Stock broker Zerodha, in its recent business update on September 26, said its overall revenue for FY23 was around Rs 6,875 crore, while the profit after tax was about Rs 2,900 crore. In the previous fiscal year, the company had reported Rs 4,964 crore revenue and a profit of around Rs 2,000 crore.
In a blog post, Zerodha Founder and Chief Executive Officer Nithin Kamath said: “We continued to see phenomenal growth even in FY 22/23. That said, the business has plateaued in terms of revenue and profitability this financial year, until now.”
"Our revenues ~25 per cent are pass-through exchange transaction charges, which we collect from customers and pass on to the exchanges. Technically, this isn’t our revenue; if we excluded it, our margins (PBT/revenue) would be ~70 per cent," Kamath said in the blog post.
The Bengaluru-based company said it gets a bulk of its revenue from futures and options traders. Talking about the trading activity in F&O, Kamath said the total number of people trading F&O is still not that large in India.
"Around ~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. So approximately 3% of everyone with a Demat account and ~15% who traded the market traded in F&O last year. However, this subset of users would have contributed to the majority of revenues for all brokerage firms and even the exchanges," he said.
The largest retail broking firm in the country has an active client base of around 64 lakh as of August this year. But the number has been at the same level past 18 months.
Kamath added: "Trading the markets is a serious business with serious risks involved. Collecting an account opening fee right at the start also, in a way, helps set this expectation with a potential customer, filtering out users who may not be serious about trading or investing with us."
Besides, Kamath noted that the Application Supported by Block Amount (ASBA) like mechanism using the UPI mandate for buying stocks can be a business risk.
On March 29, markets regulator Sebi gave its nod for the ASBA facility for the secondary market.
As of now, the ASBA facility is used for subscribing to initial public offers (IPOs) with the investor’s money blocked in their bank account, earning interest, until the shares are allotted to the investor.
A similar structure is being planned for the secondary market.
Sebi and Fininfluencers
Talking about the Securities and Exchange Board of India's (Sebi) steps to tackle and regulate the finfluencers in India, Kamath expressed his support to the regulatory intent behind these proposals, emphasizing that individuals acting as advisors or analysts without Sebi registration should not be allowed to collect fees directly from customers or indirectly through brokerage sharing.
He added 10 per cent of the new business comes from the referral programme, along with their partner programme.
"We think that if anyone acts like an advisor or analyst without a SEBI registration, they shouldn’t be able to collect any fees directly from the customer or indirectly through brokerage sharing. So, we support the direction of the consultation paper. The risk is that any regulation around this could also result in us having to stop our referral program, which, along with our partner program, gives us ~10% of our new business," Kamath said.
Sebi's primary objective is to reduce the association between Sebi-registered entities and unregistered entities, which includes finfluencers. Secondly, it seeks to disrupt the revenue models of unregistered finfluencers.
Sebi's consultation papers are divided into two main areas. The first paper focuses on the payments associated with the financial advice and education provided by finfluencers. It examines the business model and the payments made by investors to registered investment advisors or research analysts. The second paper delves into whether regulated entities, such as mutual funds and brokers, should establish partnerships with finfluencers.
Digital infrastructure
Last week, Kamath shared how it took him six years to get the first 60,000 customers and the number increased to one crore in the next six years owing to the digital infrastructure.
"It took us 6 years to get to our first 60k customers, each of whom had to sign and courier 40+ pages of forms and wait for days. We got to 1 crore customers in the next 6, entirely eliminating paper in the process. This was enabled by eKYC, digital signatures (eSign), & digital documents (Digilocker)," he said in a post.
Kamath noted that businesses and consumers have benefited exponentially due to enhanced productivity, substantial savings, and wastage mitigation due to technology.
"Hundreds of millions of pages that didn’t have to be printed and transported and valuable customer time that didn’t have to be wasted. Most of our time in the first six years was spent figuring out how to send forms back and forth collecting docs," he added.
Kamath said Zerodha's growth was fueled by post-Covid surge in stock markets when the retail participation increased manifold.