As the world's biggest retail company Walmart Inc sealed a deal worth $16 billion for a majority of stake of 77 per cent in India's e-commerce giant Flipkart on Wednesday, several questions are being asked about the basis on which the somewhat seemingly 'aggressive bid' was made. However, Indian retail honcho and Future Group CEO Kishore Biyani has other things on his mind as the e-tail business equation changes in India, which is one of the growing e-commerce markets of the world.
"I think it is a change of hands from a financial investor to a strategic investor," says Biyani. The business will continue as usual until we hear of the new strategy. So, is that what is needed and what is likely to emerge? "Let us see... because grocery will be the play which will happen, and let us see how they handle grocery."
On the nature of the deal and what the new combination signifies, he says: "It is a combination of online and offline, which is happening all over the world and we are seeing this combination happen in India also."
In terms of the e-commerce space, he says, at the moment, the e-commerce market in India is still too small. If you look at the non-CDIT (consumer durables and IT or electronics and mobile phones), it is hardly Rs 35,000 to Rs 40,000 crore. "So, in that sense, it's a very small business.
This brings us to the big question that most experts seem to have on the valuation of the deal at about $20 billion. To put it in context, an industry veteran said: "The entire Mahindra Group market cap is in that region." The other way to look at it is by looking at Amazon's investments in India, which is around $2 billion to $3 billion so far; the e-com giant is among the top players. Others feel Walmart saw as an opportunity, even though it is certainly an 'aggressive' one.
"It is a very aggressive valuation and it only shows that Walmart does not want to miss out on the Indian retail opportunity as they have struggled in some other countries of the world, including China," says Arvind Singhal, chairman and managing director, Technopak, a leading management consulting firm with sharp focus on retail and e-tailing among others. The deal, he says, "is a big boost for the Indian start up ecosystem."
Reason? "While there have been few exits so far, no other exit of this magnitude has happened." In other words, among upcoming start-up entrepreneurs as well as investors, who can these days talk of billion dollar exits? Earlier in the day, the $486 billion worth Walmart announced this was a "significant opportunity to partner with the local leader (Flipkart) in a large, fast-growing market.
The company, in a statement, also said that "Flipkart's strong leadership team will be supported by Walmart, Tencent, Tiger Global, and Microsoft." It also said the deal "underscores long-term commitment to India, where company looks to serve customers, support job creation, small businesses, farmers and women entrepreneurs." Walmart supports Flipkart's ambition to transition into a publicly-listed, majority-owned subsidiary in the future, said the statement.
A note put out by the company also said "subject to regulatory approval in India, Walmart will pay approximately $16 billion for an initial stake of approximately 77 per cent in Flipkart, formally Flipkart Private Limited."