Who Will Buy Flipkart? It’s A Coin Flip…

Fast on the heels of Walmart’s surprise sale of Asda to Sainsbury’s for nearly $10 billion comes further news on the battle for Flipkart, one of the top players in India’s fast growing e-commerce market.

For context, India is a booming retail market but one growing on a very small base. It is scheduled to be the fastest growing e-commerce market in the world, according to Forrester Research, with 29.2% forecasted growth. With the e-commerce market at $27 billion today, some projections suggest it could be a $200 billion market in a decade and an overall economy that could surpass Japan during this same time period.

With Walmart and Amazon being out maneuvered by Alibaba in China, this becomes the most fertile market in the world for future growth.

So, the question becomes…how much is someone willing to pay for a growth asset in an important country?  The answer, a lot, apparently. The numbers are staggering when considering the nascent state of the market and the health of Flipkart.

While there is no formal bid in place, estimates are that Walmart is reportedly willing to pay $10-12 billion (there goes the Asda windfall) for approximately a 55-60% stake in the company, which would value Flipkart around $20 billion. This is for a company that recorded $3 billion in revenues in 2017 (29% year on year growth) and lost $1.3 billion. This seems like a steep price to pay but may also represent a rare opportunity to acquire a market leader in the space.

Physical growth in India, for a variety of reasons, is tough to come by. Walmart has around 20 Best Price warehouse stores, which are essentially cash and carry outlets to serve mom and pops. I am actually quite impressed by these stores but they are also a reflection of the fact that pure brick and mortar is unlikely the way to grow rapidly.  But, a combination of Walmart/Flipkart could see the introduction of omnichannel stores (See Alibaba’s Hema), which would allow for smaller physical stores with rapid fulfillment capabilities.

By most reports, Amazon has become the number one e-commerce player in India with Flipkart number two. Other large players like Snapdeal have seen its business implode.  While it is clear that Flipkart is a prized asset, the price to pay may be very steep. Making things even more interesting, Amazon is suspected to be making a last ditch effort to acquire the company, which it would combine with its platform. While intriguing, this deal would also undergo significant antitrust scrutiny.

For Walmart, this is a dramatic example of a shift away from brick and mortar (Asda) into a huge potential on-line growth market like India. The global chessboard is about to get much more complicated and much more expensive.

Neil Stern for Forbes