Walmart and Flipkart: The Biggest Deal in Indian E-com Startup

Market

SUBMITTED TO
Prof. Aarti Singh

SUBMITTED BY
GROUP 7
Janhvi Jain -153086
Harshal Devikar - 301135
Anshul Natani -301153
Ayush Gaba -301159
Bhavesh Kapoor -301164
Introduction
The Flipkart-Walmart deal will benefit Flipkart to give leverage to Walmart single-channel
knowledge and expertise supply chains in the market. In the retail market, Walmart has been able
to establish a positive reputation but not in the e-commerce market and by signing this deal it
will strengthen its market reputation in the e-commerce sector too. Both Walmart & Flipkart will
be having different operating structures and separate brands in the market.

A brief about Flipkart

The e-commerce website Flipkart was introduced in October 2007. Initially, it just sold books,
but it gradually expanded its product line in 2010 to include movies, music, and mobile devices.
In 2012, it added fashion and lifestyle products. Flipkart was founded by Helion Venture
Partners and Junglee in 2008. From 2009 to 2012, when Flipkart raised $190 million, well-
known venture capital firms including Tiger Global and Accel Partners provided the funding.
The same year, Flipkart switched from a direct-to-consumer model to a marketplace one for its
operations. Then, in the same year, 2012, Flipkart raised $150 million from Naspers, a big South
African internet company.

By 2013, Flipkart was regarded as a successful business. By the middle of the year, Flipkart had
raised an additional $200 million from its existing investors and $160 million from investors
including Vulcan Capital, Morgan Stanley, and others. At year's end 2013, Flipkart had a $1.6
billion market value. Flipkart acquired Myntra in 2014. After receiving significant funding from
Greenoaks, GIC Singapore, and other sources by the end of 2014, Flipkart's valuation was $11
billion. By the end of 2015, it had increased to $15.5 billion after receiving $700 million from its
current investors.However, from 2016 onwards the business of Flipkart has not been very
profitable as the investor Morgan Stanley had started cutting to the value of the share of the
company, due to which by the end of 2016, the valuation of the company fell to $5.6 billion.

A brief about Walmart

The American global retailer Walmart has retail locations in India as well. Walmart has opened a
number of hypermarkets, grocers, and budget stores across the nation. The largest e-commerce
company, Walmart, invested $16 billion in Flipkart to purchase a 77% interest. The world's
largest retailer, Walmart Inc., is wholly owned by Wal-Mart India Private Limited, a company
renowned for its proficiency and effectiveness in supply chain management, logistics, and
sourcing.
In 2007, Walmart entered the Indian market through a partnership with Bharti Enterprises. On
May 29, 2009, it established its first location in Amritsar, Punjab, India. In 2013, Walmart Stores
transformed Walmart India into a fully-owned subsidiary. Walmart India now owns and operates
21 Cash & Carry stores in 9 states across the nation under the Best Price Modern Wholesale
Stores ("Best Price"). They have more than a million members, the bulk of whom are small
resellers, and their business in India is built on membership (mom & pop stores).The other
business segments that are members of Walmart are restaurants, hotels, offices, and institutions,
which is supported by Walmart with high-quality products at competitive, consistent and
transparent prices for the prosperity of the business.

STRATEGIC DUE DILIGENCE

On May 9, 2018 Walmart announced that it will take over 77% stake in Flipkart for $16 billion
in order to completely transform the retail sector in India by digitisation.

Major reason is attributed to the growth potential of India’s retail business which will be
estimated to be over $200 billion by 2027.

With the existing abysmal rate of 4% of retail e-commerce in India, which Walmart believes will
change as India has the highest number of smartphone users and the number is increasing
exponentially. The former brings in its expertise in online grocery shopping and food chain
supply and aims to source from India for its global operations as well.

Credit offering is an attractive element and a major push for Walmart for this deal as India has
been seeing a major drift towards cashless transactions and in extension a mindset shift towards
credit in MSMEs. This has increased even more especially after the COVID-19 pandemic has
hampered traditional transactions. Walmart aims to provide credit to its B2B sellers to further
motivate them.

Reasons for the merger:

1. Walmart & Amazon two retail giants:
In 2017, Walmart posted a net income of over $20 billion, while Amazon’s net

income was $3 billion even though the market capitalization of Amazon is a lot higher

than Walmart i.e. by 400 billion. This is the primary reason for the stock markets in the

US market to put a greater value in Amazon than Walmart is because the former is seen

as the company with a more robust future and growth potential.

2. Indian Market:
India is the largest populated country after China, and the demographics of this

population is having a maximum number of people between the age group of 18-45

years. Considering the population and Indian Retail market which is set to grow by

1,200% to $200 billion (30% CAGR) by 2026 from $15 billion in 2016. Average wages

are rising by 2% annually and internet penetration is also growing as data costs are

becoming more competitive. Also, Flipkart has the largest market share in e-commerce,
 so with this acquisition Walmart can achieve the next leg of growth in India with Flipkart’s

175 million registered user base.

