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Why Walmart Is Investing $16 Billion in This Indian E-Commerce Giant

10 May, 2018, 06:51 | Author: Tara Roberts
  • 039;Flipkart founders may be liable for 20% capital gains tax after stake sale to Walmart'

It's not that Walmart is averse to online retailing and in fact has been investing heavily in e-commerce, buying portals like Jet.com and also online clothing retailers Bonobos and Modcloth much like Flipkart acquired Jabong and Myntra.

Walmart will soon reach shoppers in India's massive consumer market directly, as it takes control of the online retailer Flipkart that's known for its ubiquitous delivery drivers on motorcycles with oversized backpacks.

Walmart and Tencent are connected via more than just Flipkart.

The world's largest retailer confirmed after days of media reports that it will acquire 77% of Flipkart, with that company's co-founder Binny Bansal and other investors keeping the rest. The tie-up values the Indian e-commerce giant at about $20.8 billion and marks a blow against rival Amazon.com Inc.as the battle for e-commerce supremacy goes global.

Besides, the Walmart CEO is said to have assured Flipkart employees that it would work to make a big difference in food safety, supporting kirana stores and creating jobs in India.

He said: "We are confident this group will provide Flipkart with enhanced strategic and competitive advantage".

Walmart's investment includes $2 billion of new equity funding, first reported by BusinessLine on April 25.

'Walmart is circumventing rules for a back-door entry into the Indian market, ' alleged the Swadeshi Jagran Manch, who is also the economic wing of RSS.

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The Confederation of All India Traders, which represents thousands of small businesses, has written to the government urging it to block the deal.

The global stakes for both Amazon and Walmart are high. Founded in 2007, Flipkart brings to the table a powerful technology foundation, including artificial intelligence, and leadership in such market segments as electronics, large appliances, mobile, and fashion and apparel. Walmart said Flipkart is uniquely positioned to leverage its integrated ecosystem like its supply chain arm through eKart, even as it combines forces with Walmart's network in the offline world. "We believe there is huge growth potential for e-commerce in India and significant opportunity for multiple players to succeed in India's diverse, domestic market", the statement said.

Walmart is trying to mitigate these concerns with plans to partner with local kirana owners to modernize their retail practices and transition to digital payments.

"For Walmart, this is the only way left to enter the Indian market and they are paying a premium for the access", said Satish Meena, a Forrester analyst based in New Delhi.

In an investor call held recently, Amazon CFO Brian Olsavsky told investors that the company would continue to invest in its India business as it sees great progress with both sellers and customers here, despite incurring a loss of $622 million from global operations in the first quarter of 2018.

"While the immediate focus will be on serving customers and growing the business, Walmart supports Flipkart's ambition to transition into a publicly-listed, majority-owned subsidiary in the future", Walmart's statement added.

Walmart said it plans to fund the India deal through a combination of newly-issued debt and cash on hand.

The transaction is expected to close later this year.

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