Zerodha makes 4,700-cr profit; but CEO flags `big revenue hit' soon

India's largest stock broking platform Zerodha has reported ₹8,320 crore revenue and ₹4,700 crore profit for the last financial year.

According to co-founder and CEO Nithin Kamath, this is a big pull ahead from the ₹6,875 crore revenue and 2,907 crore profit reported in the previous year.

Zerodha saw its net profit surge by 39 % in 2022-23 from ₹2,094 crore in FY 20-2122; its revenue grew by 35.5% from ₹4,694 crore in FY22.

`Unleashed gains' not counted

“The profits don’t consider the ~ ₹1,000 crore of unrealised gain, which will show in our financials. Given the profitability of the last three years, our net worth is almost ~40 percent of the customer funds that we manage. It makes us one of the safest brokers to trade with,” Mr Kamath added.

“Many risks … seem to be materialising simultaneously. We are already seeing revenue and profit plateaus, and we are bracing for a big revenue hit later this year,” he noted.

‘Bracing for big revenue hit’

Mr Kamath listed several reasons for Zerodha's numbers taking a hit. These are:

"Expect a 10% revenue dip after SEBI’s true-to-label circular goes live on October 1. 
SEBI recently published a consultation paper on index derivatives that was open to public comments.

 “We expect this paper to materialise into regulation sometime in the next quarter. Index derivatives today are a significant portion of our revenue, and any change will impact us,” he said. He anticipates a 30-50 percent drop in revenue due to this. The STT goes up from October 1. Although the impact on options trading is minimal, Mr Kamath anticipates a significant impact on futures trading.

The amount of Annual Maintenance Charges (AMC) collected changes with the new Basic Services Demat Account (BSDA) thresholds set by the regulator. “Essentially, we can charge full AMC from customers with a demat holding of ₹10 lakhs and more, as opposed to Rs 4 lakhs today. Combined with us removing the account opening fee, this would be a meaningful drop in revenue,” he added.

Referrals will drop drastically 

“We have run a decent-sized partner and referral programme from the very beginning relying on customer word of mouth. Customers referred other customers, and we shared a small percentage of the brokerage as a commission. We have had to stop these payouts because the exchanges issued new guidelines saying a payout can be made only to Authorised Persons (AP) registered on the exchanges. Due to this, thousands of people referring will now be reduced to only a few registered APs, affecting growth,” he pointed out.

Mr Kamath also highlighted the “risk of the bull market ending at any time,” noting that this would bring “significant drawdown”. He, however, added that Zerodha is “well covered” to tide over the lull period “with a lean team, efficient expenses and infrastructure and material costs, and a strong networth”.

(By arrangement with livemint.com)