In a move that goes against the grain of most founders, Nithin Kamath, co-founder and CEO, Zerodha said on Thursday that a reasonable valuation of the online discount brokerage firm would be Rs 30,000 crore — much less than the speculated Rs 1-2 trillion being thrown around by netizens.
Taking to X (formerly 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.
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“Almost every bull run in the markets creates the illusion that somehow participation and activity will keep going up forever.”
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He added that the firm can potentially grow by 10-15% in the long run, factoring in the drawdowns that are guaranteed.
“So, if 10-15% is the long-term growth, we value ourselves in the range of 10-15x our earnings (PAT). This is how we have been valuing ourselves for all buybacks for a while.
“So, Rs 30,000 crore and not the Rs 1-2 trillion some folks online were guesstimating,” he clarified.
He pointed out that Zerodha is trying to diversify, considering its activities with Rainmatter, its public holdings and the large investment in its newly floated AMC business, insurance advisory, and loan against securities.
Despite revenues from these businesses not contributing much as of now, Kamath expressed confidence that they would rise and help the company’s long-term growth.
According to him, the core team never considered notional valuations right from the beginning because these may rise or fall with market conditions, which is why focussing on ever-changing valuations is a distraction.
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The focus has always been on building a resilient business, which means never having to rely on external capital, he said.
The broking major announced its FY23 results on Tuesday, reporting a 38% growth in both revenue and profit after tax to Rs 6,875 crore and Rs 2,907 crore, respectively.
For the previous financial year, the broking platform had reported a revenue of Rs 4,964 crore and a net profit of Rs 2,094 crore. In a blog post, the Zerodha co-founder had said that the newly launched AMC will launch its first two MF schemes in the coming fortnight.
