Flipkart hives off PhonePe; Invests $700 million pushing valuation to $5.5 billion

Ecommerce major Flipkart has partially hived off digital payments startup PhonePe into a separate entity. The company can now raise long-term capital separately and set up its own board of directors to help navigate the digital payments journey, the company said in a note today.

As part of the hive-off, PhonePe raised an additional $700 million from existing Flipkart investors led by majority shareholder Walmart. PhonePe has valued at $5.5 billion posts this deal. This is a jump from its previous assigned value of $1.5 billion when Walmart acquired a majority stake in Flipkart.

The Flipkart board, however, had given the nod for the hive-off back in March 2019.

PhonePe was valued at $7 billion by Morgan Stanley as a base case scenario more than a year back, in September 2019. It might look like being hived off at a discount, but the company’s real valuation will be unlocked when PhonePe gets external investors on board.

Media reports have speculated over multiple conversations that PhonePe had with large investors, including Tencent, Tiger Global, and others. But as of now, nothing much has moved on that front.

This is a major development in the digital payments ecosystem, as PhonePe will get its value unlocked and emerge as a prime competitor to Paytm in the Indian payments ecosystem. In its last funding round, Paytm was valued at $16 billion.

PhonePe has recorded strong growth over the four years since its inception and has acquired 250 million registered users and over 100 million monthly active users. As of October, the platform had processed more than a billion transactions. PhonePe processes digital payments across UPI, wallets, and cards.

The company went for a platform approach. It diversified into allied business verticals and built partnerships with multiple other startups to offer consumers flight, train, and hotel bookings, among other services. The company said that it has over 260 partners whose services can be accessed through PhonePe.

The Bengaluru-based company has built a merchant base of 13 million across the country. While it had started by partnering with Yes Bank, PhonePe has now also joined hands with ICICI Bank for its payment systems.

“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,” said Sameer Nigam, Chief Executive Officer, PhonePe.

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