On May 9 2018, when the world’s biggest retailer Walmart announced to acquire 77 per cent stake for $16 billion in the Indian e-commerce platform Flipkart, the Arkansas-based retail giant witnessed its shares dropped as much as 4.2 per cent.
After the deal, S&P Global Ratings changed its outlook on Walmart to negative from stable, citing increasing leverage and risks stemming from the company’s spending to expand online and globally as it continues its share buyback program.
Walmart also didn’t give a specific timetable on profitability. It said that Flipkart’s losses should decline “in the mid to long term.”
Experts estimated the deal will take away 25 cents to 30 cents per share from this year’s earnings, with that impact doubling the following year.
A few months later, Walmart has conceded the acquisition may negatively impact the net income of the latter this fiscal and also the next.
It expects 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 of fiscal 2019, said Walmart in its recent regulatory filing.
The retail giant also admitted that they are learning about retail ecosystem and China is their biggest inspiration. Besides, they are also learning from India.
The Flipkart acquisition is about the larger plan of Walmart which sees India business grow to $200 billion in about a decade. It is ready to wait for that long before it yields returns from the Indian market.
It is going to be the first Big Billion Days for Flipkart after its acquisition by Walmart. After the biggest ever deal recorded in the Indian tech industry, the annual sale is expected to be bigger this year.
Keeping the growth mantra in mind, Flipkart is targeting sales of $1.5-1.7 billion in October during the Billion Days, almost double compared to last year.
The development was first reported by ET.