 bn, including $2 bn of primary infusion. The deal values Flipkart at ~$20.8 bn—4.5x FY18 EV/sales. Though this may look expensive on absolute basis, the valuation is at a discount to that of Avenue Supermarts and at a significant premium to that of Future Lifestyle Fashions, Future Retail & Shoppers Stop—our preferred picks in the retail sector.
So, how is the Walmart-Flipkart deal envisaged to change the domestic retail industry’s dynamics? (i) online & offline partnerships are likely to get a fillip; (ii) online discounting may not necessarily increase; and (iii) FMCG companies are likely to benefit as Walmart’s expertise lies in hypermarkets/grocery retailing. Also, subject to regulations, there is likelihood of Walmart’s cash & carry business being integrated with Flipkart at some point in time—an added kicker.
Flipkart has been a dominant player in online fashion post its acquisition of Myntra and Jabong. The company also has a private label in the apparel space. With Walmart’s expertise in hypermarkets/grocery retailing, Flipkart will be able to make sizeable inroads in the online grocery retailing—this could be negative for Bigbasket.
Walmart is already present in the B2B cash & carry business via 21 Best Price stores. The key for the combined entity will be their ability to scale up from these levels considering that current regulations permit only 49% FDI in grocery physical retailing. Walmart is strong in physical retailing, but weak in online commerce (3% of global sales). Its India business has been sub-scale.
Flipkart will offer scale to Walmart’s India operations. The former already has 100 mn registered users and posts more than 8 mn monthly shipments. There will also be synergy in sellers on the two platforms. To scale up the business and achieve next leg of growth, Walmart and Flipkart plan to support 5-6 mn kirana stores through modernisation of retail practices as well as digital and cashless transactions for sustainable growth.
- Financial Express