Walmart To Raise $3 Bn For Flipkart, Seeks $40 Bn Valuation

As competition in the ecommerce space heats up, homegrown giant Flipkart is mulling raising $2 Bn – $3 Bn to expand its product offering and directly better compete with its rivals.

The Walmart-backed ecommerce major is planning to raise the investment at a mammoth valuation of more than $40 Bn, according to people privy to the development. Further, Flipkart may dilute around 7% for raising as much as $3 Bn via the fundraise. 

“Walmart may prefer to bring strategic investors into Walmart Flipkart through this fundraising, unlike in the last round. However, Walmart-Flipkart is also open to selling to large pure-play investment firms,” a source was quoted as saying. 

The reports continue to make the rounds even as Walmart is yet to formally mandate investment bankers to look for strategic partners for the latest fundraise.

The story will be updated with a response from Flipkart. 

Funding To Brace Up Against Tata, JioMart?

The investment will give more teeth to Flipkart to compete with aggressive rivals including Amazon India, JioMart and the Tata group. The investment could likely be deployed for potential acquisitions in the ecommerce space, too. Additionally, it will also be used to add more warehouses, workforce and new businesses to scale offerings in the competitive sector. 

The US retail giant is reportedly keen on bringing in strategic investors in Walmart-Flipkart to get additional expertise and consistent funding support to ‘stay ahead in the country’s ecommerce competition.’

Further, the move comes more than a year after Flipkart raised around $3.6 Bn in a public funding round in July last year. Sources told Mint that the ecommerce major has already deployed most of the capital, with just $700-800 Mn of the total still left.

High Cash Burn Plagues Flipkart

The poster child of the Indian ecommerce segment, Flipkart has scaled up to emerge as one of the biggest startups in the country. From selling high margin items and catering to the upper echelons of the society, the Walmart-backed startup has come a long way. 

The last few years has seen Flipkart adopt an aggressive expansion strategy. It has ventured into new geographies within the country and expanded its product line. It also scaled up its operations to sell products such as groceries, essentials and even furniture. 

The break neck growth has seen Flipkart open new warehouses in many parts of the country and deployment of large Capex to fuel its operations. But, that has come at a cost.

Earlier this month, Inc42 reported that Flipkart had burnt $1.1 Bn in cash between February and July this year. As a result, the ecommerce player has been continuously seeking investments to scale up its operations in the country. 

Inc42 last month reported that Flipkart’s Singapore-based entity had invested close to INR 1,600 Cr in its Indian arm. This was largely done to address overheads and streamline operations ahead of the much touted festive season, which saw more than one billion customer visits for the ecommerce player.

Prior to that, its Singapore-based parent entity also infused $553 Mn more into its marketplace business.

Flipkart’ growth has largely been the result of a resurgent middle class, higher internet penetration and increased disposable income. The result has been the rapid adoption of ecommerce as a preferred destination of purchase.

Sensing the opportunity,  users and investors alike have jumped onto the ecommerce bandwagon, looking to get a pie of the burgeoning sector. The last $3.6 Bn funding round saw participation from some of the biggest investors in the world including Canada Pension Plan Investment Board, GIC, SoftBank, Qatar Investment Authority, Tiger Global, among others. 

While expenses have risen manifold, profitability still continues to elude the platform. Last reported, Flipkart had posted a consolidated loss after tax of INR 2,445.6 Cr in the financial year 2020-21 (FY21). 

With no clear path to profitability and higher cash burn, the ongoing funding winter could play spoilsport for the ecommerce player. While the brand value of the startup could shield it from the impact, conscious efforts by Walmart to divest its stake in Flipkart and mounting losses have highlighted the underlying problems at the ecommerce giants.