The partial spin-off would allow PhonePe to constitute a new Board of Directors to create a “tailor-made equity incentive or ESOP program for its employees," and access dedicated investment to fuel growth for the coming three to four years.
While rivals Amazon Pay India and Paytm posted losses of Rs 1,868.5 crore and 2,833.18 crore in FY20, respectively, Google Pay India reported an over sixfold increase in net profits y-o-y to Rs 32.86 crore during the year.
Walmart-owned Flipkart has partially spun off its digital payments arm PhonePe to allow the latter access dedicated investment to fuel its “long-term ambitions” for the coming three to four years, the company said on Thursday. The partial spin-off would also allow PhonePe to constitute a new Board of Directors to create a “tailor-made equity incentive or ESOP program for its employees.” The exercise undertaken by Flipkart’s Board was timed recognising the “momentum that has been achieved, as well as PhonePe’s significant growth potential,” according to a statement. Founded in December 2015, PhonePe claimed over 250 million registered users and more than 100 million monthly active users (MAU) generating close to 1 billion digital payment transactions in October 2020.
Flipkart added that the partial spin-off involved a $700 million investment being raised by PhonePe in primary capital from Walmart and other existing Flipkart investors. The deal would ascribe PhonePe a post-money valuation of $5.5 billion with Flipkart remaining the majority shareholder in the digital payments company. “The two businesses will retain their close collaboration,” it added. Flipkart counts Tiger Global, Tencent, Binny Bansal, Accel Partners, Microsoft, etc., among its minority investors.
“Flipkart and PhonePe are already among the more prominent Indian digital platforms with over 250M 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, Founder and CEO at PhonePe.
The partial spin-off will help PhonePe “maximize its potential” and “maximize value creation for Flipkart and our shareholders,” said Kalyan Krishnamurthy, CEO, Flipkart Group. PhonePe had entered the financial services space in 2017 by enabling the sale of gold on its platform. The company had later launched mutual funds and insurance financial products like tax-saving funds, liquid funds, international travel insurance, and insurance product for COVID-19. PhonePe had introduced its Switch platform in 2018 offering over 260 mini web apps of businesses such as Ola, Myntra, IRCTC, Goibibo, RedBus, Oyo, etc. Currently, PhonePe is accepted at 13 million merchant outlets across 500 cities in India.