3. No Brand Image:
Walmart does not hold a strong brand image, notably in India. People in India are

only familiar with Reliance Market, Big Bazaar, and D-Mart, among many more retailers.

Starting at '0' takes a long time for any firm to flourish. Flipkart is extremely popular in

India, and through purchasing it, customers learn about Walmart and its global image.

4. Flipkart Struggle:
Initially,Flipkart has made some good progress in market capture and generated

far more sales than expected but since Amazon's entry into India, Flipkart has struggled

to produce profits. Amazon began selling things by offering a greater discount than

Flipkart.

5. Payment Partner:
PhonePay is a Flipkart subsidiary. It is developing a validated unified payments

interface for the Indian government (UPI). Using this online payment mechanism,

Walmart may expand its online operations.

After the due diligence process, Walmart has floated a proposal for a 51% stake in Flipkart. This

came amidst the talks of Amazon also proposing for a takeover of the latter.
Mergers and Acquisitions Analysis

Positive impact of acquisition on Indian Economy

● Employment: Walmart is popular for its practice of innovation and service. It is being
expected with revamping of new business models, because of that, the Indian e-
commerce market will witness extensive growth with improved productivity. The
employment opportunities will increase with the rise in productivity for both skilled and
unskilled labour that will result in economic growth and capitalism.
● Collateral Benefits: Following GST and demonetization, the e-commerce market
experienced a significant decline. The Indian e-commerce market will be revitalised by
this deal and brand-new cash will be directed. Given that India is the largest enormous
pour of wealth in the globe, more global businesses and venture capitalists will be drawn
to the country.
● Research and Development: The crucial component for having a wider market
penetration throughout the nation is efficiency, which comes through research and
development. Walmart is well renowned for its culture of innovation and customer care,
and this will enable it expand and scale up its operations in India to increase revenue and
foster technology synergies and benefits for local businesses. Due to the sophisticated
character of the items, there would be an increase in the demand for Indian goods abroad.
● Efficient Supply Chain: The expansion of e-commerce business requires a valuable
supply chain and logistics that needs infrastructural development. This will give a fillip to
the Indian infrastructure and agriculture and also benefit the farmers, as well as, they
would be able to provide more demand as Walmart has extensive experience in logistics,
retailing, inventory and supply chain management. This can particularly help the
perishable goods business which is Walmart’s forte.
● Economic Growth:-Walmart plans to boost its operations across the nation, which will
spur economic expansion and create more job opportunities. It will stimulate economic
growth and capitalism with upbeat business attitudes. Additionally, this transaction will
be taxed, which will result in an increase in domestic revenue gains.
Negative impact of the acquisition on the Indian Economy

● Big data mining: Even though the Walmart-Flipkart partnership appears to be quite
advantageous for the Indian economy, trade unions, retailer associations, and political
organisations have expressed concerns and opposition to the deal. They are concerned
that India now lacks a national e-commerce policy or a body to regulate e-commerce.
There is a lot of information and data about Indian customers that can be controlled by
the US business, including their personal information, search history, purchasing history,
etc. Personal interests, such as those involved in the recent Facebook-Cambridge
Analytica affair, may also take advantage of this. In order to prevent any issue of Indian
consumer data breach, it is necessary to have a system of checks and balances.
● The ruining of small players: Small Players (Mom and Pop stores) will be ruined by
this as due to such high competitions, the market spaces shrink and ultimately forcing the
small firms to exit from the market. To survive, the firms try to excessively cut the price
rate at the cost of profitability and viability which drives to inefficiency.
● Brick and Mortar Stores may shut down: Walmart is eliminating the little companies
who operate on Flipkart and offer incredibly low prices. Since brick and mortar stores
already worry about being forced to close due to intense competition, it is likely that
Walmart would replace homegrown MSMEs with its own labels and hyper-competitive
rates.

What is in it for Walmart?

Flipkart is the biggest online retailer in India, and Walmart's already vast customer base will
grow by 175 million registered users as a result of the acquisition of Flipkart.

The supply chain division of Flipkart, "e-kart," makes an average of 50,000 deliveries every day
to more than 800 Indian cities. This enables Walmart to reach the majority of the urbanising
Indian demographic's population centres. Additionally, e-operations Kart's would become more
efficient thanks to Walmart's proven supply chain management practises.

Indian e-commerce space is turning super lucrative. As mentioned above, it is expected to grow
with at 30% CAGR. Flipkart Amazon, Paytm and Snapdeal are the top players in the Industry
currently. And with the Companies like Jio have announced their plans to enter into this industry,
the Walmart’s acquisition of Flipkart gives it the early entrant advantage, helping it in higher
penetration of the market and better awareness among the consumers for the brand. The Flipkart
investment transforms Walmart’s position in a country with over 1.3 billion people, strong GDP
growth, a growing middle class and significant runway for a smartphone, internet and e-
commerce penetration.

