BENGALURU: Stock-broking unicorn Zerodha’s valuation has doubled this year to $2 billion, led by the rising number of retail investors in the stock markets especially millennials who have taken to digital platforms to make investments.
Zerodha’s founder and CEO said that the company will be holding its second consecutive ESOP buyback this year after the platform witnessed a surge in retail participation. The company’s ESOP buyback is worth Rs 181 crore this year, compared to Rs 65 crore last year.
While critics say that the self valuation by Zerodha has been a conservative estimate, Kamath said that a bootstrapped start-up like his operating in the volatile trading markets, has to take the necessary measures. Zerodha has not raised funding from investors even as its peers have chased funding and expanded marketing spends.
“While the obvious answer might be the easy availability of risk capital today that can help a business grow fast. But there is another reason why startups focus on growth and valuation rather than profits. As a promoter/founder you pay almost 250% more as taxes if you were taking out money from the business as salary/dividends compared to paying capital gains when selling your stake to an investor (fundraising route),” Kamath tweeted.
He added that while there is nothing wrong with chasing valuations, without being profitable, it’s tough to ride out the downturns in the economy. “So this tax arbitrage potentially could be potentially creating not so resilient businesses which isn’t good for our economy in long run 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,” Zerodha’s chief executive said.