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Walmart’s big plans
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Walmart’s big plans

Global retail major Walmart Inc is planning to demerge PhonePe, the payment system and digital wallet company of Flipkart, so that its ownership will be vested directly with the US retail giant, two people familiar with the transaction told ET. The proposed move will pave the way for Walmart to get into India’s booming digital payment space directly. This is currently dominated by Ant Financial and SoftBank-backed Paytm, but competition is set to heat up with tech giants Google, Amazon and Facebook testing the market through their respective payment gateways—Google Pay, Amazon Pay and WhatsApp. The proposed demerger will coincide with PhonePe's ongoing fund raising plan of about a billion dollar through primary and secondary sale of shares. (Arun Kumar/ET Bureau)

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How PhonePe became a part of Flipkart
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How PhonePe became a part of Flipkart

"The move will help some of the existing investors in Flipkart to cash out in the secondary sale,” said one of the persons quoted above. Goldman Sachs is advising the group on the transactions. Flipkart acquired PhonePe in early 2016, within a year of its launch by a trio of former Flipkart executives—Sameer Nigam, Rahul Chari and Burzin Engineer. The Flipkart board had earlier in the year approved the hiving off under an independent board, ET had reported in March. Eventually both these companies — Flipkart and PhonePe — will be listed separately over the period, sources said. At the time of acquisition in May 2018, Walmart had agreed with the other major shareholders of Flipkart who remained invested in the company to make Flipkart a public listed company in next four years. PhonePe, which was valued at $7 billion by Morgan Stanley in September 2019, is looking at a valuation of up to $10 billion for the current fund raising round. (Arun Kumar/ET Bureau)

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What’s at stake
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What’s at stake

"PhonePe’s business is emerging as one of the country’s top startups, a surprise benefit for Walmart from its largest-ever acquisition. Following the demerger, Walmart will have about 82% stake each in PhonePe and Flipkart separately, with a combined valuation of $27-30 billion,” said an investment banker in the know. This is a significant gain from the Flipkart’s valuation of little over $20 billion at the time of the acquisition, giving Walmart a huge financial benefit. Walmart currently owns about 82% in Flipkart. India’s digital payments space is rapidly turning into a new corporate hunting ground with the world’s top retail and tech giants Amazon, Google, Facebook and Alipay, among others, jostling to grab a larger slice of the multi-billion-dollar market. (Arun Kumar/ET Bureau)

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PhonePe’s growth story
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PhonePe’s growth story

PhonePe, which means “on the phone” in Hindi and is pronounced “phone pay”, has grown into one of India’s leading digital payments companies. Its volume and value of transactions have roughly quadrupled over the past year as the country’s consumers adopt the technology to transfer money digitally to businesses and each other. PhonePe is gaining ground on Paytm, which leads the field and is backed by Warren Buffett. PhonePe is an “underappreciated asset,” Edward Yruma, an analyst from KeyBanc Capital Markets, wrote in a recent research note. He estimated the business may be worth $14 billion to $15 billion, separate from Flipkart’s e-commerce operation. (Bloomberg) (Pic: PhonePe/Facebook)

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The boon called demonetisation
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The boon called demonetisation

The government’s demonetisation call in late 2016 to ban large banknotes to curb corruption and boost digital transactions helped digital payment startups like PhonePe, Paytm gain immense popularity. Cheap smartphones and cut-rate wireless data plans have brought millions of Indians online in the years since, boosting the whole industry. In June, the PhonePe app reached 290 million transactions with an aggregate value of $85 billion, compared with 71 million transactions at $22 billion a year earlier, according to the company. The service gained momentum by offering an array of services, including mutual funds, movie tickets and airline bookings. (Bloomberg)

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Getting Aamir Khan as a brand ambassador
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Getting Aamir Khan as a brand ambassador

Earlier this year, it began using Bollywood star Aamir Khan in its advertising. “Globally, hardly any privately held fintech company has reached PhonePe’s scale on both sides of the network so rapidly,” Sameer Nigam, PhonePe’s co-founder and chief executive officer, said in a statement, pointing to its 150 million plus customers and more than 5 million merchants. “That’s why the strong investor interest.” Walmart debated for months whether to keep funding the payments business internally or whether to separate the operation so it could raise outside funds. After plowing nearly $300 million into PhonePe, the U.S. retailer opted for the latter course. (Bloomberg)

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Lessons from PhonePe
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Lessons from PhonePe

Walmart wants to use the lessons from PhonePe in other operations around the globe. Also unresolved are the future roles for Flipkart’s outside investors. Tiger Global Management and Tencent Holdings Ltd. each hold board seats and equity stakes of about 5%, while Walmart holds about 80%. The board will have to navigate the companies’ varied interests before any deal can be finalized. The new funding is aimed at helping PhonePe’s growth. The company plans to delve deep into the country’s heartland, where rivals have yet to expand, with the goal of reaching profitability, one person said. The market has vast potential. Digital payments in India are projected to reach $1 trillion by 2023 from about $200 billion now, said Credit Suisse Group AG. (Bloomberg)

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