U.S. retail giant Walmart Inc (NYSE:WMT) recently acquired a 77% stake in Flipkart, an Indian e-commerce company. The $16 billion was described by many as a landmark acquisition. Founded in 2007 by Binny Bansal and Sachin Bansal Flipkart has been funded by Microsoft Corporation (NASDAQ:MSFT), Tencent Holdings Ltd (OTCMKTS:TCTZF) and SOFTBANK Corp/ADR (OTCMKTS:SFTBY). The acquition, which has valued the company at $20 billion, has been termed as the biggest acquisition in the e-commerce industry.
For many years, Walmart Inc, a U.S based hypermarket and grocery store has been experiencing stagnation with regard to the growth of its offline sales. Its online sales only account for 3% of the total sales.
Walmart Inc is largely betting on the Indian e-commerce industry to counter competition from Amazon.com. According to Walmart, the indian e-commerce sector is expected to grow five-folds and will be valued at $200 billion by 2027.
Doug McMillon, the President and CEO of Walmart said that India is one the most attractive retail markets globally given its growth rate as well as the size. In addition, Flipkart, being the largest biggest company in India’s e-commerce industry will offer a lot of growth opportunity to Walmart.
Why Did Walmart Take a Hit?
Following the announcement, shares of Walmart dropped 4%, losing almost $10 billion in market value. The drop was caused by the opinion that Walmart had overpaid to acquire the Indian e-tailer.
According to analysts however, the acquisition is expected to put the US retailer in a much better position as it seeks to diversify its operations as well as gain a firm grip on the online retail sector.
Although Flipkart has a customer base of only 100 million against a population of 1.3 billion, the company has a lot of potential for growth both domestically and in the global market. There are many opportunities that remain untapped in the Indian e-commerce market. This makes further makes Flipkart are a very attractive bet.
India’s e-commerce currently accounts for 4% of the country’s total retail sales. Experts are projecting a change in this trend thanks to large adoption of smartphones in the country.