India's largest online stock broker Zerodha has reported about 38.5% jump in total revenue for the fiscal year 2022-23 at ₹6,875 crore as compared to ₹4,964 crore revenue in the previous fiscal year. The company's net profit also jumped 38.8% to ₹2,907 crore in FY23 from ₹2,094 crore in the previous fiscal year.
Zerodha CEO Nithin Kamath says the company continued to see phenomenal growth even in FY 22/23. However, the business has plateaued in terms of revenue and profitability this financial year until now, he acknowledges via a blog post published on September 26.
Kamath says of the company's revenue, ~25% are pass-through exchange transaction charges, which the company collects from customers and passes on to the exchanges. "Technically, this isn’t our revenue; if we excluded it, our margins (PBT/revenue) would be ~70%."
While the trading activity in futures and options has increased significantly, says Kamath, the total number of people trading F&O is still not that large. "(Over) 45 lakh Indians (unique) traded once a year last year in F&O. To set this in context, we have 12 crore demat accounts (non-unique) in India, and NSE active client data indicates 3 crore Indians who traded once a year (unique) on the exchange.”
That means, around 3% of everyone with a demat account and 15% who traded the market traded in F&O last year, says the Zerodha CEO, adding that this subset of users would have contributed to the majority of revenues for all brokerage firms and even the exchanges.
Kamath says Zerodha turned 13 on August 15, 2023, and that interest in markets continues to remain high. "Market activity and regulatory changes are the two constant sources of risk for the broking industry. While the market sentiment is bullish, there can be a significant impact on financials if the sentiment changes."
Zerodha primarily makes money from brokerage fees, the sale of its core products, and onboarding charges. A major chunk of Zerodha's revenue comes from fees and commission. Overall, Zerodha customers hold over ₹3 lakh crore of securities in demat accounts, says Kamath. "We are happy that we are playing a role in the financialisation of India."
In terms of risks, Kamath says the biggest risk is that the concentration of revenue from F&O also means that any regulation or change in market conditions or newer competitors with better products can reduce retail trading activity in F&O at Zerodha and significantly impact the revenue.
Kamath, during an interview with Fortune India last month, had said for him, that valuations mean nothing because they are all on paper. "Personal wealth is really the money in the bank. We are constantly trying to increase the net worth of the business, which essentially is cash plus assets and that is valuation for us in the true sense," he said.
