Nitin Kamath, founder and CEO of online brokerage platform Zerodha said that the company has clocked a revenue of ₹8320 crore and profit of ₹4700 crore in 2023-24, but highlighted several headwinds expected in 2024-25 including the 'true to label' circular from Sebi that comes into effect from October and could reduce the company's revenue by 10 per cent.

Data from Tracxn shows that Zerodha Broking Limited had recorded a revenue of ₹6877.1 crore and a net profit of ₹2904.5 crore in FY23.

“We continued our tremendous financial track record, and FY 23-24 was a fabulous year in terms of both revenues (₹8320 crore) and profitability (₹4700 crore). The profits don’t consider the ~₹1000 crore of unrealised gain, which will show in our financials. Given the profitability of the last three years, our net worth is almost ~40 per cent of the customer funds that we manage. It makes us one of the safest brokers to trade with,” Kamath said in a blog post.

Zerodha’s total assets held in demat accounts, is ₹5.66 lakh crores.

Zerodha’s total assets held in demat accounts, is ₹5.66 lakh crores.

“We are bracing for a big revenue hit this year. Sebi’s true-to-label circular will go live on October 1, 2024. We expect a 10 per cent revenue dip,” Kamath said.

The true-to-label directive issued by SEBI on July 1, 2024, will bring uniformity to the transaction fees charged by stock exchanges to their trading members. Stock exchanges charge a transaction fee based on the overall turnover contributed by a broker in a month. The more turnover, the lesser the transaction fee. The difference between what the brokers charge the customer and what the exchange charges the broker at the end of the month is a rebate.

Zerodha earns about 10 per cent of its revenue from these rebates. With the implementation of the true-to-label directive, this advantage will disappear.

Explaining the change and the potential impact, Kamath had earlier said in July, “since 2015, when we went 0 brokerage on equity delivery, we have subsidised equity investments with the revenue from the F&O (futures and options) trading activity. This structure could now potentially change. As a business, we may have to introduce a brokerage fee for equity delivery investments, which is currently free, or/and increase F&O brokerage,” he said.

“This becomes all the more important given the big uncertainty around the future of F&O trading volumes. We are still trying to ascertain the second-order effects of the circular,” Kamath had said.

Another risk that Kamath had highlighted was the recently published consultation paper on index derivatives from Sebi, which is open to public comments. The paper has proposed changes that seeks to curb bursts of speculative activity in derivative markets, particularly by individual players, endangering both investor protection and market stability.

“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 to 50 per cent drop in revenue,” Kamath said.

He also said that the STT going up on futures and options from October 1, could also have an impact. “Although the impact on options trading is minimal, we anticipate a significant impact on futures trading,” he said.

Changes to the annual maintenance charges on basic services demat account, along with stoppage of payouts from word-of-mouth referral program, could also affect growth, Kamath said.