Walmart and Flipkart: buying a lead in Indian e-commerce

The situation

On 9 May 2018 Walmart announced that it had signed definitive agreements to become the largest shareholder in Flipkart Group, the Bengaluru e-commerce company founded in 2007. It would pay about US$16 billion for an initial stake of roughly 77%, including US$2 billion of new equity for the business. It was the retailer’s largest ever acquisition, according to Bloomberg reporting republished by Fortune. Walmart funded the deal with new debt and cash on hand, and it told investors the purchase would cut its earnings per share by about 25 to 30 US cents in its 2019 financial year and about 60 US cents in the year after.

Flipkart was not a profitable company. For the year to 31 March 2018, Walmart’s release says, it had gross merchandise value of US$7.5 billion and net sales of US$4.6 billion, each up more than 50% on the year before. Its logistics arm served more than 800 cities and made 500,000 deliveries a day. Its group included the fashion sites Myntra and Jabong, and the payments business PhonePe. When the deal was signed, CNN reported, Flipkart held nearly 40% of India’s online retail market, while TechCrunch, using a different estimate, said that Amazon and Flipkart each had about 35%.

Walmart was buying market position in a country where, under the rules of the time, a foreign-owned online store could not simply stock and sell its own goods. It was buying a rival to Amazon, which by 2017 had invested more than US$5 billion in its Indian operation. And it was buying a business that would need years of losses, with a political environment that would soon change and, within six months, the departure of both founders from management. The case asks what Walmart was paying for, what it gave up and how the deal looks with the benefit of eight years of hindsight.

Background

From books to a marketplace

Flipkart was started by Sachin and Binny Bansal, two former Amazon employees, who are not related. A 2012 Business Standard report describes a company that still depended on books: books were 65% of its sales volume and 40% of its revenue, and it stocked about 11.5 million titles. Revenue was Rs 11.6 crore in 2009 to 2010, about Rs 50 crore in 2010 to 2011 and over Rs 500 crore in 2011 to 2012. It had more than 2 million registered customers, shipped about 30,000 items a day and had set itself a target of US$1 billion in sales by 2015. Its lead investors at the time were Accel Partners and Tiger Global.

The rule that shaped the model

Indian policy announced in September 2012 allowed foreign direct investment in multi-brand physical retail up to 51% but barred it from online business to consumer retail. Online business to business and back-end operations were not restricted. The same report says Flipkart planned a marketplace, in which independent sellers list goods on the platform, and that two new companies were registered for it. PwC’s Rachna Nath told Business Standard that with FDI barred in e-commerce it was a breather for a player like Flipkart in some ways, and Technopak’s Arvind Singhal warned that players with little differentiation might harm each other through greater competition.

This is the root of the 2018 deal’s structure. Foreign money could go into a marketplace but not into an inventory-owning retailer, and every later policy change turned on that distinction.

Funding, a new chief executive and a down round

By April 2017 Flipkart had raised about US$4.65 billion in total, according to TechCrunch citing Crunchbase. That month it raised US$1.4 billion from Tencent, eBay and Microsoft, at a post-money valuation of US$11.6 billion. Its previous round, US$700 million in July 2015, had valued it at US$15 billion, which TechCrunch called a significant down round. Flipkart also took control of eBay’s Indian business as part of the round. In January 2017 Kalyan Krishnamurthy, a former Tiger Global executive, became chief executive. The same article notes that Amazon had by then invested more than US$5 billion in its Indian operation, and that Snapdeal, another rival, had laid off more than 500 people in February 2017.

SoftBank’s Vision Fund then made an initial investment of US$2.5 billion and held about 21% of Flipkart by May 2018, according to TechCrunch.

The industry

E-commerce in India in 2018 was a two-way fight. TechCrunch put the market at about US$30 billion and said it was projected to reach US$200 billion within ten years. Forrester, quoted in the earlier 2017 article, projected Indian online sales of US$48 billion by 2020. Those forecasts differ widely and show the uncertainty around the prize. What all the sources agree on is that the market was growing fast and was shared between two main players, with smaller ones such as Snapdeal falling behind.

