Wal-Mart Stores Inc is in talks to buy a minority stake in India’s largest e-commerce firm Flipkart, two people familiar with the matter said, as the world’s biggest retailer aims to break into a fast growing but highly competitive online retail market.
One of the sources said the U.S. retailer was looking to invest between $750 million and $1 billion in Flipkart, but the final value and size of the stake would depend on the outcome of talks about the Indian company’s overall valuation.
A deal would pit Wal-Mart against U.S. rival Amazon.com Inc, which has been expanding rapidly in a market that Bank of America Merrill Lynch has forecast will surge to $220 billion in the value of goods sold by 2025 from about $11 billion last year.
Wal-Mart operates 21 wholesale stores in the South Asian country but is discouraged from setting up its own bricks-and-mortar shops by rules that limit foreign ownership for multi-brand retailers to 51 percent and the cost of setting up shops in a country as large as India.
For Flipkart, a cash infusion from Wal-Mart would come in handy at a time when funding from traditional investors into the online space such as venture capital is proving harder to obtain amid worries about valuations in India.
Kashyap Chanchani, the managing partner of the Rainmaker Group, a Mumbai-based tech, and digital media investment banking firm, said it was natural for Wal-Mart to want to partner with Flipkart.
“India does not lend itself to big box retail since rentals are very very expensive,” he said.
If a deal is agreed, Wal-Mart would join other foreign strategic investors in India’s online players. China’s Alibaba Group Holding, Japan’s SoftBank Group Corp and Taiwan’s Foxconn last year led an investment of $500 million in Flipkart’s smaller rival Snapdeal.
Alibaba is also the biggest shareholder in India’s One97 Communications, which operates payments services and an e-commerce market place under the PayTM trade name.
The sources declined to be identified because the talks are preliminary and have not been made public. Wal-Mart in India and Flipkart declined to comment.