TABLE OF CONTENT
PROFESSOR’S
S. NO TOPIC PAGE NO.
SIGNATURE
1 Section 1: Introduction 1
2 Section 2: The offer structure 1
3 Section 3: About the Company 3
4 Section 4: Objects & Basis for Offer 6
5 Section 5: Financials and Fundamental Analysis 9
6 Section 5: Key Risks 14
7 Section 6: Legal & Other Information 16
SECTION I: INTRODUCTION
On August 15, 2010, the company commenced operations with the objective of eliminating
every barrier that traders and investors encounter in India concerning costs, assistance, and
technology. Zerodha, a play on the Sanskrit term for barrier "Rodha," and zero, was the
name of the company. Today, their unique pricing models and in-house technologies have
propelled it to become India's largest stock broker. Through the robust network of investing
platforms, more than a crore clients place millions of orders daily, accounting for more than
15% of total retail trading volumes in India. Furthermore, it manages a number of popular
community and open-access training programs aimed at empowering individual investors
and traders.
SECTION 2: OFFER STRUCTURE
1
WACC & Analysis
Book value of equity(E)
From the balance sheet:
Equity Attributable To Owners Of Parent (FY 2022-23) = ₹15,634.4 Cr
Book value of debt(D)
Borrowings - Current (FY 2022-23) = ₹1,726.3 crores.
Other Current Financial Liabilities (FY 2022-23) = ₹11,365.7 crores.
Borrowings - Non-current (FY 2022-23) = ₹7,052.5 crores.
Total Debt= 1,726.3+11,365.7+7,052.5=₹20,144.5 crores
Tax Rate(T)
Assumed to be 25% (For Indian Companies)
Cost of equity
Ke= Risk-free rate + Beta × Market risk premium
Risk free rate:
G-Sec 10 years = 6.767%
Inflation rate = 3.67%
Rf= 6.76-3.67 = 3.11%
Avg. Beta= 1.30
Market risk premium:
Nifty IT Index Avg Return = 18.71%
Risk free rate = 3.11%
Mr = 18.71- 3.11 = 15.6%
Ke = 3.11% + 1.3 × 15.6 = 23.4%
The high cost of equity at Zerodha (23.4%) is probably shaped by its risky and lucrative
business model. In the backdrop of a quickly changing market, Zerodha faces important
competitive pressures and risks related to regulation. To offset these uncertainties, investors
require a higher return.
Cost of Debt
Interest expenses / Total Debt
1.2 Cr / 20,144 Cr
= 0.00005957
Eventhough the debt load of Zerodha is significant, the low interest rates imply a rather
reasonable financial condition. This affordable debt cost assists in mitigating the risks from
high leverage, helping Zerodha to keep a more balanced capital structure and bring down its
entire cost of capital.
WACC= ((15,634.4 / 15.634.4 + 20,144.5) × 23.4%) + ((20,144.5 / 15.634.4 + 20,144.5) ×
0.00006 × (1-0.25)) = 10.2251253%
While the high equity cost is partially mitigated by the affordable debt price, the weighted
average remains reasonable for a rapidly growing company. The continuous growth and
heightened recognition of the fintech area suggest that WACC for Zerodha may fall as
investors become more trusting in its future direction.
2
SECTION 3: ABOUT THE COMPANY
BUSINESS SEGMENTS
1) Retail Brokerage: Zerodha serves as an excellent platform for individual investors enabling
them to trade in various financial instruments. These include:
Equities: This involves buying and selling stocks listed on the National Stock Exchange
(NSE) and Bombay Stock Exchange (BSE). This helps investors increase the value of
their investments.
Commodities: It includes trading in physical commodities such as gold, silver,
agricultural products and crude oil thus providing opportunities for Portfolio
Diversification.
Mutual Funds: With the usage of mutual funds, investors can obtain a diversified
portfolio from a number of fund houses so as to invest in equity and debt funds based on
risk tolerance and financial objectives.
2) Institutional Brokerage: Zerodha also provides services to institutional clients such as
hedge funds, mutual funds, and corporations. This segment provides a complete solution to
the trading and settlement needs of institutional investors. These services include:
Research and Analysis: It offers well-sourced research papers and market data that may
help institutions to make informed investment decisions based on data-driven insights.