The economics were hard. Walmart’s own release put the expected operating losses from Flipkart at about 40 to 45 US cents a share in its 2020 financial year, and said it expected losses to shrink and returns to improve as the business scaled. Small traders complained that deep discounts were hurting their shops, according to The Week, so the same discounting that cost the platforms money was also the political problem.

Regulation was the third force. The 2012 rule barred foreign-funded companies from owning inventory for sale to consumers. After the Walmart deal, the government rewrote the rules. The Week reported that the new rules, announced in December 2018 under Press Note 2 and effective from 1 February 2019, barred marketplaces with foreign investment from selling products of companies in which they held stakes, banned exclusive marketing arrangements and treated a vendor’s inventory as controlled by the marketplace if more than 25% of its purchases came from the marketplace entity or its wholesale arm. A Crisil estimate cited in that report said 35 to 40% of e-retail sales, or Rs 35,000 to 40,000 crore, could be affected.

Small traders were a political force. Trade bodies alleged that deep discounts and preferential treatment of sellers hurt shops. Bloomberg’s later report says the shopkeepers’ union represents about 70 million small merchants who together control almost 90% of India’s retail trade.

The decision

The sources describe what Walmart did and give hints about what it did not do. The options below are the obvious ones, laid out as alternatives.

Build alone, or buy

Walmart already operated in India, with 21 Best Price cash-and-carry stores in 19 cities across nine states and one fulfilment centre, sourcing more than 95% of goods from India, according to its release. That is a wholesale business. The online consumer market was another matter. Building a rival from scratch would probably have meant years of losses against two established players, with only one fulfilment centre to start from. The alternative of buying one of the two leaders gave it, in a single step, a large user base, a logistics business that reached 800 cities, a payments business and a management team.

Minority stake, or control

Walmart could have taken a minority stake as Tencent, Microsoft and eBay had. It chose control. The release says it would be the largest shareholder, with a stake of about 77% that could fall if other investors joined but would stay a majority. The price of control was a bigger cheque and the full weight of Flipkart’s losses on Walmart’s reported earnings.

Flipkart: sell, or stay independent

From Flipkart’s side the alternatives were to keep raising private money, to list its shares, or to sell. The 2017 down round and the funding needs of the contest with Amazon made the first option harder. The TechCrunch report of 13 May 2018 says Amazon had reportedly offered to buy a stake before Walmart’s deal, so Walmart was not the only possible buyer. Founder Binny Bansal said in the release that while e-commerce was still a relatively small part of Indian retail, he saw great potential to grow.

Take the proceeds, or stay in

The founders chose differently. TechCrunch, citing the Economic Times, said Binny Bansal sold shares worth US$104 million and kept a 4.2% stake, while regional reports said Sachin Bansal was leaving with at least US$1 billion. The people with the best view of the business chose to take money out at that price.

What they did

May 2018: announce and structure

Walmart announced the agreement on 9 May 2018. Remaining shareholders would include Binny Bansal, Tencent, Tiger Global and Microsoft, and Tencent and Tiger Global would stay on the board alongside Walmart appointees and independent directors. SoftBank’s chief executive, Masayoshi Son, announced the deal to reporters before Walmart did, according to TechCrunch, and predicted a sizable return on the Vision Fund investment. J.P. Morgan Securities and Barclays advised Walmart, and Goldman Sachs advised Flipkart. Closing depended on Indian regulatory approval and was expected later in 2018.

An unusual clause

A public filing described by TechCrunch showed that holders of 60% of the minority shares, acting together, could require Flipkart to go public after the fourth anniversary of closing, at a valuation no lower than the price Walmart paid, which the article puts at US$20.8 billion. The reporter called this highly unusual. Walmart’s own release said it supported Flipkart becoming a publicly listed, majority-owned subsidiary at some point.

