Nithin Kamath Appreciated on Social Media for His Take on Valuation
Zerodha co-founder and CEO Nithin Kamath has been praised for his realistic valuation of Rs. 30,000 crore for his discount brokerage firm, Zerodha, rejecting the speculative valuation of Rs. 1 lakh to Rs. 2 lakh crore that was randomly made on social media. Netizens hailed Kamath”s move as sincere, while many companies boast of inflated valuations.
In a post on 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 is optimistic about the future of the company even as he envisions a potential downfall. “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,” he tweeted.
Zerodha, the Bengaluru-based online stock trading platform, reported a revenue of Rs. 6875 crore in FY2023, which is 38.5 percent higher than the previous year. Net profit grew 39 percent to Rs. 2090.7 crore. Commenting on the annual results, Kamath 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 said.
The stockbroker has an active client base of around 64 lakh as of August 2023, which is relatively steady compared to the past 18 months.
Kamath”s Valuation of Zerodha
“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.
