Flipkart has been the poster boy of India’s much feted consumer internet story since it was founded in 2007
Mint analyses what an IPO means for Flipkart and whether this could set a precedent for other Indian unicorns
Flipkart, India’s most valuable internet startup, is said to be gearing up for an initial public offering (IPO) in the US by 2022. As it looks to tap the public markets, the Walmart-owned e-commerce giant’s focus will be on strengthening compliance and achieving profitability. Mint analyses what an IPO means for Flipkart and whether this could set a precedent for other Indian unicorns.
Why is Flipkart’s IPO important?
Flipkart has been the poster boy of India’s much feted consumer internet story since it was founded in 2007. From raising multibillion- dollar cheques to a $16 billion acquisition of its 77% stake by US retail behemoth Walmart last year, each step that Flipkart takes is seen by startups as a reference point. It is one of the first few startups in India that has gone through a full cycle—from inception to acquisition—offering high returns to several of its investors. If successful, Flipkart’s IPO could open the gates for other Indian unicorns to consider listing on the US bourses.
Where does Flipkart stand at present?
E-commerce in India is a heavily contested battle for leadership between Flipkart and Amazon. Both firms have deep pockets as well as capital and expertise coming from the US. An IPO would also mean Flipkart will start focusing on addressing questions regarding efficiency, profitability and sustaining growth without much cash burn. Giving US investors a share of the pie would offer the online retailer access to Silicon Valley’s latest technology and human capital. An IPO now could mean a partial or full exit for its latest investor, Walmart, and a chance for US retail investors to participate in India’s domestic consumption story.
Is the market ready for such an IPO?
Several Indian companies such as MakeMyTrip and Yatra have listed on the US public markets. With Walmart on its side, Flipkart is expected to strike a good note with retail investors in the US, considered the mecca of capitalism. The e-commerce company still needs to do certain things right, and bringing operational efficiency will be at the top of its list, as the tepid response to Uber Technologies’ IPO earlier this year has shown that the market is wary of businesses that don’t have a clear path to sustainability and profitability.
What is going in favour of Flipkart?
E-commerce accounts for less than 5% of India’s overall retail market. The runway to growth is thus large. India is going online in a big way, particularly on the back of the government’s push for a digital economy. More people are buying online than they did two years ago, and digital payments have got a boost since demonetization. Private and public initiatives are improving logistics and infrastructure.
What will be Flipkart’s focus and challenges?
Flipkart will strive for better margins, and private labels will be back in focus. From battling for the largest product catalogues to the lowest prices, the focus in online retail seems to be shifting to fastest deliveries, after-sales services and fewer product returns. With a foreign firm like Walmart as its majority shareholder, Flipkart will have to be mindful of regulatory pitfalls. Changing consumer preferences—say, readers going back to physical bookstores—will remain a perennial challenge.