The discount brooking company Zerodha, announced that it has doubled its valuation to almost $2 billion within the period of one last years as the millennials of the country had been taking the stocks from the market in masses and bulk. Although the retail investors from the company try to hide the stock market, a significant number of the employees from the Zerodha have been predicted to get richer.
The Founder and the current Chief Executive Officer at Zerodha, Mr. Nitin Kamath, made the announcement via the micro blogging platform Twitter saying that the company is buying back its employee stock option plans (ESOP) which is worth $25 million which rounds up to around ₹181 crore
This has happened for the second time in many years that the company is buying back its employees’ ESOP. Just last year, the brokerage company had announced a buyback of almost worth ₹60-65 crore, which benefitted more than 800 of the company’s employees.
Commenting on the matter, Kamath said that there are chances that Zerodha’s valuation could be conservative at both $1 billion the previous year as well as $2 billion this year.
Kamath however, while talking about also said that this buyback is down to business risks. One of the biggest risks in being a brokerage, Kamath says, is the fall in the revenues in this huge market, which happens when the investors make a rush to sell off their holdings to avoid investments from being wiped out completely or be at any loss.
“While our growth is exciting, we know that this isn’t sustainable. A broking business is an extremely high beta – highly correlated with the market conditions. Even if there was a mini bear market, our business could drop by 40% in a heartbeat”, said Kamath in a tweet.
While giving a statement to the media, Kamath said- “Given our profitability in the last few years and price-to-equity margins, this is a fairly conservative valuation from our standpoint. We derived this by looking at our closest publicly- listed competitor ICICI Direct and thought to be valued on similar lines.”
Talking further about the matter, he said that the percentage of the business drop could have been higher if the company would have been valued as a tech firm rather than just a brokerage firm as the people value the tech businesses based on their growths.
According to a few reports on the company, Zerodha is responsible for making up 15% of the Indian retail trading volume as it has a customer base of almost 2.8 million. The average age of the investors is recorded to be between 20 and 25.
The sudden spike in the retail investors recently, in the middle of the global COVID pandemic, could possibly be one of the reasons behind the valuation of the company doubling in a year.
