Walmart Underpaid For Flipkart: Flipkart Co-Founder Binny Bansal

16 billion dollars is usually a lot of money, but Flipkart co-founder Binny Bansal says Walmart got itself a good deal when it acquired the Indian e-commerce company.

“Walmart didn’t overpay for Flipkart,” Bansal said at a Recode event on Monday. Bansal was reacting to a previous speaker who’d hinted that Walmart might’ve been a little too generous by paying $16 billion (Rs. 1,12,000 crore) to acquire Flipkart. “Did Walmart underpay then,” his interviewer teased. “Absolutely,” replied Bansal smiling. “This will be very clear 5-10 years from now.”

binny bansal walmart underpaid for flipkart

Bansal then went on to explain why Walmart had acquired Flipkart in the first place. “From a Walmart perspective, with a 10-year view of the world, India is a huge market,” he said. “Walmart obviously wanted to have a play in the market. It made sense for them to partner with Flipkart. Flipkart was almost the only option to make a play (for the India market) because the future of retail in a country like India is e-commerce,” he added.

Walmart indeed didn’t have a lot of choice if it wanted to enter India’s lucrative market.  India’s FDI rules prohibit foreign multi-brand retail companies from operating in India, so Walmart couldn’t have entered India through this route. As far as e-commerce went, Bansal said that partnering with Flipkart was the smarter choice.

“The way to play e-commerce in India was to either build it, or work with Flipkart. Building it is a whole different ballgame in a different country. So (the acquisition) made a lot of sense for Walmart, and Flipkart as a vehicle made a lot of sense,” he said. Bansal later on described how Walmart would’ve had a difficult time navigating setting up an e-commerce arm in India — when Flipkart had started off, it had to build a supply chain from scratch because its delivery partners couldn’t handle its orders, and had to innovate with India-specific ideas like cash on delivery.

But a $21 billion valuation would seem generous for a startup that hadn’t made a profit during any of its 10 years in business, and had burnt thorough nearly $7 billion in venture funding. But as Flipkart’s management realized, it had become the only option for a large global player if they wanted to enter India’s e-commerce market. Amazon, of course, wasn’t selling itself to anyone else, and the other players, like Snapdeal or Shopclues, weren’t big enough to challenge it. Amazon’s success in India would’ve unnerved Walmart, which already competes with it in the US — it couldn’t let its rival get a big head start in what could potentially end up being a very large market.

Flipkart, thus, found itself in the happy position of being the only viable alternative for a buyer with very deep pockets. It ended up selling a majority stake to Walmart for $16 billion, marking the biggest FDI deal in India’s history. Time alone will tell if Walmart’s Flipkart punt pays off, but for now, Binny Bansal believes that it’s got itself a pretty good deal.