Flipkart hives off PhonePe as a separate entity

E-commerce major Flipkart has announced a partial spin-off of its digital payments platform PhonePe. In March 2019, PhonePe’s board had received in-principle approval from Flipkart to hive off as a separate entity.

The Walmart-controlled firm has made this move to constitute a new board of directors and access outside capital to fund PhonePe’s long-term ambitions over the next three to four years. The hive-off would also enable PhonePe to carve out an ESOP program for its employees.

PhonePe is also raising $700 million in primary capital at a post-money valuation of $5.5 billion from existing Flipkart investors led by Walmart. Flipkart will remain PhonePe’s majority shareholder, and the two businesses will retain their close collaboration, according to a joint press release by Flipkart and PhonePe.

Speaking on the development, Sameer Nigam, Founder and CEO at PhonePe, said, “Flipkart and PhonePe are already among the more prominent Indian digital platforms with over 250M users each. This partial spin-off gives PhonePe access to dedicated long-term capital to pursue our vision of providing financial inclusion to a billion Indians.‘’

According to PhonePe’s regulatory filings accessed by Entrackr, PhonePe had received Rs 2,113.82 crore from Flipkart Internet during FY20 and transferred Rs 2,116.62 crore to PhonePe India during the same period. At the end of FY20, PhonePe Private Limited held NET Assets amounting to Rs 6,412.8 crore, a jump of 67.4% as compared to net assets of Rs 3,831.6 crore held at the end of FY19.

The development comes at a time when PhonePe emerged as the largest shareholder in UPI ecosystem by dethroning its close rival Google Pay. As of October, it had registered 835 million transactions on Unified Payments Interface or UPI in October, controlling a market share of more than 40% in the month.

The company further claimed that it has crossed the 250 million registered user milestone, with over 100 million monthly active users (MAU) generating nearly one billion digital payment transactions in October 2020.

While PhonePe has been able to create a lead over its rival, the company has seen a significant slash in its valuation figures. In a report released by American multinational investment bank and financial services company Morgan Stanley in 2019, PhonePe was valued at about $7 billion. Last year, several media reports said that the Bengaluru-based company was close to raising maiden external capital from Tencent at a valuation of over $10 billion.