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March 10, 2021updated 17 Jun 2021 12:09pm

Flipkart’s SPAC listing will strengthen its position in Indian ecommerce

By GlobalData Thematic Research

India is touted as one of the fastest-growing markets for ecommerce. According to GlobalData, the Indian ecommerce market has doubled in value from 2017 to 2020. Dramatic reductions in mobile data tariffs, the rapid penetration of smartphones, and increasing government support in the form of foreign direct investment (FDI) are all driving growth. The pandemic accelerated the trend as customers shifted to online shopping during lockdowns. The Indian market is currently dominated by Amazon and Flipkart.

Flipkart, founded in 2007 by two former Amazon executives, has expanded through several acquisitions over the last decade. It owns valuable assets in the fashion industry (Myntra and Jabong), a logistic business (eKart), and a payment business (PhonePe), all of which are critical in the ecommerce battle. In 2018, the US retail giant Walmart completed the acquisition of a 77% share of Flipkart, resulting in the largest exit to date for private equity and venture capital investors in India.

Flipkart is the leader in Indian ecommerce market but competition looms

Amazon has been Flipkart’s biggest competitor in India. They have been neck and neck in the Indian ecommerce race. But the market is about to be disrupted by the entry of Reliance Industries. Jio Mart has already created some excitement in the market. The company is working to onboard the kirana stores (small neighbourhood brick and mortar shops) to the ecommerce model. It has announced its plans to embed its ecommerce app JioMart into WhatsApp, which will help it utilize the large customer base of WhatsApp in India.

In addition, ecommerce startups have also intensified competitive pressures as they have entered into online platforms for food delivery, pharmacy delivery, grocery delivery, travel booking, hotel booking, and health and beauty. These companies have been successful in receiving investments and a number have joined the unicorn (privately held startups valued at over $1bn) club. The big players in India are Oyo Rooms, Swiggy, Zomato, Ola Cabs, and BigBasket.

US listing will help fund expansion

Flipkart benefited from the ecommerce surge in the pandemic and is now exploring going public in the US through a merger with a special-purpose acquisition company (SPAC).

SPACs refer to shell corporations designed to take companies public without going through the traditional IPO process. The advantages of this approach include a less intrusive IPO process with fewer disclosure requirements.2020 saw at least 25 tech, media, and telecom (TMT) companies combining with SPACs in order to go public. We expect this trend to continue in 2021 and the biggest ones in the pipeline are SoFi and Paysafe.

If the IPO plans for Flipkart go through, it would be the biggest listing of an Indian company on a foreign stock exchange. The listing will help Flipkart to raise new funds. With this, the company will continue to invest in technology and business expansion to compete in the market.

It has already been on acquisition spree to diversify its business. In 2020, it acquired Scapic (an augmented reality company) and Mech Mocha (a real-time multiplayer gaming platform). In addition, it is reportedly looking to purchase a controlling stake in online travel aggregator Cleartrip. These investments will further strengthen its position in the Indian ecommerce market.