India stands as one of the largest markets in the world, and it has not been an easy one for American companies to enter. Walmart (NYSE:WMT) may increase its exposure to India with the acquisition of a more than 40% stake in local e-commerce favorite, Flipkart.
The deal, which has yet to be finalized, would help Walmart take on Amazon in the region. Flipkart has enjoyed a fast-growing multi-billion dollar valuation, especially since Japan's SoftBank Group purchased its own stake in the company for $2.5 billion.
On this episode of Industry Focus: Consumer Goods, the cast looks at the potential behind this deal, including what the retailer would get beyond a strong foothold in an important market.
A full transcript follows the video.
This video was recorded on March 22, 2018.
Vincent Shen: Something, then, that's more on a positive note, and I think probably more impactful to the overall business, is another piece of news that caught my attention. This is the company's potential investment in Flipkart. So this is still related to e-commerce, as Flipkart is the biggest e-commerce player in India. If Walmart does end up pouring the reported $7 billion in the company, it'll be Flipkart's biggest investor.
Dan, the big pieces of this story to me are, one, the exposure to the Indian market and Flipkart itself, and also because Flipkart's valuation has soared in just the past year. Anything with this news jump out to you?
Dan Kline: Really, anything you can do to access the Indian market, that's a market that American retailers have generally struggled to go into on their own. So getting in through a backdoor is a smart play. And anything that enhances your technology infrastructure has proven to be a good investment. We're seeing Target snap up delivery companies. Walmart has made a bunch of big and little investments. Amazon has acquired some players in the space. It's really all about the ability to get things to consumers. And if you can invest in a company that helps you there, that also lets you have better access to the incredibly large market in India, it's hard to see that as bad.
Shen: Amazon is also spending billions of dollars trying to establish its position in India. Flipkart has been able to stand apart as a strong, viable competitor in that market. The potential deal with Walmart is definitely an interesting one. And it could end up paying for itself soon enough if Flipkart's valuation continues to increase as it has recently.
So just to illustrate that, I'll end our Walmart discussion on this tidbit -- one of the entities that's reportedly looking to divest part of its stake in Flipkart with this Walmart deal is SoftBank. That's the Japanese conglomerate that has come up on Industry Focus in the past due to its holdings in companies like Sprint and Alibaba. SoftBank poured about $2.5 billion into Flipkart just last August. And if this Walmart deal actually comes to fruition, SoftBank will be pretty darn close to doubling the value of that original investment in a very short period of time. I'll stress one last time before we change gears that the situation with Flipkart is not yet finalized. But if that day comes, we'll be sure to follow up with more updates.