Zerodha Witnessed Record Revenue and Profit as Company Deals with Regulatory Headwinds

PC: Moneycontrol 

In a recent blog post, the co-founder and CEO of Zerodha-the popular stock broking platform-revealed some great financials from this fiscal year. During FY24, Zerodha racked up more than Rs 8,370 crores in revenue and Rs 4,700 crores in profit, nearly two times the operational revenue in FY23 at Rs 6,875 crores and the profit after tax at Rs 2,907 crore.

What is important is that disclosed profits did not provide for about Rs 1,000 crore of unrealized gains, which are likely to materialize in the financial statements once such gains would be duly recognized. The above statement further cements Zerodha’s stellar financial performance through effective management policies.

Kamath said that the majority of the proceeds are gains that Zerodha directly gets from revenue, and hence the place is one of the safest places to be in terms of brokerage for the traders due to its net worth being so much higher than the customer funds placed at the company’s disposal.

However, the company is expecting the revenue and profit trend to decline in the near term. The company said this expected decline is due to several changes relating to securities promulgated by SEBI. Among other things, the expected changes will eliminate the volume-based transaction fee model completely for free equity delivery trades that all brokers, including Zerodha, provide.

The effect of the true-to-label circular issued by SEBI, which is expected to become effective from 1 October, may result in a 10% revenue cut for Zerodha. Kamath feared that this regulation might gradually affect Zerodha’s revenue streams, primarily in the index derivatives trading sector, with revenues taking a beat of 30% to 50% levels.

There’s also another significant aspect, which is the annual maintenance charges (AMC) of Zerodha, which is expected to see an upward bias with the new basic services demat account (BSDA) thresholds announced by the regulator. The company has proposed to alter its AMC charges as a matter of conformity to the newly prescribed threshold of Rs 10 lakhs demat holdings which will significantly reduce the revenue while abolishing the account opening fee.

Despite the prospects of facing decline in revenue through regulatory change in threat onslaught, Zerodha remains optimistic on an otherwise lean team structure combined with prudent financial management and a solid financial position to ride the slowdown, according to its executive.

It has managed to stay on a competitive edge regarding the ever-changing landscape of stock broking platforms through its business model and profitability. It focuses on passively managed mutual funds and strategic business decisions that are used to change the regulatory environment.

With this, Zerodha is readied to take the regulatory and dynamic market head-on. The company will be able to survive through the turbulent times of the change that has resulted in a free-for-all industry such as stock broking.