Walmart 'disappointed' with FDI norms for e-commerce but confident about Flipkart

Walmart’s honeymoon with Flipkart is far from over as the US-headquartered retail giant said that the cost of complying with India’s foreign direct investment norms will not impact its guidance for the year.

During its earnings call for the fourth quarter and fiscal year 2019 on Wednesday, Walmart said that the results for Flipkart in which it holds a 77% stake were in line with expectations.

The company reported a 1.9% increase in revenue at $138.8 billion with a net income of $3.68 billion, up 69.5% for the quarter. Net sales at Walmart International slipped 2.3% to $32.3 billion.

“Turning to profitability, we continue to expect consolidated operating income dollars to decline by low single digit percentage, primarily due to Flipkart being included for the full year versus the partial year in fiscal 2019. We would expect operating income to increase excluding the Flipkart effects,” said Brett Biggs, Walmart’s executive vice president and chief financial officer.

During the call, chief executive Doug McMillon said that though the regulatory impact of FDI compliance was disappointing, it was not sufficient to comment on the guidance for Flipkart. “I’ll just say that the things that have happened have been disappointed in some way, but they haven't shaken our confidence and excitement about what this is going to mean to the company long-term,” he added.

In response to queries on investments in India in the light of the regulations, Biggs said that Walmart will look at the Flipkart ecosystem as a whole and invest in multiple arms of the company.

“But I would remind everybody that Flipkart is already an ecosystem. There's the PhonePe, a payment platform. There's a last mile delivery. There's Myntra and Jabong businesses in apparel. So it's not just one thing. And it's just not an e-commerce business in the traditional sense, there's a lot of dimension to it. So there, just like here, we've got a lot of different variables we can play that demands the total,” said Biggs.

Previously, brokerage firm Morgan Stanley had indicated that Walmart might exit Flipkart in the light of the Press Note 2 which came into effect on February 1, addressing regulations on FDI in the marketplace model of e-commerce.

Both Flipkart and US-headquartered rival Amazon had sought an extension to the February 1 deadline, which was ignored by the government.

A study undertaken by ratings agency CRISIL stated that the new rules could cost the e-tailing industry a loss of Rs 35,000-40,000 crore.