Flipkart payments arm PhonePe may turn out to be a hidden gem for Walmart

Photo: Reuters

Flipkart’s payments arm PhonePe could turn out to be the biggest value creator for Walmart, which bought a controlling stake in the online retailer for $16 billion last year.

It is not surprising then that Walmart executives mentioned PhonePe almost 20 times during their three-day-long annual shareholders’ meeting held last month at Bentonville, Arkansas. That is at least twice as many times as they cited its parent Flipkart, India’s biggest online retailer.

Investment advisory firm KeyBanc Capital Markets said in a 24 June note that Walmart’s stake in PhonePe alone could be worth more than $14 billion in the medium term, just short of the price the US retail giant paid to acquire control of Flipkart. This is a sharp rise from PhonePe’s $1.5 billion valuation at the time Walmart bought 77% of the Flipkart group at a total valuation of around $21 billion.

“PhonePe stands out in the growing payment field, as it is not looking to build an e-commerce business within a payment platform,” Edward Yruma, managing director for equity research at KeyBanc Capital Markets, wrote in the note. “This makes PhonePe a compelling service for physical retailers to use at an early stage in the fintech expansion in India.”

Digital payments at physical retail stores in India are estimated to grow at an annual average pace of more than 20% through 2023 to $135 billion, Yruma said in the note. Moreover, peer-to-peer payments are expected to add another $150 billion to PhonePe’s total addressable market, the analyst said. Larger rival Paytm was valued at around $10 billion when Berkshire Hathaway invested $300 million in the company last year.

In March, Flipkart’s board approved a plan to hive off PhonePe, which is looking to raise funds independently. PhonePe has been in talks with several potential investors, including private equity firms KKR and General Atlantic, Mint reported on 11 February.

“We are happy to share when it comes to ownership,” Walmart CEO Doug McMillon said on the sidelines of the annual shareholders’ meeting held last month. “So you will see Walmart being really flexible when it relates to ownership percentages—whatever suits the purpose, whatever delivers the best circumstance for the business to drive, that’s what we’re going to do.”

Walmart has lofty ambitions for PhonePe. Apart from potentially expanding the service outside India, the company plans to take learnings from PhonePe and apply it within group companies across countries.

The Walmart leadership said that PhonePe’s expertise in digital payments can be used to help Walmart’s Cashi digital wallet service in Mexico.

“The team from PhonePe is advising us on what may be the right way to go with Cashi,” Judith McKenna, president and chief executive officer of Walmart International, said in response to questions from investors last month.

To be sure, Flipkart and its logistics arm Ekart also received applause from shareholders at the annual meeting for their performance over the past 10 months.

PhonePe, which was founded in December e2015, has been growing at a frenzied pace, especially over the last one year as it takes on rivals Paytm and Google Pay, among others.

Offline expansion has been a top priority for the Bengaluru-based firm. A year ago, PhonePe had 100 million users but with a paltry 68,000 merchants. That number has now shot up to over 4 million as the payments company continues to add almost one million merchants every month.

PhonePe also intends to expand its footprint to 300 cities by the end of 2019 from the 100 cities it is present in now.