Post on 04-Jul-2018
1 DeborahWeinswig,CEOandFounder,CoresightResearchdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2018CoresightResearch.Allrightsreserved.
May 10, 2018
Walmart to Invest $16 Billion to Acquire a 77% Stake in India’s Flipkart
1) OnMay9,Walmartannouncedthesigningofadefinitiveagreementtoinvest$16billionfora77%stakeinFlipkart,aleadingonlineretailerinIndia.ThecompanysaiditsupportsFlipkart’sambitiontobecomeapubliclylistedsubsidiaryinthefuture.
2) Walmartbelievestheacquisitionwillcreatesignificantlong-termvalueforshareholdersthroughenteringacriticalgrowthmarket,acquiringaleaderine-commerce,acquiringlocaltalentwithglobalexpertiseandachievinglong-termgrowth.
3) Theinvestmentincludes$2billionofnewequityfunding,supportedbynewlyissueddebtandcashonhand.ThecompanyexpectstheinvestmenttoreduceFY19EPSby$0.25–$0.30andFY20EPSby$0.20,assumingacloseinthesecondquarterofthisfiscalyear.
WalmarttoInvest$16Billionfora77%StakeinIndia‘sFlipkartOnMay9,Walmartannouncedthesigningofadefinitiveagreementtoinvest$16billionfora77%stakeinFlipkart,aleadinge-commerceplayerinIndia.ThecompanysaiditsupportedFlipkart’sambitiontobecomeapubliclylistedsubsidiaryinthefuture.
WalmartcommentedthatIndiaisoneofthemostattractiveretailmarketsintheworld,duetoitssizeandgrowthrate,andtheinvestmentisanopportunitytopartnerwiththecompanythatisleadingthetransformationofe-commerceinIndia.
Theinvestmentincludes$2billionofnewequityfunding,supportedbynewlyissueddebtandcashonhand.ThecompanyestimatestheinvestmentwillreduceFY19EPSby$0.25–$0.30andFY20EPSby$0.20,assumingacloseinthesecondquarterofthisfiscalyear.
2 DeborahWeinswig,CEOandFounder,CoresightResearchdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2018CoresightResearch.Allrightsreserved.
May 10, 2018
RationalefortheTransactionThecompanybeganitspresentationwithitsslogan,“Wesavepeoplemoneysotheycanlivebetter.”
Keypointsfromthediscussionfollow.
FlipkartFitsWithinWalmart’sInternationalStrategy• TheFlipkartinvestmentrepresentsahigh-growth,attractivemarketopportunity
withthelocalleader.
• IndiaisoneofthekeygrowthmarketsinwhichWalmartwantstopracticeactiveportfoliomanagement.
• OtherpointsincludeWalmart’spledgetocreatedisciplinedgrowththroughadifferentiatedcustomerproposition,tobethelowest-costoperatorandtobuildstrongfoundations.
FlipkartTransformsWalmart’sE-CommerceOpportunityinaCriticalGrowthMarket
TheIndiamarket:• Isanattractiveopportunityinoneofthefastest-growingmarkets.
• E-commerceisgrowingfourtimesasfastastheretailindustry.
Flipkart:• Isthelocalleader,with$7.5billionofannualgrossmerchandisevalue(GMV),which
isthetotalvalueofgoodssoldthroughthesites,and54millionactivecustomers.
• Hasanexperiencedandcommittedmanagementteam,withstrongin-countryexperience.
• HasstrongshareholderpartnersandasuccessfultrackrecordofinvestmentsinAsia.
• Createslong-termvalueforshareholders,associates,communitiesandtheIndianeconomy.
IndiaIsaCompellingMarketwithLong-TermPotential• India’sGDPhasgrownata9.4%compoundannualgrowthrate(CAGR)overthepast
10years.
• Thecountryhas443millionmillennials,plus393millionGenerationZers,comprising66%ofthepopulation.
• 35%ofthepopulationusestheInternet,makingIndiathesecond-largestInternetmarketglobally.
• ThemobilepercentageofInternettrafficis79%,versus50%globally.
• Smartphonepenetrationisestimatedtohit58%in2020,versus30%in2017.
