Valuing Zerodha at Rs 30,000 cr more reasonable than the speculated Rs 1-2 Lakh crore: Nithin Kamath

Zerodha co-founder and chief executive officer (CEO) Nithin Kamath on Thursday, September 28, said that Rs 30,000 crore is a much more reasonable valuation for the discount brokerage firm, instead of the Rs 1 lakh to Rs 2 lakh crore estimates netizens are throwing around online. This is a rare case of a founder saying his company should be valued less than the speculated number.

Taking to X (formerly known as Twitter) Kamath said, "It might sound counterintuitive for me to say it, but most assumptions, I think, are way higher than reality... The quantum of profits is the luck of the draw and is based on market conditions. Stockbroking and capital market businesses are cyclical and high-risk. Almost every bull run in the markets creates the illusion that somehow participation and activity will keep going up forever."

Kamath also explained that given the uncertainties in the markets,  and the extent to which the company's prospects are tied to these uncertainties, sustaining high revenue growth is not a given. " We think that at the scale we are at, we can potentially grow by 10 to 15 percent in the long run, factoring in the drawdowns that are guaranteed," his tweet read.

"So if 10 to 15 percent 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," Kamath noted.

On September 26, the Bengaluru-based online stock trading platform reported revenues growing 38.5 percent to Rs 6,875 crore in FY23 from Rs 4,964 crore in FY22. It's net profits grew 39 percent to Rs 2,907 crore from Rs 2,094 crore over the period.

In a blog post soon after this earnings report, Kamath had said, “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.”

"(Of) our revenues, 25 percent are pass-through exchange transaction charges, which we collect from customers and pass on to the exchanges. Technically, this isn’t our revenue; if we excluded it, our margins (PBT/revenue) would be 70 percent," he had said.

Zerodha is banking on a lot of its 10-15 percent long-term growth coming not from its core stock broking business, but from its allied verticals. Kamath's post of X reads, "We are trying to diversify with everything we are doing in Rainmatter, our public holdings, and with large investments in the AMC business, insurance advisory, and loan against securities. Today, the revenues from these businesses are not significant, but hopefully, they will go up and help us maintain long-term growth."

The stock broker has an active client base of around 64 lakh as of August 2023, a number that has remains largely stagnant over the past 18 months.