Deal with Flipkart credit positive for Walmart: Moody's

18 May '18

2 min read

Acquisition of 77 per cent stake in Indian e-commerce giant Flipkart is credit positive for Walmart even though the Indian firm is predicted to make losses for a few years. A report by Moody’s says that the deal is expected to weaken the credit metrics of Walmart initially, but it will provide immediate scale in the growing e-retail sector of India.

The credit metrics of Walmart will be weakened with retained cash flow (RCF) to net debt ratio dropping to about 30 per cent from 40 per cent currently and debt to EBITDA ratio which could double from 1.6 times currently.

The combination of increased cash flow and debt reduction may push the RCF/net debt ratio back above 35 per cent, notes the report. Moody’s credit positive view for Walmart is based on India’s compelling features such as its population of 1.2 billion and an economy that’s growing at the rate of 7 per cent annually. India also has over 400 million millennials, exploding smartphone penetration and a growing middle-class, which are critical as shopping continues to shift online.

"As Flipkart is expected to generate meaningful losses for at least the next few years, this is clearly an investment for the future, and when viewed in tandem with the recently-announced sale of a majority stake in Asda, is indicative of Walmart's long-standing strategy of shifting resources into higher growth potential markets and segments when opportune," said Moody's vice president Charlie O'Shea.

"The overall impact on Walmart's credit profile is relatively benign as the company has built some cushion over the past few years, and we expect the company to follow past practice and utilise share repurchases as the lever when necessary to largely maintain its quantitative profile over the next 2-3 years." added O'Shea.

The rating agency affirmed Walmart’s Aa2 rating and stable outlook. (KD)

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