Zerodha, India’s largest stock broking platform, has announced impressive financial results for FY24, reporting a revenue of ₹8,320 crore and a profit of ₹4,700 crore, according to CEO and co-founder Nithin Kamath. This marks a significant increase from FY23, when the company recorded revenue of ₹6,875 crore and profit of ₹2,907 crore.

The growth trend continues, as Zerodha’s net profit surged by 39% in FY23 from ₹2,094 crore in FY22, while revenue grew by 35.5% from ₹4,694 crore in the previous year.

Unrealized Gains and Risks

Kamath noted that the reported profits do not account for approximately ₹1,000 crore in unrealized gains, which will eventually appear in their financials. He emphasized that with consistent profitability over the past three years, Zerodha’s net worth is now around 40% of the customer funds it manages, positioning it as one of the safest brokers for trading.

However, he also expressed concerns about future challenges, stating, “We are already seeing revenue and profit plateau, and we are bracing for a significant revenue hit later this year.”

Anticipated Revenue Declines

Kamath outlined several factors contributing to the expected dip in revenue:

1. SEBI’s True-to-Label Circular: With this regulation set to go live on October 1, 2024, Zerodha anticipates a 10% revenue decline.
2. Changes in Index Derivatives Regulations: Following a recent consultation paper by SEBI, Kamath expects possible regulations to impact index derivatives, which currently form a substantial part of Zerodha’s revenue. He predicts a potential revenue drop of 30-50% due to these changes.
3. Increased Securities Transaction Tax (STT): Effective October 1, 2024, this tax rise will minimally affect options trading but could significantly impact futures trading.
4. Revised Annual Maintenance Charges (AMC): Changes to the Basic Services Demat Account thresholds will limit Zerodha’s ability to charge full AMC to customers with lower demat holdings, likely leading to reduced revenue.
5. Changes in Referral Programs: New guidelines from exchanges limiting commission payouts to authorized persons will reduce the number of individuals referring new customers, affecting growth.

Kamath also pointed out the inherent risks of a potential bull market end, which could lead to significant drawdowns. Despite these concerns, he reassured stakeholders that Zerodha is well-prepared to navigate through challenging periods, citing a lean operational structure, efficient expense management, and strong net worth.