Flipkart and phonepe separation was announced today. Phonepe was acquired by the Flipkart Group in 2016 and is one of India’s largest digital payments platform.
By establishing both companies as distinct legal organisations, both will be able to choose their own growth strategies and continue to develop market-leading products that give Indians access and inclusion.
In 2016, the Flipkart Group purchased the PhonePe Group, one of India’s major digital payment platforms. With over 400 million registered users, the company creates goods and services specifically for the Indian market. More than one in four Indians currently use PhonePe. Since its debut, PhonePe has effectively digitalized more than 35 million offline businesses located in Tier 2, Tier 3, Tier 4 cities, and more, covering 99% of the nation’s pin codes.
The creation of new options for investors to participate in the Indian tech ecosystem and its value will also result from the separation of these two firms, maximising enterprise value for the two companies’ owners.
“Flipkart and Phonepe separation, homegrown Indian businesses with a user base upwards of 400 million each,” said Sameer Nigam, founder and CEO of PhonePe. We are excited for the next stage of our development as we invest in new companies such as financing, insurance, and wealth management while also enabling the following expansion of UPI payments in India. This will advance our goal of bringing financial inclusion to billions of Indians.
“The Flipkart Group has developed several successful entrepreneurs and witnessed influential enterprises started by former workers,” stated Kalyan Krishnamurthy, CEO of the Flipkart Group. We are happy to witness PhonePe develop and prosper as a stand-alone prosperous business. We have faith that PhonePe will expand and realise its goal of enabling financial inclusion for millions of Indians. Flipkart continues to be dedicated to its mission of enabling every Indian’s dream by bringing value via advancements in technology and business while assisting small companies in connecting to markets across India.
Existing Flipkart Singapore and PhonePe Singapore shareholders, led by Walmart, have bought shares in PhonePe India as part of this transaction. This completes the transition that began earlier this year to transform PhonePe into a totally India-based business.
Walmart will continue to control the majority of shares in both company entities.
Flipkart purchased PhonePe in 2016. In 2020, Flipkart did eventually partially separate PhonePe into its own company. At that time, PhonePe had secured $700 million in capital from a number of investors, including Walmart, for a $5.5 billion value.
Flipkart and Phonepe separation & their future plans
According to a joint statement from the two companies, establishing these companies as separate legal entities will let them choose their own growth strategies as they continue to develop market-leading products that give Indians access and inclusion.
Once its primary businesses start to produce a profit, which PhonePe hopes to happen by 2023, the company aims to go public.
Nigam, Rahul Chari, and Burzin Engineer founded PhonePe in 2015, and since then, the company has added a number of mutual funds and insurance products to its platform.
At a valuation of around $13 billion, PhonePe is seeking to raise up to $1 billion from General Atlantic and its current investors, who also include Tiger Global Management, the Qatar Investment Authority, and Microsoft Corporation.
During the fiscal year that concluded on March 31, 2022, PhonePe’s consolidated operational revenue more than doubled to 1,646 crore. However, from a loss of 1728 crore in the prior fiscal year, it now has a loss of Rs 2014 crore.
The change occurs as PhonePe, which Flipkart purchased in 2016, decides to move its entire base to India. According to a source with knowledge of the situation, the payments company is in discussions to raise up to $1.5 billion at a pre-money valuation of $12 billion and use some of the proceeds to buy back some shares.
“We are optimistic that PhonePe will keep growing and realise its goal of bringing financial inclusion to millions of Indians. Flipkart continues to be dedicated to its mission of enabling every Indian’s dream by bringing value via advancements in technology and business while assisting small companies in connecting to markets across India.
A “one-time discretionary cash distribution as part of the deal” with PhonePe will be given to Flipkart employees with stock option plans, according to an email sent to staff on Friday by Krishnamurthy. The business is repurchasing shares for around $700 million.
The value of the PhonePe holding within those Flipkart options is represented by this payout. Without taking into account the value of PhonePe, the new share price of Flipkart has been established at $165.83 per option (formerly $189.1). However, in light of the rise in PhonePe’s market value, the dividend to employees will be $43.67 per option, he stated.
Ahead of its intention to conduct an initial public offering (IPO) in India, PhonePe relocated its registered organisation from Singapore to India in October. Contrary to this, Flipkart and the majority of consumer internet companies have an offshore residency for tax reasons.
According to an interview with Sameer Nigam, co-founder and CEO of PhonePe, the business is in the process of transferring its registered office from Singapore to India. He had claimed that the procedure would soon be finished because the board had already approved the idea.
We are an Indian-made business. We have every office, data centre, and staff here. There is no reason why we shouldn’t help this market generate money,” in Nigam’s words.
“We are excited for the next stage of our growth as we make investments in fresh industries like lending, insurance, and wealth management while also facilitating the next surge in UPI payments in India. “This will advance our goal of bringing financial inclusion to billions of Indians,” added Nigam.
In addition to its present UPI payment solution based on Quick Response (QR) Codes and in-app purchases, PhonePe has started working on launching its own payment gateway.
As it may attempt to target both major offline companies and small and medium-sized enterprises to offer its payment gateway to, the company will be in direct competition with the likes of Paytm, Pine Labs, and Razorpay.
PhonePe bought GigIndia, WealthDesk, OpenQ, and completed the long-delayed acquisition of IndusOS in the last year.
As part of the PhonePe hive off, Flipkart would pay ESOP holders $700 million in cash-
As part of its decision to separate full ownership of payments from financial services unicorn PhonePe, Flipkart will pay out cash payouts to employee stock option holders totaling about $700 million. The e-commerce giant is doing this in an effort to retain talent at a time when most startups in the nation are making layoffs due to the ongoing funding crisis.
“We are happy to announce that as part of the deal, workers who have Flipkart ESOPs (employee stock option plans) will receive a one-time discretionary cash payout. According to the Flipkart options, this dividend represents the value of the PhonePe shares held by Flipkart CEO Kalyan Krishnamurthy, who informed staff members via internal mail.
“Without taking into account the value of PhonePe, the new share price of Flipkart has been established at $165.83 per option (formerly $189.1). However, due to the rise in PhonePe’s market value, the dividend to employees will be US$43.67 per option for “Added Krishnamurthy.
Although Krishnamurthy did not specify the total cost of the buyback, it is estimated to be $700 million. He added that the workers who would qualify for the buyback will soon receive further information and specifics on this reimbursement. Unknown is the precise number of employees who will get the compensation. Flipkart made no comments regarding the report.