Zerodha is bracing for a 30-50% hit to its revenues in FY25, as it expects SEBI's new regulations on F&O to get implemented.
"We are already seeing revenue and profit plateau, and we are bracing for a big revenue hit later this year," Founder and CEO Nithin Kamath wrote in a blog post.
Kamath noted an expected 10% revenue hit on account of SEBI’s true-to-label circular for market infrastructure institutions, which will go live on Oct. 1, 2024. Another 30-50% drop in revenue could come from the implementation of SEBI's consultation paper on index derivatives, which is expected to go into regulation sometime in the next quarter.
"Index derivatives today are a significant portion of our revenue, and any change will impact us," Kamath wrote. Further, securities transaction tax on F&Os is set to be hiked from Oct. 1, 2024, due to which Zerodha anticipates a significant impact on futures trading.
Kamath added that the he also expects a hit on topline due to reduction in the annual maintenance charges they are currently levying and reduction of the scale of its referral program.
Zerodha also revealed its FY24 financials in the blog post, highlighting a revenue of roughly Rs 8,200 crore and a net profit of about Rs 4,500 crore. Those financials are up from the Rs 6,875 crore in revenue and Rs 2,907 crore in profit after tax reported in FY23.
"FY23/24 was a fabulous year in terms of both revenues and profitability. The profits don’t consider the ~Rs 1,000 crore of unrealised gain, which will show in our financials. Given the profitability of the last three years, our networth is almost ~40% of the customer funds that we manage. It makes us one of the safest brokers to trade with," Kamath wrote.
Kamath also junked the idea of an IPO in the recent future, adding that revenue predictability is something that he can't assure in the current scenario.
"When retail investors enter the cap table, the company should be able to predict revenue to some extent. In the last 14 years, I have not once been correct in predicting revenue growth and dips. Our business, while it looks good based on financials, can change in a heartbeat due to a change in regulation or markets taking a turn for the worse. We need to do more regarding revenue predictability, and it is impossible to do it just as a brokerage business," Kamath reasoned. He added that Zerodha doesn't need to raise external capital when it already has a strong net worth built with its own profits.
"Why take on the burden of expectation from investors when there is nothing strategic or material to gain for the business? Once listed, most companies are forced to shift their focus to growing quarter after quarter at all costs....Whether it be business or product choices, we make them carefully with the customer at the centre and not by revenue targets. This is a significant edge that we have," he said.
Kamath added that every broker will be affected in terms of revenue, and the business models will need to change. "In addition, our profitability numbers have been attracting new competition in the last few years. So, regulation will reduce business, markets could go down, and competition will increase. A perfect storm for us," he said.
RECOMMENDED FOR YOU
Phishing Scams, Fake Apps Increasing At Alarming Rate, Says Nithin Kamath
Nov 18, 2024
Want To Get Featured In Nikhil Kamath's WTF Podcast? Team Member Reveals How
Nov 04, 2024
Indian Stock Market Has Become A Lot Younger, Says Zerodha's Nithin Kamath
Oct 15, 2024
Zerodha's Nithin Kamath Lauds New SEBI Rule That Simplifies Payout Of Securities
Oct 08, 2024
POPULAR