Flipkart staff may get Rs 5,700 cr in stock buyback scheme in a few weeks

This will be the biggest Esop buyback in tech industry. Flipkart owns over 80% stake in PhonePe and is looking to exit the company. Walmart owns 10% in the Bengaluru-based fintech firm

E-commerce firm Flipkart and digital payments firm PhonePe are expecting a few big milestones in the next 2-3 weeks. Their parent company Walmart, the world’s largest retailer, is initiating an employee stock ownership plan (Esop) buyback, under which it may purchase PhonePe stocks worth $700 million from Flipkart employees, say sources. 

This Esop buyback is going to be the biggest in the tech industry. Flipkart owns over 80 per cent stake in PhonePe and is looking to exit the company. Walmart owns a 10 per cent stake in the Bengaluru-based fintech firm.

“It may be a mini-IPO for Flipkart as these developments are mimicking the process when a company goes public,” said a person familiar with the matter. “Once Walmart initiates the Esop buyback, about $700 million or Rs 5,700 crore is going to be distributed among thousands of Flipkart’s current and former employees.”

This Esop buyback is part of PhonePe’s fundraising plans as it is in talks with its parent Walmart, General Atlantic, and other existing investors to raise about $700 million - $1 billion, sources said. The round is expected to more than double PhonePe’s valuation to around $12 billion and make it India’s most-valued financial technology firm ahead of Razorpay, which is valued at $7.5 billion.

“PhonePe’s funding deal may close in the next 2-3 weeks,” said another person familiar with the development.

PhonePe was last valued at about $5.5 billion in December 2020 after raising $700 million in primary capital from existing Flipkart investors including Tiger Global, and Walmart.

Industry sources said the new funding round is not related to PhonePe’s initial public offering (IPO) plans, which are at least three years away. The funding is expected to help PhonePe scale up its operations and help it compete with Google Pay, Paytm, and Amazon Pay in the Indian fintech space, which is expected to touch $350 billion in enterprise value by 2026, according to a report by Bain and Company.

The firm recently moved its domicile to India, after it moved its businesses, including insurance and wealth broking, and subsidiaries of PhonePe Singapore to PhonePe India.

Sameer Nigam-led PhonePe is also set to acquire fintech start-up ZestMoney for $200-300 million and the deal may closed in the next 2-3 weeks, according to sources.

Flipkart has already done a partial spin-off of PhonePe, which will help it to access dedicated, long-term capital to fund its growth ambitions.

“It also makes sense from a governance perspective that both the companies are operating independently,” said a person

Flipkart and PhonePe didn’t respond when asked to comment on the Esop buyback and funding plans. 

Kalyan Krishnamurthy-led Flipkart has been running Esop buyback schemes in the past as well to retain its key talent and wealth creation for employees.

In July 2021, Flipkart purchased shares worth $80-85 million from employees. This was part of its $3.6 billion financing round from investors including SoftBank, which had exited the firm, valuing the company at $37.6 billion, which was more than 50 per cent rise in a year. 

In 2019, Flipkart allowed an Esop buyback worth $100 million from the staff. They were issued to select employees across Flipkart and its fashion arm Myntra. Flipkart did a $500 million Esop buyback in 2018 ahead of its $16 billion acquisition by Walmart.

Analysts said that startups are increasingly announcing Esop buybacks to retain and hire top talent amid the growing competitive market. As per data compiled by Fintrackr, more than 20 startups have announced Esop buyback, liquidity or sale worth around $200 million in the first six months of 2022 or H1 2022.

While the frequency of Esop buyback in the second half of 2022 has been quite low as compared to the first half, a clutch of growth and late-stage startups have either expanded or launched their new Esop scheme this year, according to Fintrackr. The list includes HomeLane, Ultraviolette, Waycool, Amagi, NoBroker, DealShare, Money View, Purplle, LEAP, Wiz Freight, Ather Energy, Ninjacart, and Ecom Express.

The year 2021 witnessed record numbers when it comes to employee stock ownership plan (ESOP) liquidity events by startups. Last year, the total buyback was worth around $440 million, according to Fintrackr. These included companies such as Flipkart, Swiggy, PhonePe, Udaan, ShareChat, Razorpay, CRED, Browserstack, Meesho, Spinny, Zerodha, Unacademy and upGrad.

According to regulatory filings by fintech firm Paytm and food delivery company Zomato, key managerial personnel have been rewarded Esops worth crores during the first half of FY23. At Paytm ESOP expenses due to key managerial personnel were Rs 568.9 crore for April-September. In the case of Zomato, expenses for the period were Rs 380 crore.

Top Flipkart Esop buybacks

Amount   Year

$500 mn: 2018

$100 mn: 2019

$80 mn: 2021

$700 mn: 2022 (may happen)

Industry data:

$200 mn: Total Esop buyback announced by about  20 startups in H1 2022

Frequency of Esop buyback in the second half of 2022 has been low

2021 witnessed record numbers when it comes to Esop events

$400 mn: Total Esop buyback announced by a dozen startups

According to regulatory filings by Paytm and Zomato, key managerial personnel have been rewarded Esops worth crores during the first half of FY23

At Paytm ESOP expenses due to key managerial personnel were Rs 568.9 crore for April-September

In the case of Zomato, expenses for the period were Rs 380 crore

Source: Fintrackr, BS Research