Walmart-owned Indian e-commerce giant Flipkart, which plans to go public later this year, is in the early stages of discussions to raise USD 1 billion from sovereign wealth funds, private equity investors, and pension funds.
Citing sources, local media Economic Times said, global funds including Canada Pension Plan Investment Board, Caisse de dépôt et placement du Québec, Singapore’s GIC, and Carlyle Group have held preliminary talks with Flipkart for a funding round that can go up to USD 2 billion.
The Bengaluru-headquartered company is primarily looking to refill its war-chest to combat the competition from deep-pocketed conglomerates such as Amazon and Reliance Jio, as well as fuel its expansion plans, ET report said.
“The capital raise is not being positioned as pre-IPO but for expansion. The management believes there is a lot of value that is trapped in each of its key verticals and the value of parts is more than the whole,” it said, quoting an executive involved in the process. “The price discovery process is still ongoing.”
The sources cautioned that as these are preliminary talks, the deal may or may not materialize.
If the deal goes through, the new round is likely to bump its valuation anywhere between USD 28–30 billion, up from USD 24.56 billion in July 2020 when Walmart invested USD 1.2 billion, along with existing shareholders like Tiger Global, Tencent, and Accel, the report added.
Although this would be significantly lower than what Walmart has been expecting. In December, it was reported that American retailer Walmart that acquired Flipkart in 2018 for a whopping USD 16 billion was planning to list the company at a valuation of USD 40 billion. In March, Flipkart was reported to be mulling to merge with a SPAC to fast pace its listing process in the US, and that the Bengaluru-based e-tailer might be seeking a valuation of a minimum of USD 35 billion during the SPAC merger.
Also known as blank check companies, SPACs are shell companies that are formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing private company. After the acquisition, a SPAC is usually listed on one of the major stock exchanges. For private companies, SPAC is an easier and cheaper alternate route to raise funds, as compared to the traditional IPO process, which is cumbersome, expensive, and time-consuming.
“Investors coming in at this juncture would want a pop at the time of an IPO, so accordingly valuations will get adjusted,” said an investor who had been approached.
Flipkart’s expansion spree
In 2007, Flipkart was started as an online portal for selling books. Over the last decade, the company has grown to become one of the two dominant e-tailers in the world’s second-most-populous country, the other one being Amazon. Under its wings, Flipkart has fashion marketplace Myntra, and logistics arm Ekart. At present, it offers over 150 million products across more than 80 categories and has a registered customer base of over 300 million, as per the ET report.
When Reliance, India’s largest conglomerate entered the e-commerce space with JioMart by rolling out its online commerce service starting with groceries in 200 cities in May 2020 amid the pandemic, it became the prominent threat to both Flipkart and Amazon. Since then, JioMart has added apparel and electronics and has emerged as one of the biggest players in India’s soon-to-be USD 111 billion e-commerce market.
Flipkart, on its part, has maintained its stronghold within the online fashion segment. The company made a slew of investments last year in the fashion space last year. In November 2020, it made an undisclosed investment in Universal Sportsbiz, a fashion firm that markets brands endorsed by celebrities. A month before this, it invested USD 203.8 million in traditional brick-and-mortar fashion company Aditya Birla Fashion and Retail Ltd (ABFRL). Earlier in July, it wrote a USD 35 million check for Arvind Youth Brands, the youth-centric subsidiary of Indian fashion retailer Arvind Fashions.
Meanwhile, the company also spent money to improve customer experience. Late last year, it acquired a 100% stake in augmented reality company Scapic to enhance its users’ shopping experience. This came two weeks after the company announced the acquisition of gaming startup Mech Mocha for an undisclosed amount as the e-tailer looks to gain and retain users by offering casual games to its app users.
These acquisitions have been in line with Flipkart’s efforts to strengthen its presence in tier-2, 3, and 4 cities. In its bid to make online shopping easier for users, particularly those from smaller cities, the e-commerce giant has poured millions of dollars to build its AI-based recommendation engine and bolster regional language capabilities. For instance, in 2018, Flipkart had bought AI startup Liv.ai, which converts speech to text in 10 regional languages.
Flipkart’s expansion spree has continued this year. Last month, it acquired Cleartrip, an online travel company for an undisclosed amount of money, in a distress sale at a time when travel companies around the world are going through a rough patch due to travel restrictions since last year. Flipkart got into an online travel booking service in 2018 by partnering with MakeMyTrip, GoIbibo, and redBus. In the later years, it added several other OTA companies on its platform including Cleartrip.