The boom of the stock market has been skyrocketing since the 2000s. Imagine a player coming in and letting the traders trade barrier-free. Yes! That has been a reality with Zerodha since 2010 when it was founded by brothers Nithin and Nikhil Kamath.
Headquartered in Bengaluru, Zerodha is a financial service company that is registered with the Securities & Exchange Board of India (SEBI) and a member of NSE,BSE and MCX-SX, built to provide brokerage facilities to the stock market traders. All in all, Zerodha is an online discount broking company that aims to lower the costs for their clients, something that is crucial in deciding the long-term profitability of the trader trading in the stock markets of the country.
Zerodha - About and How Does It Work?
A Bangalore-based fintech/financial services company, Zerodha offers retail stock brokerage facilities at discounted rates along with other opportunities for currencies and commodities trading, mutual funds, and bonds.
The company basically works on the idea of discount broking, which means thatit charges a reduced commission or low brokerage on the transactions to ideally attract investors to use this platform. This makes Zerodha famous amongst the traders and is the main reason behind Zerodha having a user base of more than 9 million, thereby making it the largest stockbroker in terms of clients.
Zerodha has got the first-mover advantage as it was the first discount broker in the country. “Zerodha was incorporated to make trading, barrier-free, so is its name Zerodha i.e., No Obstructions,” says Nithin Kamath. One another important reason for the highly surging growth of Zerodha is that it puts in constant efforts and keeps coming up withinnovative ideasand unique strategies, all of which have helped Zerodha in getting an edge over its rivals.
Zerodha - Founders and Team
The founders of Zerodha are two brothers namely Nithin Kamath and Nikhil Kamath.
Nithin Kamath
Nithin Kamath, Founder and CEO of Zerodhaand Rainmatter Foundation, a non-profit initiative by Zerodha with an aim to improve environmental sustainability, is the older of the two founder brothers of Zerodha. Nithin is an alumnus of the Bangalore Institute of Technology. After completing his studies, he was initially self-employed as a Proprietary Trader and later served as a Senior Telesales Executive at Manipal Infocom and as a Partner at Kamath Associates. Nithin eventually collaborated with his younger brother, Nikhil Kamath, to find Zerodha.
Nikhil Kamath
Nikhil is the younger Kamath brother, who is the co-founder of Zerodha along with being the co-founder of True Beacon, an asset management firm dedicated to the service of the ultra-rich. Nikhil dropped out of his school when he was only 16, after Class 10. Always keen on trading, Nikhil started with the used cellphone business first, when he started selling old cell phones while in the 10th grade. He soon joined a call centre after dropping out of school at 17 and started equity trading at the same time in his leisure. Nikhil eventually started managing some money from his friends and colleagues as well, which helped him gain his initial experience in asset management. He then quit his call centre job and started auto trading with his brother, and eventually founded Zerodha together. Nikhil is known as a brilliant trader. At Zerodha, he manages the prop trading desk, risk management, and everything related to trading.
As of today, Zerodha has a team of over 1100 employees. Nithin Kamath, the Co-founder, and CEO of Zerodha mentioned that around 85-90% of the company's total workforce, which makes it nearly 950 employees, will be working from home on a regular basis. The company has also set up an office in Belagavi city of Karnataka.
Zerodha - Startup Story
The founder and CEO of Zerodha, Nithin has been trading in the Indian stock market since the age of 17. Nithin attended an engineering college and then went on to become an entrepreneur. During his college years, he spent considerable time trading in the stock market and that forced him to take up a job at the call centre. Hence he worked at the call centre during the night and saved the daytime for trading.
Though Nithin managed to make quite a fortune bytrading in stocks, he lost a significant amount of money in the stock market crash of 2001-02. However, he eventually landed a cheque from a foreign HNI to manage his money, which he did along with landing a job at Reliance Money, where he served as a sub-broker.
Within a very short span, Nitin managed to get many big clients for Reliance Money. At Reliance Money, Nitin was one of the most successful sub-brokers, breaking volumes of more than 1000 sub-brokers at once.
Nithin again lost a considerable amount of money in the market crash during the global financial crisis of 2008-09. After this, he decided to change ways and started to develop an idea of building a company that will provide online stockbroking services for all the traders of the country, which will be simple to use and affordable.
Zerodha - Startup Launch
After the founders, Nikhil and Nitin found Zerodha, it took a long time for them to establish a market standing. It was a slow transition that happened over the last decade. Zerodha, in its first year, opened 3,000 accounts. In India, when the cost of any product or service is less, people generically start questioning the quality. And that was the biggest milestone for Zerodha founders to conquer. As a result of which, they build a community that also helped them in the long run. Even today Zerodha doesn’t spend anymoney on advertising.
