FinTech: Zerodha, India’s Largest Discount Broker, Turns Bootstrapped Unicorn

June 29, 2020 | FinTech, News, Venture Capital

Nithin founded Zerodha in 2010 along with brother Nikhil Kamath to overcome the hurdles he faced during his decade long stint as a trader. Zerodha bootstrapped its way to becoming India’s biggest broker in terms of active retail clients and has just turned ten years old. It’s a suitable occasion to break out the champagne – because it also achieved unicorn status. (YourStory)

A bootstrapped fintech and profitable to boot

The Kamaths’ vision was to demolish the barriers that traders and investors face in India in terms of cost, support, and technology available from brokers.

When they launched Zerodha in 2010, they were also clear about their modus operandi.

Not for them the VC-fuelled, growth model that seemingly eschewed profits. Instead, they determined to bootstrap their way to profitability by developing a high-tech but sustainable business model for discount broking.

They’ve been successful, and Zerodha has just announced an employee stock options buyback plan that values the company at $1 billion.

The Rs 65 crore (about $9 million) ESOP buyback plan is calculated based on 5X the firm’s book value –Zerodha is valuing itself at Rs 7,000 crore (about $1 billion).

Solid growth

Consider this:

  • Zerodha reported net profits of Rs 350 crore ($46.37 million) on revenue of Rs 850 crore ($112.60 million) in FY 2019.
  • Its total client base leapfrogged 40 times to 2.8 million in the last five years
  • During the COVID-19 lockdown months, it doubled its user add to 200,000 users per month

With such growth, it is the founders’ view that their valuation could have been much, much higher.

“4X-5X book value is what brokerage firms typically get,” said Nithin Kamath CEO to YourStory. “The thing is, we are not just a brokerage firm – we’re actually a tech firm that’s growing very fast.”

“The actual valuation numbers could be way higher because people value tech businesses based on growth,” he added.

Strictly no IPO

Kamath makes no bones about the fact that there is no IPO on the horizon for the time being.

Zerodha has scrapped initial plans for an IPO due to the COVID-19 crisis.

Besides, Nithin values the freedom to operate his business model as aggressively as he deems fit – an IPO would bring a lot more responsibility to shareholders.

“Today, we are aggressive and nimble in the way we work because it is our own money. But as soon as we raise money, we are responsible for other people’s money. Also, in our business, predicting revenue is very tough as it is dependent on the underlying market volatility. And the current situation has made predicting even tougher. So, until there’s clarity, we won’t do an IPO anytime soon,” says Nithin Kamath.

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