Flipkart Mulls $700 Mn ESOP Buyback To Facilitate PhonePe Fundraise

Indian ecommerce major Flipkart is looking to introduce its fourth employee stock (ESOP) buyback programme as part of a new funding round for digital payments major PhonePe.

The employee stock option plan (ESOP) buyback programme is said to be in the range of $700 Mn, ET reported. The report cited sources stating that a formal announcement will be made next month.

This will make the Walmart-owned ecommerce major’s buyback the largest in the Indian startup ecosystem.

Reportedly, PhonePe is set to raise $1.5-2 Bn from parent company Walmart and private equity major General Atlantic. The US retailer and the PE firm would invest $1 Bn, while the rest would come from a secondary share sale. It is prudent to mention that PhonePe is marked as an asset under Flipkart, hence the buyback.

The Flipkart ESOP buyback is to facilitate the aforementioned funding round.

Incidentally, Flipkart’s valuation is also set to take a hit in the ESOP buyback, according to the ET report. The decacorn was valued at $37.6 Bn after the mammoth $3.6 Bn funding round in July last year. However, the ESOP buyback will see its valuation shrink to $33 Bn, as a result of PhonePe having a separate shareholding structure.

The buyback is set to happen across Flipkart’s group companies, which include Flipkart, PhonePe and Myntra. The employees would be offered the option to either reinvest in the latest funding round or cash in the shares via secondary transactions.

Flipkart is known to conduct huge ESOP buybacks. In 2021, it bought back shares worth $80 Mn from employees after raising $3.6 Bn. Before that, Flipkart conducted an ESOP buyback worth $500 Mn in 2018 in the run-up to its eventual acquisition by Walmart.

The ecommerce major’s ESOP buyback also comes amid a global funding crunch and a generally bearish market sentiment, and at a time when Flipkart’s expenses have been increasing, as it burns through cash at a dizzying pace.

Inc42 reported that Flipkart’s employee expenses reached INR 3,735.2 Cr in FY22, up 18% from INR 3,163.4 Cr in FY21. Earlier, Walmart reported to the US Securities and Exchange Commission (SEC) that Flipkart burned through $1.1 Bn cash in six months.

The decacorn’s unit economics suggests it is still away from profitability; Flipkart spent INR 1.4 to earn INR 1 in FY22.

Earlier this week, media reports surfaced suggesting that the Bengaluru-based ecommerce major was set to raise as much as $3 Bn – diluting around 7% of the equity – from Walmart. The ratio takes Flipkart’s valuation to $42.85 Bn, making it almost twice as valuable as the second most-valuable Indian startup BYJU’S.