Discount brokerage firm Zerodha, which competes with the likes of institutional investors-backed Groww and Upstox, has reported a double-digit growth in revenue and profit for the year ended March 2024, even as it warned that regulatory issues may trim its topline going ahead.
Zerodha saw a 62% increase in its profit for the financial year through March 2024 to Rs 4,700 crore against a profit of Rs 2,900 crore in the fiscal before, the company’s co-founder and chief executive officer (CEO), Nithin Kamath, said in a blog post.
The profit figure for FY24 doesn’t consider around Rs 1,000 crore of unrealised gain, which the company will report in its audited financials, Kamath said.
Revenues surged nearly 22% on year to Rs 8,370 crore during the fiscal. The revenue growth in FY24, however, was slower as compared to FY23 and FY22, when it saw growth of 35.5% and 82%, respectively.
The major sources of the company’s income are stock brokerages, onboarding fees, commissions from selling mutual funds via Zerodha Coin, and the sale of APIs.
Founded by Nithin and Nikhil Kamath in 2010, Zerodha is a leading brokerage firm in India. Apart from Groww and Upstox, Zerodha also competes with listed platforms like Angel One, as well as several large-owned trading platforms and traditional brokerages like ICICI Direct, Sharekhan, and Motilal Oswal.
Going ahead, Zerodha is bracing for a potential decline in revenue starting October 1, 2024, when SEBI’s “true-to-label” circular takes effect. This could result in a 10% revenue decline, said Kamath.
Under the “true-to-label" system, brokerages will have to implement a uniform charge and won’t be able to offer volume-based slabs.
Additionally, he pointed out that SEBI's consultation paper on derivatives, which may be adopted in the coming quarters, could cause a 30-50% drop in revenue. SEBI’s consultation paper had highlighted rising use of F&O by retail traders, who mostly end up on the losing side. It has proposed stricter norms for F&O trading, including index derivatives contribute significantly to Zerodha’s earnings.
Further, the Securities Transaction Tax (STT) on futures trading will increase in October and will have an impact on Zerodha business, Kamath said.
In a bid to mitigate upcoming risks, Zerodha is expanding into areas like Margin Trade Funding (MTF) and public and private market investments. Through its Rainmatter initiative, Zerodha has invested Rs 680 crore in over 120 startups, spanning fintech, climate, and health sectors. The brokerage is also growing its LAS (Loan-Against-Securities) business and its fund management arm, which now holds Rs 3,000 crore in assets under management.