May 2018: the challenge from traders

On 28 May 2018 Reuters reported that the Confederation of All India Traders had filed an objection with the Competition Commission of India, arguing the deal would create unfair competition and predatory pricing. Sources close to the deal said the complaint was not a challenge to the acquisition, and an unnamed CCI official said Amazon’s presence in India meant a Walmart and Flipkart tie-up would not threaten competition. M. M. Sharma of Vaish Associates called a block highly unlikely. The same official, though, said the deal could be politically sensitive.

November 2018: a leadership shock

On 13 November 2018 Binny Bansal resigned as group chief executive after an investigation into an allegation of serious personal misconduct, according to CNN. A law firm carried out the inquiry. Walmart said it had found lapses of judgement and no evidence to corroborate the complainant’s assertions, and said it had learned of the allegations in July. Bansal denied them. Kalyan Krishnamurthy stayed on as chief executive of the main e-commerce business and took on the fashion businesses, and PhonePe’s head, Sameer Nigam, and Krishnamurthy began reporting to the board. Sachin Bansal had already left. Two co-founders were therefore gone within six months of a deal that was supposed to keep the entrepreneurial leadership team, and CNN described the resignation as the second setback in two months.

February 2019: new rules

The e-commerce FDI rules took effect on 1 February 2019. A Flipkart spokesperson said the company was disappointed that the government had implemented the changes at such haste but remained committed to compliance, and Amazon said it would keep engaging with the government. The US-India Strategic Partnership Forum called the rules regressive, while Snapdeal and ShopClues welcomed them. Bloomberg later reported that the rules forced Amazon and Flipkart to pull thousands of items from their platforms.

What happened

The finance

Set side by side, the 2018 valuation of about US$20.8 billion and the reported US$37 billion in Google’s 2024 investment suggest that the equity value rose by about 78%, although the two numbers come from different contexts and a minority purchase can be priced differently from a control deal.

The market

The politics got harder after the deal. Bloomberg’s December 2019 report said organisers claimed as many as 700 protests against Amazon and Walmart had been held in bazaars across India on one day in November 2019, that the government announced an investigation into predatory pricing allegations in October 2019, and that Commerce Minister Piyush Goyal said e-commerce companies had no right to offer discounts or adopt predatory prices. The shopkeepers’ union said members saw sales fall by up to 60% around Diwali, a claim from one side that the report did not verify. Amazon and Walmart said they complied with Indian law and acted only as third party marketplaces.

The people

Both founders had left management within six months of the announcement. Binny Bansal stayed on the board and remained a large shareholder, according to CNN, and the operating businesses were left with Krishnamurthy and Nigam reporting to the board.

Other views

Walmart’s case

Walmart’s Doug McMillon said India was one of the most attractive retail markets in the world, given its size and growth rate. Judith McKenna, head of Walmart International, said Flipkart had established itself as a prominent player with a strong entrepreneurial leadership team. The release also said Walmart expected e-commerce in India to grow at four times the rate of overall retail. These are the claims of the buyer, made on the day of announcement.

Small traders

The Confederation of All India Traders’ Praveen Khandelwal told Bloomberg that Amazon and Flipkart were a second version of the East India Company and that their motive was not to do business but to monopolise and control. The companies reject the charge. Bloomberg also cites Technopak research that absolute spending at small shops rose by nearly 60% even as their share of total retail has declined since 2014 (the report opened gives no period for the rise), so the evidence for harm is mixed.

Regulators and the competition question

An unnamed CCI official told Reuters that Amazon’s presence meant the deal did not threaten competition, which turns the market structure into a defence: with two big players there is a rival to discipline each. The same official acknowledged political sensitivity, and the government’s 2019 rewrite of the rules shows that politics, not competition law, set the main limits.

