Zerodha's Profit Surges 62% to Reach Rs 4,700 Crore: What's Ahead for Nithin Kamath-led Discount Broker?

Zerodha Financial Results: The discount brokerage firm's revenue climbed to Rs 8,320 crore with profits reaching Rs 4,700 crore, a notable increase from the previous year’s Rs 6,875 crore in revenue and Rs 2,907 crore in profit. Nithin Kamath also said in a blog post that the profit figures do not include Rs 1,000 crore of unrealised gains, which is expected to be accounted for in the company’s financials later.

Kamath also stated that its net worth is now nearly 40 per cent of the customer funds it manages owing to the strong profits of the last three years. "Given the profitability of the last three years, our net worth is almost ~40 per cent of the customer funds that we manage. It makes us one of the safest brokers to trade with," the blog post read.

The company has witnessed strong growth in the past financial year thanks to the increasing number of retail investors coupled with the sustained bullish run. However, the surge in regulatory compliance is likely to pose a risk.

With the growing market frenzy, Securities and Exchange Board of India (Sebi) has put several suggestions on the table to control the same. From Sebi’s true-to-label circular (with effect from October 1) to the consultation paper on index derivatives. As per the company, if the regulation materialises, which it is quite sure of in the coming quarter, revenues could take decline by nearly 30-50 per cent.

Meanwhile, the company is also planning to reduce its reliance on the Futures and Options segment and pivot to diversification.

Parting Away from Futures and Options

The futures and Options segment is popular among investors but also the riskiest. According to an analysis by Sebi, most retail traders struggle in this segment, with about 93 per cent losing an average of Rs 2 lakh (each). Zerodha plans to shift away from relying on this segment and focus more on launching other investment options.

"The goal now is to pivot and reduce the reliance on F&O for revenue. So we will be launching margin trade funding (MTF), public market investments, private market investments through @Rainmatterin , loans against security with @zerodhacapital , @ZerodhaAMC JV with smallcase, @joinditto insurance JV with @finshots and more," Kamath said in a social media post.

Besides this, the sharp increase in Securities Transaction Tax (STT), can also significantly impact futures trading.

Not So Impressed by the IPO Frenzy?

While the IPO market continues to attract robust investor interest, with companies listing at record premiums, the discount brokerage firm is not planning to try its luck in the euphoric market.

Highlighting the importance of being able to predict financial figures, Kamath said that when retail investors become a part of the shareholding table, the company should have a clear image of its financial outlook.

"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," he said.