The talks of the re-entry of Softbank in Walmart-owned Flipkart have stirred up curiosity among investors. Especially when the Indian retail giant was all set to change its status from a Pvt Ltd. to a Public Company by the fourth quarter of 2021.
So, why is Softbank so keen on investing in Flipkart after it once exited? What will this investment imply? And most importantly, How will it affect the E-commerce space in India?
Let’s find out.
The Background Story
In the August of 2017, Japanese conglomerate Softbank group invested $2.5 Billion for a 21% stake in Flipkart. However, just a year later, Walmart inc decided to buy a majority stake of 77% for $16 billion in Flipkart and buy out almost all existing stakeholders including Softbank, South African firm Naspers, E-bay, and Venture Fund Accel partners.
Luckily for Walmart, all the stakeholders agreed to the buyout. Masayoshi Son lead Softbank group left Flipkart with a $2 billion profit to be taxed under Indian tax law. The reason for leaving was stated as “there are many options to consider”.
This lead to the historic acquisition of Flipkart by Walmart making it the world’s largest E-commerce acquisition.
Cut to 2 years later, in July 2020 Walmart pumped in a huge investment of $1.2 billion valuing the Flipkart group at $24.9 billion, a 19% rise since the acquisition.
The Softbank and Flipkart Deal
Softbank is looking to re-enter the Indian E-commerce space with a $700 million investment in the retail giant, Flipkart. But this is not some ordinary funding. It is a part of a bigger $2 billion investment from both external and existing investors of the company.
It includes government-owned funds like Adu Dhabi development Holding company (ADQ), Canada Pension Plan Investment Board (CPPIB), and exiting shareholders GIC and Qatar Investment Authority.
If this funding round goes through, the Bangaluru-based start-up could be looking at an overall valuation of $25-30 billion this year.
Possible Implications of the Deal
The Indian retail giant is planning to go public starting with the US markets by the last quarter of 2021. Through this IPO, Flipkart is aiming to reach a valuation of $40 billion. However, if the Softbank funding goes through, the IPO may get postponed and Flipkart may continue as a private sector company.
Given the rapid growth of the company, this could be bad news for investors eyeing the Flipkart IPO.
The Bangaluru based start-up has made some significant investments in recent years to enhance its market positioning and spread its segments. Some of these deals are:
- Flipkart x ABFRL: Flipkart invested 1500 cr in Aditya Birla Fashion and Retail Ltd. to strengthen its grip in the clothing segment.
- Flipkart x Scapic: In November 2020, Flipkart acquired an Augmented Reality tech start-up, Scapic to enhance the customer shopping experience
- Flipkart x Mechmocha: To engage more people on their website, Flikart acquired the IP of the gaming start-up Mechmocha. This allows users to casually browse through games like Ludo, Snakes & Ladder, etc. in the Flipkart GameZone.
- Flipkart x NingaKart: Earlier this year, Flipkart invested $30 million in Bangaluru-based supply start-up NingaKart aiming to connect Farmers and businessmen using tech.
- Flipkart x Cleartrip: In April 2021, Flipkart announced the acquisition of the travel tech company, Cleartrip with an undisclosed amount. This will strengthen Flipkart’s online travel space.
The large cash influx from the upcoming funding round will help Flipkart make more strategic partnerships and become a stronger competitor for Reliance, Tata, and Amazon group.
The deal will also mark the biggest investment of Softbank vision fund 2 in India this year. Some other significant investments made by the Mayayoshi-lead group in India this year include Edtech, Fintech, e-commerce, and B2B marketplaces.
The Pandemic Winner: E-commerce
The E-commerce sector witnessed rocket-paced growth due to the coronavirus pandemic. Since people were restricted to go out, online delivery and e-commerce retail took over the market.
Thus, it didn’t take long for the sharks of the industry to notice the opportunity and grab it. Earlier this year, Tata group announced the acquisition of the E-grocery company Bigbasket for Rs. 9,500 cr.
Further, Flipkart’s biggest rival Besos-led Amazon group has also committed to $250 million in the Indian E-commerce space to help small retailers and SMEs sell digitally and become a part of the Amazon group.
The global retail market is worth approximately $1.3 trillion and merely 7% of it is online. With conglomerates eyeing the remaining 93%, the Softbank funding in Flipkart will help the company stand a good chance of becoming one of the E-commerce market leaders.