Large amounts of consumer data from Indians will be given to the US retail behemoth. More
effectively than domestic players, real-time data analysis can assist in identifying consumers &
their demands.Walmart is hoping to work with about 60 lakh Kirana Stores in order to grow its
supply chain division. Small stores may have a stronger market presence as a result.

What is in it for Flipkart?

The acquisition by Walmart boosted the valuation of Flipkart to approximately $21 Billion (from
approximately $12 Billion before the deal), making it the most valued startup in Indian eco-
space, beating Ola, Snapdeal, Oyo and many others.

Walmart has also stated that it is planning to infuse further investments to develop the market
infrastructure of Flipkart.

Flipkart would benefit from improvised supply chain mechanisms, and purchasing power of
Walmart, and Walmart would benefit from the technology prowess of Flipkart in Software,
Artificial Intelligence, etc., which it can copy and exploit at a global scale.

Walmart’s acquisition has generated one of the largest pools of wealth for employees in India’s
corporate history. The deal has lifted the total worth of Flipkart’s employee stock ownership
plans, including unvested shares, to $2 billion (about Rs 13,455 crore). Esops held by about 100
current and former employees of Flipkart are now estimated to be worth more than $1 million.
Walmart would offer a 100 percent buyback of vested shares by Flipkart employees.

Tiger Global
New York-based investment firm Tiger Global Management, Flipkart’s biggest backer since
2010, has raked in $3.3 billion from its total investment of $1 billion in India’s largest online
retailer that Walmart has bought. This is the largest investment returns in India’s private equity
and venture capital history, after Warburg Pincus’ exit from Bharti Airtel and KKR’s from
Aricent, answering long-held doubts on whether investments in Indian startups would yield Tiger
Global’s remaining 5% stake in Flipkart, after selling about 17% in the company, is worth
another $1 billion, based on the online retailer’s estimated worth of about $20 billion following
the Walmart deal.

Softbank

Japan’s SoftBank is expecting returns of about $4 billion as part of the Walmart-Flipkart

transaction, chief executive Masayoshi Son said on Wednesday, fetching about 1.5 times its
investment of $2.5 billion in Flipkart just nine months ago. SoftBank, which had become the
largest investor in Flipkart, is selling its entire stake of more than 20% in the online retailer

Impact of Covid-19 on the Acquisition

● Walmart, the largest e-commerce giant acquired a controlling stake of 77% in Flipkart
( India’s largest e-commerce company by market share) by investing $16 Billion.
● With the deal India will now have Walmart, Amazon and Paytm Mall as the key players
to compete in the Indian e-commerce market
● The deal will help Flipkart leverage Walmart’s omni-channel retail expertise and general
supply chain knowledge. Walmart aims to extend their B2B sales across India through
this acquisition.
● Walmart has a strong global physical presence in retail space but lacks in e-commerce.
This deal can spur their online presence in Indian markets.
● Both Flipkart and Walmart shall maintain separate brands and operating structures.

Post Covid Scenario of the Merger-

Flipkart, India's largest ecommerce company, has overcome the Covid-19 blues, with its gross
merchandise value (GMV) exceeding pre-Covid levels, according to financial results for the
second quarter of fiscal year 2020 released by parent company Walmart.Walmart's fiscal year
runs from February to January, therefore its second quarter will be from May to July. "Flipkart
reopened in mid-May and they saw GMV increasing pre-Covid levels," as said by Doug
McMillon, president and CEO of Walmart.

Walmart also stated that the total net value was affected by the effects of the company's Flipkart
operation in India being forced to close for a portion of the quarter, as well as similar moves in
markets in Africa and Central America.Walmart remarked that the statewide lockdown's
restrictions on non-essential goods deliveries in some zones till May 18 had a "negative" impact
on Flipkart's e-commerce operations when it announced its first quarter results in May. The
impact also hindered Walmart's expansion. The business has continued to make the same claim
for the current quarter. However, the quarter was also significant since Flipkart Group purchased
Walmart India's operations in order to introduce its own service, "Flipkart Wholesale," in an
effort to increase its market share in the food and retail sectors.
Conclusion

Both Flipkart and Walmart were benefited from the acquisition of Walmart India by Flipkart.
Walmart was not known by many in India and current Indian laws restrict Walmart from
operating super-centers and conducting B2C marketing. By letting Flipkart acquire it, Walmart
announced it will be launching Flipkart Wholesale that will serve medium-sized businesses and
neighborhood stores in India and by doing so it will get access to the e-commerce giant’s exist
vast supply chain infrastructure, its customers, increase its brand awareness. Focusing on
customer benefit this acquisition will offer an exhaustive range of products and merchandise, as
well as easy credit options and opportunities for additional income generation to neighborhood
stores and small businesses and doing so will also help these businesses with insights so they can
plan their inventory more effectively