Zerodha profit jumps 61.5% in FY24; CEO warns of regulatory challenges

However, anticipates 30-50% drop in revenue next fiscal due to regulatory headwinds

Discount stock broker Zerodha on Wednesday reported a 61.5 per cent year-on-year (Y-o-Y) jump in profit during the financial year 2023-24 to Rs 4,700 crore while revenues jumped 21 per cent Rs 8,320 crore.

If the brokerage firm were a listed entity, it would be the 63rd most profitable company.  

Zerodha’s chief executive officer Nithin Kamath, however, cautioned that the company faces significant challenges ahead.

These changes, termed as ‘regulatory risks’ by Kamath, are on possible changes in the norms on index derivatives, surge in securities transaction tax (STT), and a true-to-label mandate by the market regulator Securities and Exchange Board of India (Sebi).

Sebi has proposed seven key changes in regulations around index derivatives with an aim to limit retail participation, and losses in the speculative segment.

“Sebi recently published a consultation paper on index derivatives that was open to public comments. We expect this paper to materialise into regulation sometime in the next quarter. Index derivatives today are a significant portion of our revenue, and any change will impact us. We anticipate a 30 per cent to 50 per cent drop in revenue,” Kamath wrote in a blog.

Kamath added that the company may face a 10 per cent revenue dip once Sebi’s “true-to-label” circular comes into effect from October 1.

Stock exchanges charge a fee based on the overall turnover from a specific broker.

The slabs for fee depend on the turnover—which lead to less transaction charges if the turnover is more. Broker firms received rebates at the end of the month on the difference between what they charged the customer and the fee levied by the exchanges on the broker.

Sebi has now guided stock exchanges to charge uniform fees, irrespective of the turnover from them—and this putting an end to this practice of rebate.

Simultaneously, effective October, STT will go up according to the announcement made in the Union Budget.

“Although the impact on options trading is minimal, we anticipate a significant impact on futures trading,” said Kamath.

Kamath added that there would be impact from the changes in the basic services demat accounts on the revenue and the removal of the referral programme, which could impact growth.

While dismissing possibilities of listing, the Zerodha founder also detailed the company’s plans for diversifying business.

It plans to launch margin trade funding, and build-up public market and private investments, Loan-Against-Securities vertical, insurance, and its fund management business. 

Kamath said that given the profitability of the last three years, Zerodha’s networth is almost 40 per cent of the customer funds they manage—making them one of the safest brokers to trade with.

Zerodha’s total current assets under custody, which refers to the total assets held in the demat accounts, stands at Rs 5.66 trillion.

As of June, it commanded 16 per cent share of the active clients on the BSE.