IndiaE-CommerceIsProjectedtoGrowFourTimesasFastasTotalRetailOvertheNextFiveYearsTotalIndiaretailisprojectedtogrowat9%overthenextfiveyears,comparedto36%fore-commerce.
ThefollowinggraphshowstheexpectedaccelerationinIndiane-commerce.
3 DeborahWeinswig,CEOandFounder,CoresightResearchdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2018CoresightResearch.Allrightsreserved.
May 10, 2018
Figure1.IndiaE-CommercePenetration(ExcludingServices)
Source:Bain&Co.
FlipkartIstheLocalLeaderinIndiaE-CommerceThefollowinggraphicshowsascreenshotofFlipkart’sapp,outlinestheflagshipFlipkartbusinessesandillustratesFlipkart’secosystem.
Source:Walmart
FlipkartIsPositionedforSignificantGrowthThegraphbelowshowsFlipkart’sGMVandthenumberofactivecustomers,andthesidebarshowsthenumberofunitssoldinFY18.
0.2% 0.3% 0.4%1.0%
1.8% 1.8% 2.1%
6.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY23E
4 DeborahWeinswig,CEOandFounder,CoresightResearchdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2018CoresightResearch.Allrightsreserved.
May 10, 2018
Note1:GrossMerchandiseValue(GMV),asdefinedbyFlipkartrepresentsthetotaldollarvalueofordersprocessedonitsmarketplacesintheperiodwithoutreductionforreturns.Note2:Activecustomersarecustomerstransactingatleastonceinthelast12months.Totaldoesnotexcludecustomeroverlapbetweenentities.Source:Walmart
FlipkartMaintainsaLeadingPositioninFast-GrowingCategoriesThefollowinggraphicranksFlipkart’spositionbyGMVshare.
Source:WallStreetanalystsandBain&Companyestimates.
WalmartIsWorkingwithStrongShareholderPartnersKeystrategicandshareholderpartnersincludethefollowingleadingcompanies:
Source:Walmart
GrossMerchandiseValue(USDMil.)
ActiveCustomers(Mil.)
5 DeborahWeinswig,CEOandFounder,CoresightResearchdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2018CoresightResearch.Allrightsreserved.
May 10, 2018
DetailsfromtheTransaction
TransactionStructure• Walmart’sinvestmentofapproximately$16billion,including$2billionofnew
equityfunding,whichwillhelpFlipkartachieveitsgrowthpotential.
• Walmart’sinitialownershipstakeisapproximately77%.
• TheremainingshareswillbeheldbyFlipkart’sexistingshareholders,includingCofounderBinnyBansal,TencentHoldings,TigerGlobalManagementandMicrosoft.
• WalmartsupportsFlipkart’sambitiontotransitionintoapubliclylisted,majority-ownedsubsidiaryinthefuture.
• TheclosingisexpectedlaterinFY19,subjecttoregulatoryapproval.
FinancialImpact• Theinvestmentwillbefundedbyacombinationofnewlyissueddebtandcashon
hand.
• FlipkartwillbereportedaspartofWalmart’sInternationalsegment.
• Iftheacquisitionclosesattheendofthefiscalsecondquarter,FY19EPSwillbereducedby$0.25–$0.30andFY20EPSby$0.20.
• Inthemidtolongterm,asthebusinessscalesandefficienciesarerealized,Walmartexpectslossestodeclineandreturnstoimprove.
• Walmartanticipatesthecontinuationofitscurrentsharebuybackprogram,whilemaintainingitsstrongcreditprofile.
TheTransactionIsExpectedtoCreateSignificantLong-TermValueforShareholdersWalmartseesvaluein:
• Enteringacriticalgrowthmarket.
• Acquiringaleaderine-commerce.
• Acquiringlocaltalentwithglobalexpertise.
• Achievinglong-termgrowth.
6 DeborahWeinswig,CEOandFounder,CoresightResearchdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2018CoresightResearch.Allrightsreserved.
May 10, 2018
DeborahWeinswig,CPACEOandFounderCoresightResearchNewYork:917.655.6790 HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comJohnHarmon,CFASeniorAnalystHongKong:6/F,LiFungTower888CheungShaWanRoad,KowloonHongKongLondon:242–246MaryleboneRoadLondon,NW16JQUnitedKingdomNewYork:1359Broadway,18thFloorNewYork,NY10018
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