Days after online stock broking platform Zerodha reported a 39 per cent jump in profit after tax to Rs 2,907 crore for the financial year ended March 31, 2023, co-founder and CEO Nithin Kamath today said that there is a lot of speculation around platform’s valuation and it’s far from reality.
“Every time our financials are out, there is a lot of speculation about @zerodhaonline’s valuation. It might sound counterintuitive for me to say it, but most assumptions, I think, are way higher than reality,” Kamath said on social media platform X.
He added that all of us on the core team have never thought of notional valuations right from the start because they can go up and down with market conditions.
Focussing on ever changing valuations is a distraction. The focus has always been on building a resilient business, which means never having to rely on external capital, he added.
Here’s what he posted on X;
“We keep discussing internally that we could see a 50% dip in activity and revenue if markets fall in no time. None of it is really under our control. And yeah, one circular is also enough to bring down our revenue by more than 50%.”
“We are trying to diversify with everything we are doing in Rainmatter, our public holdings, and with large investments in the AMC business ( @ZerodhaAMC ), insurance advisory (@joinditto), and loan against securities (@zerodhacapital). Today, the revenues from these businesses are not significant, but hopefully, they will go up and help us maintain long-term growth.”
“Why only 10 to 15%? As I mentioned in our post recently, the problem with trying to grow fast is that it is very hard given some of our core philosophies at Zerodha, like no spam, no revenue or sales targets, no tracking customer data to push people to do more, no spending on acquiring customers, etc. I think our moat is the philosophy, and without it, we could lose out in the long run.”
“So if 10 to 15% is the long-term growth, we value ourselves in the range of 10 to 15 times our earnings (PAT). At the lower end when near bull market highs. This is how we have been valuing ourselves for all buybacks (founders and team) for a while now. So ~Rs 30,000 crores and not the Rs 1 lakh to Rs 2 lakh crores some folks online were guesstimating.”
Moreover, in comparison, the brokerage house had posted a Profit After Tax (PAT) of Rs 2,094 crore in the financial year 2022-23.
Also, the company’s revenues surged by 38.5 per cent to Rs 6,875 crore in FY23 from Rs 4,964 crore a year ago.
”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,” Kamath wrote in a blog post on Tuesday.
He attributed the primary reason for the increase in revenue and profitability over the last three years to huge interest in the markets, especially in the futures and options (F&O) segment.
Bengaluru-based Zerodha manages about Rs 3 lakh crore worth of customer assets.
As of August, the firm is reported to have an active client base of 6.3 million.