Wal-Mart is in talks to buy a minority stake in India’s largest e-commerce firm Flipkart, sources said, as the world’s biggest retailer aims to break into a fast-growing but highly competitive online retail market.
One of the sources said the US retailer was looking to invest between US$750 million and $1 billion in Flipkart, but the final value and size of the stake would depend on the outcome of talks about the Indian company’s overall valuation.
A deal would pit Wal-Mart against its US rival Amazon, which has been expanding rapidly in a market that Bank of America Merrill Lynch has forecast will surge to $220 billion in value of goods sold by 2025 from about $11bn last year.
Wal-Mart operates 21 wholesale stores in the South Asian country, but is discouraged from setting up its own bricks-and-mortar shops by rules that limit foreign ownership for multi-brand retailers to 51 per cent and the cost of setting up shops in a country as large as India.
For Flipkart, a cash infusion from Wal-Mart would come in handy at a time when funding from traditional investors into the online space such as venture capital is proving harder to obtain amid worries about valuations in India.
“India does not lend itself to big-box retail since rentals are very, very expensive. So the road ahead is either a Flipkart or an Amazon,” said Kashyap Chanchani, the managing partner of the Rainmaker Group, a Mumbai-based tech and digital media investment banking firm.
“Which is why it is natural for Wal-Mart to look at Flipkart, as they cannot acquire Amazon.”
Wal-Mart in India and Flipkart declined to comment.
Launched in 2007 by two former Amazon employees, Flipkart sells everything from mobile phones to suitcases and cosmetics. Its current investors include Tiger Global Management and Accel Partners.
A Wal-Mart bet on Flipkart would come at a time when Amazon is planning an aggressive expansion into India.
Jeff Bezos, the chief executive of Amazon, said in June it would invest an additional $3bn in India after investing $2bn already, and has recently rolled out its Prime membership service in the country.
Bank of America estimated Amazon could increase its market share to 37 per cent by 2019 from 31 per cent now, approaching the 44 per cent held by Flipkart.
But concerns about profit continue to weigh on the sector, as severe competition is forcing the online retailers to resort to heavy discounts while they also invest in infrastructure such as warehouse centres.
The Indian brokerage Kotak estimated Flipkart, Amazon and their smaller rival Snapdeal lost a combined 50bn rupees (Dh2.7bn) in the year ended in March 2015.
The online retailers do not disclose financial data but analysts say losses likely have increased since then.
Flipkart has been valued at about $11.5bn, local media reported last month, citing a US regulatory filing from the investor Valic, a division of American International Group, down from as much as $15bn earlier this year.
Wal-Mart agreed in June to take a 5 per cent stake in China’s JD.com, giving the US firm a ringside seat in JD.com’s bitter rivalry with the Chinese e-commerce leader Alibaba
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