Walmart Buys Flipkart: Still exists Lots of Ifs and Buts

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Now its official Walmart buys Flipkart. Walmart wrapped up Flipkart for $16 billion, a valuation of over $20 billion, which makes it the world’s biggest e-commerce deal. In the process, Walmart will hold around 77 percent stake of the Bengaluru-based company.

This deal will put the valuation of Flipkart at over $20 billion (or Rs 1, 34, 800 crores, at Rs 67.4 to a dollar).

Industry experts are surprised that Walmart is buying the loss-making company.

Media reports suggest that in 2016-2017, Flipkart’s loss was Rs 8,771 crore. That was up by 68 percent in comparison to 2015-2016. On the other hand, the revenues went up by 29 percent to Rs 19,854 crore.

The above data is astonishing because losses rise at a faster rate than revenues.

Of course, Walmart understands this. But it went with the deal because it wants to gain access to India’s huge retail market, which it has been failed many times.

The stock price of Walmart fell by 3.1 percent to $83.06 on May 9, 2018, after the confirmation of the deal. This goes on to say that investors of the company are skeptical of the deal because most mergers or acquisitions failed to bring the desired result.

There are many dimensions to this deal which are yet to become out on open. Sachin Bansal, one of the owners of the Flipkart is now leaving the now leaving the company by selling his shares to Walmart.

The real issue lies with Walmart which wants only one of the founders of the board of the new Flipkart. On the other hand, if media reports are to be believed, the other founder Sachin Bansal is likely to earn a billion dollars by selling his 5.5 percent stake.

Having a business model where losses are rising faster than revenues, Bansals will gain a lot of money from this deal even after paying capital gains tax.

What’s most surprising that once in 2016, Bansals told that they will adopt China approach of needing your capital, not your companies.  At that time, they were of the view that they would take more of an India-centric approach rather than becoming an ideal country based on standards set by the rest. The thing is that Flipkart was hardly an Indian company, with a bulk of its shares being owned by foreign investors who funded the losses of the company over the years.

Whatever happened with this deal is that Flipkart is going on the same path what its predecessors were doing. The most important thing remains to be seen whether Walmart is able to make a profit from Flipkart or not.

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