The focus on building a community for the traders helped Zerodha. This was because the initial doubts of the traders towards Zerodha’s discount broking model was stemming from the fact that retail investors were often clueless about what stocks should be bought or sold, and did not ideally offer any research services. To counter this challenge, Zerodha launched Varsity. Varsity is a learning module that became immensely popular. It ran Trading Q&A, an active forum where traders and investors were able to discuss stock ideas.
Over time, Zerodha used technology heavily to differentiate itself from the rest in the market. Its trading platform named Kite on web and mobile today account for more than 10% of all retail trading turnover in the country. Zerodha also went on to launch Coin, which is an online platform to buymutual fundsdirectly.
Zerodha - Mission and Vision
Zerodha is firmly committed to working towards the vision ofcreating a worldwithout any brokers, which will hugely benefit the stakeholders when it comes to the financial markets. Furthermore, the company is equally committed to providing the best possible customer experience with the help of a support and service that can be highly personalized.
Zerodha envisions creating a brokerage-free world.
Zerodha - Name, Logo and Tagline
"What's in a name?" said William Shakespeare once, and this is what Zerodha is likely proving with its wide success. Zerodha founder, Nithin Kamath indicated the same in a recent post when a Linkedin user was confused with the naming of the company. Check out the Linkedin post below to have a quick glimpse into the same.
The name "Zerodha" is an English-Sanskrit portmanteau word consisting of "Zero" in English and "Rodha" (Barriers or Obstructions) in Sanskrit, to sum up as "No Obstructions". This name of the company directly signifies the birth of a challenge-free online stock-broking platform that Zerodha is!
The tagline of Zerodha is 'The Free Trade Zone'. It conveys the brand's primary differentiator of brokerage-free trading in a clever fashion.
Zerodha - Business Model and Revenue Model
The business model of Zerodha works on a 'Low margin and high-volume model.' Zerodha charges a very minimal amount to the traders for transactions because of which the trading volume is generally high. This fee collection of smaller amounts from a larger number of clients leads to good revenue generation for Zerodha. Also, one more factor aidinghigh-profit margins for the companyis the operational costs. They are quite low for Zerodha as compared to some of the top brokers because of its online structure, which allows it to maintain low operational costs.
Zerodha has finally got approval from the SEBI (Securities and Exchange Board of India) to offer mutual fund services, said Zerodha co-founder Nithin Kamath via his Twitter handle. The company had applied for the license of the same in February 2021. This will help Zerodha to launch its asset management company, (AMC) and is surely another feather in its cap.
Zerodha - Revenue and Profit
In terms of revenue and profit, Zerodha seems to have gone from strength to strength.
The Nithin and Nikhil Kamath-led company reported a revenue of INR 938.4 crore in FY20, which almost tripled in FY21 when the company reported a revenue of Rs 2,729 crore.This revenue again witnessed a good expansion during FY22, when Zerodha reported having earned INR 4,964 crore ($606.91 million) in revenue.This increase in its revenue in FY22 was due to the many users who joined the company during the same fiscal year.
The company's profits have also increased over the last three fiscal years. In FY20, Zerodha witnessed a profit of INR 424 crore, which more than doubled, becoming INR 1,122 crore in FY21.In FY22, Zerodha recorded a profit of INR 2,094 crore ($255.98 million), which is an 86.6% increase from the previous year.
The company's active users increased by nearly twofold each year. The active user base of the company stood at 1.4 million in FY20, grew to 3.6 million in FY21, and then again grew to 6.2 million in FY22.
Zerodha's total expenses also increased along with its operating revenue. Earlier, it was Rs 517.70 crore in FY20 and became Rs 1,260.20 crore in FY21. In FY22, the total expenses of the company stood at Rs 2,164 crore.
Revenue Breakdown
Zerodha gained a big part of its operating revenue from the "sale of service," which came from its brokerage fees, the premium tech products that it sells like Kite Connect API, the collections that it manages by onboarding the users, and by exchanging the transaction charges that they collect from the clients due to different securities exchanges. The revenue collected from these services was recorded at Rs 4,129 crore in FY22, up from Rs 2,252.5 crore in FY21.
The interest income of Zerodha in FY22 stood at Rs 614.5 crore, and the other operating revenue (dividend income and net gain on fair value changes) stood at Rs 220.5 crore in FY22.
Zerodha had a got a total client base of 16 lakhs, which grew to become 33.91 lakhs, as per NSE data reported on February 14, 2022.
Zerodha - Growth
Zerodha has achieved numerous feats since it was founded in 2010. The company boasts of being a unicorn back in June 2020 without even raising funds from any of the investors, thereby purely relying on bootstrapping. Along with this, Zerodha is also credited with buying ESOPs at nearly 4X times their book value, which was almost around the time when the stockbroking startup valued itself as a unicorn.
The company is currently valued at over $2 billion, as of November 2021.
FAQs
Who are the founders of Zerodha?
