Walmart may take stake in Flipkart, invest around $1 bn

As the festive buying season approaches in one of the world's fastest-growing consumer markets, Walmart Stores Inc, the world's largest retailer, is in advanced discussions to invest as much as $1 billion in Flipkart, according to Bloomberg.

The report cites people familiar with the matter to say Walmart would take a minority stake in Flipkart, though final terms of the deal have not been worked out and negotiations are still under way.

A similar report in The Economic Times, also citing people familiar with the matter, said Walmart is exploring an equity partnership with Flipkart to take on common rival Amazon in India. The companies are engaged in early talks and a meeting is scheduled this week that will include discussions on Walmart picking up a minority stake in India's largest e-commerce company.

Both Walmart and Flipkart declined to comment on what they termed as speculative reports and market rumours.

According to the ET report, Walmart is likely to discuss a "strategic deal" with Flipkart similar to the one the US retail titan forged with JD.com in China. In June, Walmart acquired a 5 per cent stake in the second-largest Chinese ecommerce marketplace for about $1.5 billion.

A deal would help bolster Flipkart as it seeks to fight a generously-funded Amazon. For its part, Walmart would get a firm foothold in India's e-commerce market.

According to research firm CB insights, Flipkart's most recent valuation was $16 billion. Last week Flipkart crossed the 100-million registered users mark, becoming the first ecommerce company in the country to hit the milestone. The Bengaluru-based company has doubled its user base over the last year and added 25 million users in the past six months alone.

One of the most valued start-ups in the country, Flipkart has Tiger Global, Accel Partners, Morgan Stanley and T Rowe among its investors. The company has raised over $3 billion in funding so far and has acquired companies like Myntra, PhonePe, and LetsBuy.

It has also invested in start-ups like Cube26, NestAway, and BlackBuck. A recent Bank of America Merrill Lynch Report pegged Flipkart as the leader with over 43 per cent market share. It forecast that by 2019, Flipkart would increase its share to 44 per cent.

On the other hand, Walmart has been present in India for almost a decade now. The company had entered into an equal joint venture with Sunil Bharti Mittal's Bharti Enterprises. However, in 2013, it bought out its partner and decided to go solo. Walmart operates 21 Best Price wholesale offline stores in nine states in India (See: Walmart ends alliance with Bharti; to go slow with wholesale business).

An alliance will allow Flipkart to leverage Walmart's famed global supply chain and increase efficiency in procurement, product assortment and further improve its technology platform. Walmart's Best Price wholesale stores that are present in Jammu, Chandigarh, Guntur, Lucknow and Agra among other locations could conceivably be used as pickup and delivery points. The company could gain a foothold into India's largest e-commerce company, a presence that would have taken Walmart years to build.

Amazon is challenging Flipkart's leadership position in India and threatening Walmart's supremacy in the US. Walmart posted about $14 billion in e-commerce sales in 2015, behind Amazon's $99 billion revenue from online sales.

Amazon and Walmart are fierce competitors in the US with the former growing faster over the past few years. In 2015, Amazon's revenue grew by 20 per cent to $107 billion ($99 billion from online sales, the rest from Amazon Web Services) while Walmart's sales declined by 0.7 per cent to $482 billion. In the second quarter of fiscal 2017, Walmart's revenues rose 0.5 per cent to $120.9 billion while Amazon reported sales of $30.40 billion, up 31.1 per cent from the year-ago quarter.

Looking to shore up its online presence, Walmart in August acquired Jet.com in the US, a startup gaining popularity among young urban shoppers, for about $3.3 billion in the largest-ever purchase of an ecommerce company (Walmart to buy online discount retail start-up Jet.com for $3.3 bn).

Walmart's expansion in India got stalled a few years ago as the US company focussed on ensuring that its businesses across the world complied with US rules that outlaw bribes paid overseas, following a scandal in Mexico. This among other things led to the breakup of a joint venture with Bharti Enterprises and Walmart's retreat to the wholesale business-to-business segment.

Under India's retail policy neither Walmart nor Amazon are allowed to sell directly to consumers. However, foreign companies can inject 100-per cent direct investment (FDI) into e-commerce marketplaces, the model that both Flipkart and Amazon operate under. The wholesale cash-and-carry channel is the only multi-brand retailing segment in which India allows fully-owned overseas ownership. Walmart's wholesale Best Price stores sell everything from fast-moving consumer goods to furniture to other retailers and institutions.

If the deal between Walmart and Flipkart materialises, the war between Amazon and Walmart would spill over into India, the fastestgrowing market for the Jeff Bezosfounded company.

Amazon is expected to clock $10 billion in gross merchandise sales in the next few years, faster than it did so in markets like Germany, Japan and the UK.