Flipkart Acquisition May Result In Increased Loss For Walmart In FY 19 & 20

Walmart reportedly expects that Flipkart’s ongoing operations can negatively impact its fiscal 2019 and 2020 net income. The US-based retail giant completed its $16 Bn worth acquisition of a 77% stake in Indian ecommerce unicorn Flipkart in August this year.

“We expect the ongoing operations of Flipkart to negatively impact fiscal 2019 and 2020 net income, including additional interest expense due to the long-term debt issuance in the second quarter of fiscal 2019,” Walmart said in its recent regulatory filing.

Beginning in the third quarter of fiscal 2018, Walmart will consolidate the financial statements of Flipkart with a one-month lag. Given the recent closure of the transaction, “We are in the initial stages of the process to allocate the purchase price of Flipkart and do not yet have an initial allocation available,” Walmart added.

Walmart’s cash and cash equivalents were $15.8 Bn and $6.5 Bn as of July 31, 2018, and 2017, respectively. Walmart’s working capital deficit was $5.3 Bn and $16.0 Bn as of July 31, 2018, and 2017, respectively. The reduced working capital deficit as of July 31, 2018, compared to July 31, 2017, has been attributed to a higher cash balance from the $15.9 Bn net proceeds from the issuance of long-term debt to fund a part of the Flipkart Acquisition and for general corporate purposes.

Earlier, in June 2018, Inc42 reported that Walmart was selling bonds in the US to help finance its Flipkart stake acquisition. The company’s filings revealed that it was offering fixed- and floating-rate bonds in as many as nine parts. The longest part of the offering — a 30-year security — may yield around 1.2 percentage points above Treasuries.

Also, with the completion of the deal and the final approval received from the Competition Commission of India (CCI), Walmart has recently completed all the tax obligations of the deal. It must be noted that the Walmart-Flipkart deal will help the government mop up over $1.3 Bn (10,000 Cr) in taxes.

Flipkart has never been a profitable entity. For the financial year ending March 2017, the company’s losses increased by 68% to INR 8,771 Cr, in comparison to the INR 5223 Cr loss it incurred in FY16.

Thus, Walmart’s investment in Flipkart can be said to be a long-term bet, wherein the company has taken a chance in order to make its way into the ecommerce sector of India, which is expected to reach $64 Bn by 2020 and $200 Bn by 2026 from $38.5 Bn as of 2017, according to a June 2018 report by the IBEF.

Flipkart, after getting acquired by Walmart for $16 Bn, is expected to launch more offline retail stores in India to promote private labels in segments such as fashion and electronics. Also, earlier reports surfaced that Walmart may launch an IPO for Flipkart in the next four years.

[The development was reported by ETRetail.]