Walmart to acquire Indian e-commerce giant in largest such deal on record

An inside look at India-based e-tailer Flipkart’s new Bangalore headquarters. Walmart announced yesterday its intention to acquire a 77% stake in the company. Photo: Walmart

Globally, there exist just a few e-commerce companies that could fetch more than the estimated $16 billion Walmart yesterday announced it will be paying for a 77% stake in India’s leading homegrown player, Flipkart. Pending customary regulatory approval, the acquisition could upend efforts by giants like Alibaba and Amazon to expand their presence in the nascent Indian market which is seen as having great potential.

Or perhaps, it won’t.

With 54 million active users across Flipkart’s various platforms, and some $7.5 billion in annual gross merchandise volume (GMV), it’s clear why Walmart saw Flipkart as an attractive target to build market share in India.  Some experts familiar with the deal, however, point out that beyond GMV, Flipkart’s financials are not glowing, and Walmart could be purchasing a dud propped-up by blockbuster investments. Venture Capital firm Tiger Global put up $1 billion over a series of investments that began in 2009, and last year Japan’s SoftBank Group Corp. invested a whopping $2.5 billion in the e-tailer. While such investments have enabled Flipkart to expand its business and boost revenues, the company lost $1.3 billion during its fiscal year 2017.

Looking at the broader e-commerce market in India, the sector has become an attractive vehicle for investment for a number of reasons.  Compared to more mature e-commerce markets like China and the United States, e-commerce penetration in India is relatively small. The Economist notes that just 5-10% of Indians have purchased goods online, and the country’s overall e-commerce market size is valued at $15 billion – a mere fraction of China’s trillion-dollar e-commerce market. Walmart’s investment is thus a long-term bet that India’s e-commerce market will continue its rapid ascent, while in parallel Flipkart remains a dominant force in the market.

Given India’s population of 1.3 billion and rapidly growing middle class, most signs point to burgeoning e-commerce growth, and other e-tailers have recognized this potential. Like Amazon, Walmart seeks to avoid missing its opportunity to secure a foothold in the growing digital sales market, as both companies did in China.  Even if the market grows to $200 billion by 2026 as a 2017 Morgan Stanley report estimated, Flipkart will face steep competition from Amazon, Alibaba, and other domestic players. Amazon invested an initial $2 billion in India when it entered the market in 2014 and has since pledged to spend $3.5 billion more. Alibaba, meanwhile, acquired online grocery retailer BigBasket this year, and has earmarked funds for other investments in India.

Irrespective of which e-tailer ultimately comes out on top in India, the more important topic relates to the future role of air freight when it comes to domestic and cross-border e-commerce supply chains and fulfillment in the country. Since we do not have an answer today, we’ll save that discussion for a later date. In the meantime, Cargo Facts will continue following emerging developments in the Indian air freight and express markets.

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