Walmart Acquires India Flipkart

Walmart Acquires India Flipkart – Its $16 billion long term stake in Flipkart

Walmart Acquires India Flipkart

Walmart CEO Doug McMillon (L) and Flipkart CEO Binny Bansal shake hands in Bangalore

 

Walmart Acquires India Flipkart

Amazon.com Inc.’s growing market share in India still poses a big challenge for Walmart, even with help from the biggest name in India’s e-commerce industry, Stifel analysts said Thursday.

Analysts generally agree that, in the long term, Walmart’s WMT, +0.02% $16 billion, 77% stake in Flipkart will help the retail giant gain ground in the growing and increasingly significant market.

See: Walmart deserves more love for its Flipkart win over Amazon

However, it’s a pricey endeavor, and Amazon AMZN, +0.05% has already got a foothold in the country. Amazon has gained more share than Flipkart since 2012, though Flipkart is still the market leader, according to Euromonitor data quoted by Stifel.

“India is a key market for Walmart, where the company is battling to hold off advances from Amazon, which has made significant progress growing market share from about 10% in 2014 to 27% in 2017, compared to 38% to 34% for Flipkart during that same time,” Stifel analysts led by Mark Astrachan wrote in a note. “Entering the Indian market has been difficult for the company given this largely ‘cash-and-carry’ wholesale business model.”

Walmart has 21 stores and one fulfillment center in India, with plans for about 50 more stores by 2021, Stifel said.

Walmart shares closed Wednesday down 3% after the announcement. Stifel estimates that the transaction will be about 6% dilutive to fiscal 2019 earnings per share and about 11% dilutive in fiscal 2020. Analysts expect Flipkart’s fiscal 2019 operating loss to be about $1.7 billion.

The FactSet consensus is for fiscal 2019 EPS of $4.90 and fiscal 2020 EPS of $5.18.

“We believe the path to profitability and/or declining losses will require incremental investment and resources, above the additional $2bn of growth equity,” Stifel wrote.

Stifel rates Walmart shares a hold and has a $99 stock price target.

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Walmart recently agreed to sell its British arm Asda Group Ltd. to Sainsbury PLC, with Walmart hanging on to a 42% stake and getting almost £3 billion in cash. The deal was seen as part of Walmart’s effort to focus its energy on more competitive markets.

Read: Companies like Shopify help smaller retailers compete in an Amazon world

Also: Sainsbury’s CEO breaks into song over takeover of Walmart’s Asda grocery chain

“To a large degree, the success will depend on how much e-commerce penetration rises in this big market from its recent rate of about 2%,” UBS analysts led by Michael Lasser wrote in a note. India could follow the same path as China, where e-commerce penetration is about 15%, he said. But annual per capita GDP in India is $1,710 compared with $8,123 in China, according to World Bank figures.

Walmart will enjoy benefits of the acquisition, but they “will likely be a ways in the future,” UBS wrote.

UBS rates Walmart shares at neutral and has a $103 price target.

“Ultimately, we believe that Walmart will convince investors that the long-term opportunity in India is so huge that they will accept the near-term dilution has the lowest cost structure, which should allow it to be profitable and succeed in India,” wrote Susquehanna Financial Group analysts led by Bill Dreher.

Susquehanna rates Walmart shares at positive with a $126 price target.

Walmart shares pared some of their losses in Thursday trading, and closed up 0.2%. The stock is down 15.6% for the year to date while the Dow Jones Industrial Average DJIA, +0.37% is nearly flat for the period.

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Walmart Acquires India Flipkart

Walmart Acquires India Flipkart

RV-Vijay

Author: RV-Vijay