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Does Walmart See an IPO in Flipkart’s Future?

Walmart may be preparing to sell approximately 25 percent of its stake in Flipkart amid plans for the Indian e-commerce giant to file an initial public offering (IPO) in the U.S., according to a report from Indian business publication Mint. Walmart has hired Goldman Sachs to assist with the listing, the report said.

“An IPO has always been part of Flipkart’s long-term strategy,” a Flipkart spokesperson told Sourcing Journal in a statement. “However, the focus at present is on growth and democratizing commerce in India through technology, while continuing to unlock customer value.  The biggest areas of investment for Flipkart will continue to be in technology, operations and new capabilities.”

Walmart has not yet responded to request for comment.

If successful, the move would mark the largest initial offering by a company based in India on overseas exchanges. Any share sale would likely take place in the second half of 2021, Mint reported. The report indicated that an IPO would fetch as much as $10 billion, more than doubling Flipkart’s total valuation to $40 billion since Walmart’s initial investment in the e-commerce company.

Walmart is expected to use the stake sale proceeds to further expand Flipkart’s business.

While Indian companies can’t go public in the U.S. or any other foreign stock exchange under normal circumstances, Flipkart’s Indian entities are actually owned by Flipkart Pvt. Ltd, which was set up in October 2011 in Singapore, enabling the company to sidestep any restrictions.

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A previous Reuters report in September said that Flipkart was likely to choose between either Singapore or the U.S. for the IPO.

Walmart first acquired a 77 percent stake in Flipkart in May 2018 for $16 billion, with the investment designed to give Walmart a significant stronghold in the Indian e-commerce market, which is estimated to reach more than 300 million shoppers by 2025, according to estimates by Bain & Company.

Earlier this year, the Arkansas-based retailer raised its stake to around 82 percent after a $1.2 billion financing round that pushed the company’s estimated valuation to $24.9 billion. China’s Tencent, U.S. hedge fund Tiger Global, and Microsoft all are minority investors in the company.

For the 2020 fiscal year, Flipkart has seen significant growth as competition grows from both Amazon and India-based energy and telecom conglomerate Reliance, with the company surpassing 1.5 billion visits per month and reporting 45 percent growth in monthly active customers and 30 percent growth in transactions per customer.

In July, Flipkart launched a wholesale business, consolidating Walmart India within its operations to tap into the country’s B2B retail operations. As part of the deal, Walmart sold Flipkart its 28 warehouse club-style Best Price Modern Wholesale stores in India, which serve independent retailers and other small businesses and are only open to members. In total, Flipkart added nearly 5,200 employees to its e-commerce and wholesale operations with the consolidation.

There’s still plenty of growth opportunity for the Indian market, which is very much in the early stages of e-commerce. According to eMarketer, India’s e-commerce sector is expected to be worth nearly $72 billion dollars over the next two years. The India Brand Equity Foundation (IBEF) is even more optimistic on the growth of the channel, forecasting that e-commerce will surge to $200 billion annually by 2026.

The potential IPO comes as the Indian retail titan is partially spinning off the PhonePe digital wallet into its own entity, selling a stake in the company to Walmart and other unnamed existing investors. Under the divestiture, the payments processor raised $700 million in primary capital, which is intended to give the company greater autonomy over its operations, such as the power to form its own board of directors, and create equity incentive plans for its employees.

With the spinoff, PhonePe can access dedicated capital to fund its long-term ambitions over the next three to four years, according to a joint press release. PhonePe’s post-divestiture valuation is $5.5 billion.

Flipkart will remain PhonePe’s majority shareholder with a nearly 80 percent stake in the company, and the two businesses will retain their close collaboration.

The fintech firm has more than 100 million monthly active users and 250 million overall registered users, which helped it clock nearly 925 million digital payment transactions in October.

In a report to clients, analysts at Bernstein identified PhonePe as one of the startups in India that could file for an IPO within three years. According to the report, PhonePe’s reliance on Flipkart has shrunk, from 50 percent of monthly transactions to less than 1 percent today. The platform recently expanded beyond digital payments into added services like travel booking, utility bill payments and recently launched financial services such as mutual funds and insurance financial products.