Is Zerodha Facing a Major Revenue Hit?

SEBI recently published a consultation paper on index derivatives that was open to public comments….reports Asian Lite News

Online brokerage firm Zerodha’s Co-founder and CEO Nithin Kamath said on Tuesday that the company is witnessing revenue and profit plateau, and is bracing for a big revenue hit later this year.

In a blog post, Kamath said that SEBI’s true-to-label circular will go live on October 1, 2024 and “we expect a 10 per cent revenue dip”.

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,” said Zerodha CEO.

The Securities Transaction Tax (STT) also goes up from October 1.

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

“The amount of Annual Maintenance Charges (AMC) we collect changes with the new Basic Services Demat Account (BSDA) thresholds set by the regulator. Essentially, we can charge full AMC from customers with a demat holding of Rs 10 lakhs and more, as opposed to 4 lakhs today. Combined with us removing the account opening fee, this would be a meaningful drop in revenue,” said Kamath.

Zerodha’s total current assets under custody — total assets held in its demat accounts — stand at Rs 5.66 lakh crore.

“The exciting bit about this number is that our customers as a whole are sitting on an unrealised profit of more than Rs one lakh crore,” the CEO informed.

On its IPO, he said that an IPO is not the end, but rather a new beginning.

“When retail investors enter the cap table, the company should be able to predict revenue to some extent. In the last 14 years, I have not once been correct in predicting revenue growth and dips. 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,” Kamath explained.

ALSO READ: Emerging Asia’s EV Jackpot