'After the stroke...': Zerodha's Nithin Kamath opens up on succession planning after January health scare

Zerodha co-founder Nithin Kamath opened up on succession planning for his company, a topic he hadn’t given much thought to until a health scare earlier this year. 

After suffering a stroke in January, Kamath spent a month away from work, reflecting on whether to return or step back. 

"I didn’t think about it until January this year, and after the stroke, I spent a month at home thinking if I should get back to work or not," Kamath shared during an AMA session. 

Though he returned to work, succession planning isn’t currently a priority for him.

Kamath highlighted that Zerodha’s decision-making process is not dependent on a single individual. 

"We have an analyst group, an internal team where all decision-making and the rationale behind those decisions are shared," he explained, emphasizing a collaborative approach that ensures continuity beyond any single person’s involvement. He added, "Even for Rainmatter, our investment group, a team comes together to make decisions."

While succession planning may not be on the agenda yet, Kamath stressed that the structure in place ensures that the company will not be reliant on any one individual, and in case of leadership changes, there would be "no baggage." 

This approach offers a degree of security, positioning Zerodha for long-term sustainability despite leadership shifts, he said.

Kamath stressed that Zerodha believed in fostering a culture of collective decision-making, rather than focusing on individual leadership.

Zerodha is anticipating a 30-50% reduction in its revenues for FY25, as it prepares for the potential impact of SEBI's new F&O regulations.

"We are already witnessing a plateau in revenue and profits, and we are gearing up for a significant revenue drop later this year," Kamath wrote in a blog post. He pointed out that SEBI’s true-to-label circular, set to take effect on October 1, 2024, could result in a 10% revenue decline. He also indicated that SEBI's consultation paper on index derivatives, expected to become regulation in the upcoming quarter, could further cause a 30-50% revenue drop.

"Index derivatives currently form a major portion of our revenue, and any regulatory change will affect us," Kamath wrote. Additionally, the securities transaction tax on F&O is due to increase from October 1, 2024, which Zerodha believes will have a substantial effect on futures trading.

Kamath also mentioned that reductions in annual maintenance charges and the scale-back of Zerodha’s referral program are expected to further impact topline growth.

In the same blog post, Zerodha shared its FY24 financial results, reporting revenue of approximately ₹8,200 crore and net profit around ₹4,500 crore, an increase from ₹6,875 crore in revenue and ₹2,907 crore in profit after tax in FY23.

"FY23/24 was exceptional in terms of both revenue and profitability. The profits don't reflect the nearly ₹1,000 crore of unrealized gains, which will appear in our financials. With the profitability of the last three years, our net worth now equals almost 40% of the customer funds we manage, making us one of the safest brokers," Kamath added.

Kamath also ruled out any near-term plans for an IPO, citing the inability to ensure revenue predictability under current conditions.