Walmart is looking at using $1.2 billion of its cash reserves parked outside the US to fund the operations of Flipkart, the home-grown e-commerce major in India which it acquired for a whopping $16 billion last year. This is expected to give the much-required firepower to Flipkart, which is facing intense competition from Amazon in the domestic digital commerce space.
In a regulatory filing, the world’s largest retailer said that as of April 30, 2019, the company had as much as $2.7 billion of cash reserves generated from jurisdictions outside the US, which could be repatriated to the country subject to local laws and restrictions and also technical guidance from the treasury department. Of this, the Bentonville-headquartered company said, it could only access $1.2 billion through an inter-company financing arrangement or subject to approval of the minority shareholders of Flipkart. “…however, this cash is expected to be utilised to fund the operations of Flipkart,” the company said.
The investment commitment into Flipkart comes weeks after the visit of Walmart President and Chief Executive Officer Doug McMillon and Judith McKenna, president and CEO of Walmart International, to India in April-May. During the visit, both these executives are learnt to have assessed the progress made by Flipkart and formalised a strategy to take on rival Amazon.
Amazon has stepped up its investment in India and recently pumped Rs 2,800 crore into its marketplace. The fresh investment comes at a time when the Seattle-headquartered firm has signed off from China. In December last year, Amazon invested Rs 2,200 crore into its Indian entity. Jeff Bezos-led Amazon has so far made over $5 billion investment (about Rs 35,000 crore) in India.
As of April 30, 2019, Walmart’s cash and cash equivalents stood at $9.3 billion. Its working capital deficit was $18.1 billion, as compared to $21.5 billion in the year-ago period.
The company said that in anticipation of Flipkart’s acquisition, it had suspended its share repurchase programme. However, the share repurchases increased by $1.6 billion for the three months ended April 30, 2019, compared to the same period in the previous fiscal year.
Ankur Pahwa, partner and national leader, e-commerce and consumer internet at EY India, said the recent infusions showed the big bets large online retailers were placing on the Indian e-commerce and using their footprint to build a deeper omni-channel presence. “The upcoming Indian festival season that kicks off in September also requires deeper pockets and they will be preparing for a heated battle with incumbents and potential new domestic entrants with deep pockets entering this space,” said Pahwa. “Also, a portion of this investment is likely to go towards the expansion of operations in tier 2-3 pin codes, expanding footprint in the B2B space and also their impending entry and expansion into the grocery space either organically or inorganically,” added Pahwa.