The founders of Zerodha are two brothers namelyNithin KamathandNikhil Kamath.
What is Zerodha?
Zerodha is a financial service company and a member of NSE, BSE, MCX providing brokerage facilities to stock market traders. It is an online Discount Broking company.
Who are the Top Competitors of Zerodha?
Zerodha's top competitors are :
- Upstox
- SAS Online
- IIFL
- Finvasia
- Angel Broking
- Beeline Broking
- TradingBells
- Karvy Stock Broking
- Sharekhan
- Motilal Oswal
- HDFC Securities
- ICICIdirect
How does Zerodha make money?
Zerodha charges a very minimal amount to the traders for transactions because of which the trading volume is generally high. Thisfee collectionof smaller amounts from a larger number of clients leads to good revenue generation for Zerodha.
What is Zerodha's Revenue?
In FY22, the company earned Rs. 4,964 crore in revenue. Also, Zerodha reported a profit of Rs 2,094 crore in FY22, which is an 86.6% increase from the previous year.
What is Discount Broking?
Zerodha works on the idea of discount broking, which means that it charges a reduced commission or low brokerage on the transactions to ideally attract investors to use this platform.
As an enthusiast and expert in the financial markets, particularly in the domain of online discount broking, I can attest to the transformative impact Zerodha has had since its inception in 2010. My knowledge extends to the evolution of the stock market landscape and the specific role that Zerodha has played in revolutionizing the way traders engage in the financial markets.
Zerodha, headquartered in Bengaluru, stands out as a pioneer in the field of discount broking, a concept that has gained significant traction in the Indian financial ecosystem. The evidence of its success is reflected in its user base, which has surged to more than 9 million, making it the largest stockbroker in terms of clients.
The founding brothers, Nithin and Nikhil Kamath, bring a wealth of experience to the table. Nithin Kamath, the CEO of Zerodha, has a background in proprietary trading and has navigated through the highs and lows of the stock market, including the market crash of 2001-02 and the global financial crisis of 2008-09. Nikhil Kamath, known for his prowess in trading, complements the team's skills with his expertise in managing the prop trading desk and risk management.
Zerodha's business model revolves around discount broking, aiming to lower costs for clients and attract investors by charging reduced commissions on transactions. The company's success is not only attributed to being the first discount broker in India but also to its continuous innovation and introduction of unique strategies, such as the launch of the learning module Varsity.
The company's mission to create a world without brokers and its commitment to providing a personalized customer experience are evident in its initiatives. Zerodha's trading platforms, such as Kite, and services like Coin for buying mutual funds directly, showcase its dedication to leveraging technology for the benefit of its users.
Zerodha's financial performance speaks volumes about its success. With a revenue of INR 4,964 crore in FY22 and a profit of INR 2,094 crore, the company has witnessed remarkable growth. The emphasis on a low-margin, high-volume model, coupled with low operational costs, has contributed to Zerodha's financial strength.
In conclusion, Zerodha's journey from a startup challenging the status quo to becoming a unicorn valued at over $2 billion is a testament to its disruptive impact on the stock market landscape. The company's commitment to a barrier-free trading experience and its continuous innovation position it as a key player in the financial services industry.
Now, let's delve into the concepts mentioned in the article:
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Discount Broking: Zerodha operates on the concept of discount broking, where it charges reduced commissions or low brokerage on transactions to attract investors.
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Founders and Team: The founders, Nithin and Nikhil Kamath, bring diverse experiences to the company. Zerodha has a team of over 1100 employees.
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Startup Story: Nithin Kamath's journey from trading in the Indian stock market at 17 to the establishment of Zerodha. The company's slow transition, community building, and the introduction of platforms like Varsity.
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Business Model and Revenue Model: Zerodha's business model relies on a low-margin, high-volume model. It charges minimal amounts for transactions, leading to high trading volumes and revenue. The revenue breakdown includes income from the sale of services, interest income, and other operating revenue.
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Growth: Zerodha's achievements, including becoming a unicorn in 2020 without external funding, buying ESOPs at 4X times their book value, and its valuation of over $2 billion in 2021.
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Mission and Vision: Zerodha envisions creating a brokerage-free world, emphasizing personalized customer experiences.
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Name, Logo, and Tagline: The name "Zerodha" signifies "No Obstructions." The tagline is 'The Free Trade Zone,' highlighting the brokerage-free trading concept.
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Competitors: Zerodha's competitors include Upstox, SAS Online, IIFL, Finvasia, Angel Broking, and others.
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Revenue and Profit: Zerodha's financial performance, including revenue of INR 4,964 crore and a profit of INR 2,094 crore in FY22.
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SEBI Approval: Zerodha received approval from SEBI to offer mutual fund services, allowing the launch of its asset management company.
These concepts collectively contribute to the understanding of Zerodha's significance in the financial services industry and its impact on the stock market ecosystem.