The governance questions

TechCrunch’s reporter called the IPO clause highly unusual. CNN’s account of Bansal’s departure shows the deal buying a team that did not stay. Walmart’s statement said the investigation did not find evidence to corroborate the complainant’s assertions but identified a lack of transparency, which is the company’s own account and not a ruling by a court.

Limits of the evidence

Market share figures differ (nearly 40% against 35% each). CNN’s report of a US$740 million quarterly hit to Walmart’s profit is stated without the details in the part of the article opened for this case. Flipkart is private, and its detailed financial results are not in the sources used here.

Reading it through a framework

Ansoff matrix

Ansoff sorts growth options by whether the market and the product are new or existing. Walmart knew retail, and in India it knew wholesale through its Best Price stores, so taking retail to Indian online shoppers is a market development move: an existing skill carried to a new market. Buying Flipkart also brought products Walmart did not have there, such as fashion sites and a payments business, which is product development. The quadrant’s usual risk is that the buyer knows its own model better than the new market. The first year, with a leadership shock and a regulatory rewrite, showed how much local knowledge Walmart had to buy along with the shares.

Porter’s five forces

The five forces explain why the prize was not as large as the growth forecasts suggested. Rivalry between Amazon and Flipkart was intense and cost money. Buyers could switch easily and were courted with discounts. Sellers, many of them small, depended on platforms but also had trade bodies speaking for them. Entry threats were real, since quick commerce players later arrived with dark stores, and suppliers of capital such as SoftBank, Tencent and Google wanted returns. The government acted as a sixth force, changing the rules of the game in 2019. In such a structure, profits come to the player with the lowest cost of capital, the best logistics and the most political patience. Walmart’s scale, with revenue of US$500.3 billion in its 2018 financial year, gave it a long runway.

Since then

Flipkart kept spending on new lines. In August 2024 it launched Minutes, a ten-minute delivery service, in parts of Bengaluru, according to Business Standard, while same-day delivery was already available in 20 cities. It was entering a field where Blinkit planned to grow its dark stores from 639 to 2,000 by the end of 2026 and Zepto had raised US$665 million at a valuation of US$3.6 billion. Google reportedly invested nearly US$350 million as part of a US$1 billion round that Flipkart started in 2023.

On 9 March 2026, Reuters reported, Flipkart announced that it had moved its holding company from Singapore, where it had been since 2011, to India, with government approval for an internal restructuring. A source with direct knowledge said it was targeting a Mumbai listing before March 2027, and it had not settled on a valuation or offering size. Google’s 2024 purchase valued the business at about US$37 billion.

What to take from it

• When regulation limits how foreigners can enter a market, the legal structure of the target decides what can be bought. The marketplace model, born of the 2012 rule, is what Walmart acquired, and it was the model the 2019 rules then tightened.
• Buying a leader is buying time and data, not profit. Walmart paid about US$16 billion for a business with US$4.6 billion of net sales that it expected to make losses for some years.
• Control brings the costs as well as the benefits. Walmart told investors to expect a drag on earnings of about 60 US cents a share in the following year.
• A deal that depends on a founding team has to plan for their exit. Both Bansals had left Flipkart’s management within six months of the announcement.
• Political risk is part of market risk in consumer sectors. Within nine months of the deal the rules changed and small traders were organising protests, and no financial model had a line for that.

Questions to think about

1. If Walmart could not own inventory in India’s online market, what exactly was it buying, and how would you value it?
2. Should a company pay a premium for the market leader if the leader is losing money and the regulator may change the rules?
3. Small traders argued that the deal hurt them, while consumers gained lower prices and choice. How should a government weigh those groups?
4. What would you want in a shareholder agreement to protect a buyer against the loss of the founders after a deal?

Concepts at work

This case draws on market entry strategy, foreign direct investment regulation and platform economics. Explore them in Insights.

Written from the public sources listed below. Figures are as those sources report them.