Most of India’s highly-funded startups continue to be mired in losses, but a bootstrapped firm has just managed to post the highest ever profit for an Indian internet company.
Zerodha reported a profit of Rs. 1,122 crore in FY21. This is 2.6x more than the profit of Rs. 424 crore the company had reported in FY20. Zerodha’s revenues also rose 190 percent to Rs. 2,729 crore, up from Rs. 938 crore last year.
This is something Zerodha founder Nikhil Kamath has been predicting — he’s repeatedly said that stock broking businesses do well in bull markets. And the last financial year was exceptional for the stock markets — after the steep fall during the coronavirus pandemic, the markets rallied smartly, and touched new all-time highs. During the course of FY21, the markets rose nearly 80 percent, and seeing the gains, many new investors rushed in to invest.
Zerodha seems to have made hay during the period — Zerodha’s active clients more than doubled from 14.14 lakh in FY20 to around 34 lakh in FY21. These clients also paid Zerodha handsomely for using its services — about 82.5 percent of Zerodha’s operating revenue comes from brokerage fees and sale of tech products, and this vertical saw a rise of over three times from Rs. 718 crore in FY20 to Rs. 2,252.5 crore in FY21. This helped Zerodha grow its profits 2.6 times, even though its expenses too increased from Rs. 518 crore in FY20 to Rs. 1,260 crore in FY21.
These are the kind of numbers most Indian startups would kill for — most highly-funded startups currently make hundreds of crores of losses, and it might be a while before they ever start making money, much less make profits to the tune of a thousand crore. But Zerodha has always done things differently — while most other startups raise large amounts of funding to hypercharge their growth, Zerodha chose to grow slowly, and the original founders still own nearly the entire company. While most startups spend large sums of money on acquiring customers, Zerodha never spent money on marketing, and instead let its product do the talking. This focus on sustainable growth and long-term thinking seems to have worked, and Zerodha now stands heads and shoulders above its highly-funded competitors.
But Zerodha also stands out in one other way — while most startups would be loath to predict a slowing of growth, Zerodha CEO Nithin Kamath has repeatedly stressed that when stock markets falter, stock broking companies see an immediate slowdown in their business as well. He’d been conservative throughout last year’s hype cycle — as most stock broking companies had raised large rounds from external investors, he’d gone ahead and said that it was the “stupidest time” to raise money, given how markets would soon correct, and the stock broking business would simultaneously cool down. The stock market slowdown already seems to be here — markets have already corrected more than 10 percent from their highs, and having raised no money, and with no external investor expectations to meet, Zerodha might be better placed to thrive in the downturn than its highly-funded competitors.