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Morgan Stanley: What Impact Will India's New E-Commerce Laws Have On Walmart?

Morgan Stanley: What Impact Will India's New E-Commerce Laws Have On Walmart?

Among the multiple new e-commerce laws India's ruling government enacted Feb. 1, online vendors can no longer offer exclusive deals for products on their platform and can no longer task one vendor with supplying more than 25 percent of an entire inventory, Quartz reported.

The new rules directly apply to Walmart Inc (NYSE: WMT), which is invested in India through its ownership of Flipkart, according to Morgan Stanley.

The Analyst

Morgan Stanley's Simeon Gutman maintains an Overweight rating on Walmart with an unchanged $110 price target.

The Thesis

At first glance, the new rules appear negative for Walmart and its Flipkart business, although the law remains subject to change and it is not yet clear how companies will adapt, Gutman said in a Monday note.

Walmart could find "creative business solutions," so the potential impact to the retailer's EPS remains unclear, the analyst said. 

Under a series of scenarios and assumptions, Flipkart's losses could increase by 20-25 percent from the new rules and result in a "manageable" 1.5-percent hit to Walmart's 2019 earnings, Gutman said. The impact may already be priced into Walmart, he said.

Walmart isn't likely to consider divesting its stake in Flipkart, but at the end of the day it may be the right move if there is no longer a clear path toward achieving a profit in India, according to Morgan Stanley. 

Price Action

Walmart shares were up 0.27 percent at $94.11 at the time of publication Monday. 

Related Links:

Winning India: Walmart Vs. Amazon

Morgan Stanley Weighs How Flipkart Changes Walmart's Global Stand Against Amazon

Photo courtesy of Flipkart. 

Latest Ratings for WMT

Feb 2021Morgan StanleyMaintainsOverweight
Feb 2021Morgan StanleyMaintainsOverweight
Feb 2021Raymond JamesMaintainsOutperform

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