India’s Online Retailer FlipKart Could Get Up to $1 Billion in Investment from Wal-Mart

As Wal-Mart Stores Inc. and India’s Flipkart Online Services Pvt battle Amazon.com Inc. in e-commerce in one of the fastest growing retail markets, the US company is believed to be in advanced discussions to invest as much as $1 billion into the Indian company, reported the media quoting sources familiar with the matter.

The source reportedly said that under the proposed agreement, a minority stake in Flipkart would be taken up by Wal-Mart, the world’s largest retailer. Negotiations are still underway and final terms of the deal have not been worked out.

According to research firm CB Insights, Flipkart’s most recent valuation was about $16 billion.

Under assault as Amazon steps up investments in India, Flipkart’s lead, the largest online retailer in India,  has been under assault. Amazon plans to spend another $3 billion in India to gain customers in the fast-growing market, Chief Executive Officer Jeff Bezos said in June. More expertise in battling the e-commerce pioneer and additional capital to fight back would be available to Flipkart with a deal with Wal-Mart.

“If the deal goes through, the competitive intensity between Flipkart and Amazon will shoot up,” said Gautam Chhaochharia, the Mumbai-based head of India research at UBS AG.

Wal-Mart too could potentially benefit from the deal. Wal-Mart would have the opportunity to challenge Amazon on more equal footing than the U.S. and would gain exposure to India’s expanding e-commerce market, apart from any eventual financial return on its investment.

She could not immediately provide comment, said a spokeswoman for Wal-Mart.

“It is our policy not to comment on rumors or speculations,” said a Flipkart spokesman.

China is market for U.S. retailers where a foreign players have made little progress against Alibaba Group Holding Ltd. and India is the next big potential retail prize after the U.S. and China. According to estimates from Kotak Institutional Equities, India’s online market will reach $28 billion by 2020, expanding at an average of 45 percent annually in the next four years.

Bharti Group, which runs the country’s largest telecommunications operator Bharti Airtel, had earlier established a retail joint venture in India with Bentonville, Arkansas-based Wal-Mart. But Wal-Mart eventually sold its stake to its partner as the business failed to take off. Wal-Mart would be able to support its new ally with money and its decades of retail experience if a Flipkart deal materializes.

“With its main competitor Amazon getting very aggressive, Flipkart needs a solid partner to bolster its operations with not just capital but also branding, logistics, sourcing and other retail experience, they won’t be able to pull it off with small partners,” said Devangshu Dutta, chief executive officer of the Gurgaon-based retail consultancy Third Eyesight.

With major investments in infrastructure and partnership, Amazon has been gaining group. Including the latest pledge from Bezos, the company has committed a total of $5 billion to the India market.

“They know how to work against competitor Wal-Mart, they will know what to expect,” Chhaochharia said.

To battle Amazon online, Wal-Mart has been renewing its efforts. In a deal worth about $3.3 billion, Wal-Mart agreed to buy Jet.com Inc. in August.

Moves from other competitors in the India market could be prompted by a Bottom of Form

Wal-Mart-Flipkart tie-up. Alibaba has long considered the country a prime expansion opportunity as it seeks to generate half its revenue from outside China and has been funding Snapdeal.com, the third-largest competitor in Indian e-commerce. Alibaba may have to consider doing the same, either with Snapdeal or on its own, if Amazon and Wal-Mart both stepping up their investments.

(Adapted from Bloomberg)

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