Walmart's Potential PhonePe Spinoff Would Create Clearer Path To Value Creation, Morgan Stanley Says

Walmart Inc WMT plans to spinoff PhonePe from Flipkart and make it a separate entity, independent of Indian ecommerce firm Flipkart

While a spinoff would provide more direct ownership of PhonePe for Walmart’s shareholders, a potential capital raise could help the digital payments vertical to more deeply penetrate the financial services market, according to Morgan Stanley.

The Analyst

Morgan Stanley’s Simeon Gutman maintained an Overweight rating on Walmart, keeping the price target at $125.

The Thesis

The base case values PhonePe at $7 billion, while the bull case valuation is $20 billion, Gutman said in the note.

“PhonePe is a leading player in the rapidly growing UPI payments space in India and is beginning to expand into financial services,” the analyst wrote. He added that even if the entity could capture around 1% of the financial services market by 2029, the bull case valuation would be met.

The assumption seems “reasonable,” since PhonePe’s penetration into the Indian financial services market had just begun and the size of this market could reach around $340 billion by 2029, Gutman explained.

After the planned spinoff, Walmart would have greater control over PhonePe's strategy and daily operations and if this entity were to get monetized in the future, proceeds would accrue directly to Walmart’s shareholders, Gutman said.

Price Action

Shares of Walmart were trading down 0.5% at $119.64 at the time of publishing on Monday.

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