Flipkart partially spins off PhonePe; Binny Bansal to join board

E-commerce major Flipkart on Thursday announced a "partial spin-off" of PhonePe as the digital payment firm raises $700 million in funding, valuing it at $5.5 billion.

Flipkart co-founder Binny Bansal will join PhonePe's board of directors, along with the fintech company's co-founders Sameer Nigam and Rahul Chari.

In this financing round, PhonePe is raising $700 million (about Rs 5,172 crore) in primary capital at a post-money valuation of $5.5 billion from existing Flipkart investors, led by Walmart, a statement said.

Flipkart will remain PhonePe's majority shareholder, and the two businesses will retain their close collaboration, the statement added.

Flipkart will own 87 per cent majority share in the hived-off entity with US-retail giant Walmart owning 10 per cent and existing investors, including Tiger Global Management, holding the remaining 3 per cent stake, a PhonePe spokesperson told PTI.

The spokesperson added that Rohit Bhagat, who also serves as an independent director at Flipkart Pvt Ltd and Axis Bank, will join PhonePe's board.

There will be two representatives from Walmart, and a few more leaders from the BFSI (banking, financial services and insurance) sector will also be added to the board.

Bansal had resigned from the Flipkart in November 2018, after which he co-founded start-up consultancy xto10x Technologies.

Flipkart, in its statement, said recognising the momentum that has been achieved, as well as PhonePe's significant growth potential, its board had determined that "this was the right time to partially spin-off PhonePe so it can access dedicated capital to fund its long-term ambitions over the next three to four years".

PhonePe has crossed the 250-million registered users milestone, with over 100 million monthly active users (MAU) generating nearly 1 billion digital payment transactions in October 2020.

"Flipkart and PhonePe are already among the more prominent Indian digital platforms with over 250 million users each. This partial spin-off gives PhonePe access to dedicated long-term capital to pursue our vision of providing financial inclusion to a billion Indians," PhonePe founder and CEO Nigam said in the statement.

Kalyan Krishnamurthy, CEO of Flipkart Group, said the move will "help PhonePe maximise its potential as it moves to the next phase of its development, and it will also maximise value creation for Flipkart and our shareholders".

Flipkart said the partial spin-off would also provide PhonePe an opportunity to create a tailor-made equity incentive or ESOP program for its employees.

PhonePe has about 2,200 employees and is in the process of adding another 700 people over the next few months, the company spokesperson said.

PhonePe was founded by ex-Flipkart executives Nigam, Chari and Burzin Engineer, and was acquired by Flipkart in 2016.

In 2018, Flipkart was acquired by Walmart, and PhonePe was also part of the transaction.

Walmart had announced a 1.3 per cent increase in net sales in its international business at $29.6 billion in the third quarter ended October 31. It attributed this growth to various factors including strong results of Flipkart and PhonePe that saw "all-time high" monthly active users.

During the earnings call last month, Walmart President, CEO and Director C Douglas McMillon noted the strong performance of its India units.

"In India, Flipkart and PhonePe had strong results for the quarter. The number of monthly active customers for these platforms is at an all-time high," he had said.

Discussions for hiving off PhonePe, which competes with players like Paytm, Google Pay, Amazon Pay and others, have been going on for almost a year.

In December last year, PhonePe had filed documents with the Corporate Affairs Ministry related to raising about Rs 585.66 crore from PhonePe Pvt Ltd, Singapore (formerly Flipkart Payments Pvt Ltd).

It had received another fund infusion of about Rs 698 crore in July last year.