Portfolio Management: Provides customized institutional portfolio services for managing
and investing the assets along with its analysis on optimal level of risks.
Corporate Actions: This deals with numerous corporate actions such as dividends, rights
issues and mergers and acquisitions so as to ensure effective implementation and
compliance.
3) Financial Education: Zerodha wants to enhance financial literacy among its users and
therefore they created a platform named Varsity platform which offers a comprehensive
range of educational resources. These are:
Online Courses: This covers the basics of investing and includes technical and
fundamental analysis to cater the needs of newcomers.
Webinars: This includes seminars and lectures on current market trends and other
important economic indicators which enables students to learn in real time.
Articles and Blogs: This provides users with numerous articles and informative content
that assist them in learning about different areas and fields of finance.
3
4) Technological Platform: Zerodha has developed a powerful API platform known as Kite
Connect which enables developers and algorithmic traders to build custom trading
applications and easily link with the company’s services. Key functionalities of the API
platform include:
Market Data: This includes quotes, charts, historical data and other real time market
data.
Order Placement: The platform helps in placing and managing orders for the product.
Portfolio Management: Tools for managing client assets and securities are provided by
this platform.
Risk Management: It implements effective strategies that help manage the risks.
Portfolio Management: Tools for managing client assets and securities are provided by
this platform.
Risk Management: It implements effective strategies that help manage the risks.
BUSINESS MODEL
Low Margin and High Volume: Due to Zerodha's free or extremely minimal dealer fees,
there is typically a high volume of trading or exchange. Zerodha generates good revenue
as a result of charging fewer fees to a greater number of clients.
Active users: 5 million
Fees per transaction (F&O): INR 20
Avg. number of Trades: 3 million
Average daily operating revenue: roughly 60 million rupees.
Low Operating Costs: Zerodha's completely online structure allows it to keep its
operating costs low. In order to keep its user interface (UI) appealing and draw
additional users to its platform, it also makes investments in its ongoing development.
4
TOP MANAGEMENT
Nitin Kamath
Co-Founder & CEO
Nithin bootstrapped and founded Zerodha in 2010 to deal with the challenges he
encountered over his decade-long career as a trader. He is a member of both the SEBI
Secondary Market Advisory Committee (SMAC) and the Market Data Advisory Committee
(MDAC).
Nikhil Kamath
Co-founder & CFO
Nikhil is a skilled and experienced investor who oversees financial planning at Zerodha.
Dr. Kailash Nadh
CTO
Kailash holds a PhD in Artificial Intelligence and Computational Linguistics and is the
mastermind behind all of the technologies and products.
Venu Madhav
COO
Venu is Zerodha's backbone, managing operations and guaranteeing compliance with rules
and regulations.
Hanan Delvi
CCO
Hanan is in charge of customer services. He is largely responsible for the support initiatives
that has kept Zerodha one step ahead of the competition.
Seema Patil
Director
Since Zerodha's founding, Seema has led the quality team. She is currently a director.
Karthik Rangappa
Chief of Education
Zerodha's large education program Varsity was written by him.
Austin Prakash
Director Strategy
Austin is a Singaporean self-made businessman. His area of expertise is developing strategies
for growth and streamlining income streams to assist organizations in expanding.
5
SECTION 4: OBJECTS OF THE OFFER
The Offer comprises a Fresh Issue by our company and an Offer for Sale by the Selling
Shareholder(s).
Offer for Sale
The Selling Shareholder(s) shall be entitled to their respective share of proceeds arising from
the Offer for Sale aggregating up to the amount after adjusting the Selling Shareholder(s) for
their share of the cost on the Offer and applicable taxes.
OFS= 0% (None of the current Shareholders are currently selling their shares)
Fresh Issue
Net Proceeds
The following details from the Fresh Issue are particulars how the allocation will be
determined: -
The Fresh Issue currently stands at 100% i.e. the entirety of IPO proceeds will go to the
company.
Requirement of Funds
Business expansion and investment: Invest funds in technology, product development,
and marketing as a path to improving the experience of customers, and in making access
possible to various new markets.
Operational Expenses: Allocate funds towards working capital to ensure smooth day-to-
day operations and maintain minimum liquidity in the books
Supporting General Corporate Purposes: Support multiple corporate activities and
strategic initiatives, which may comprise acquisitions, partnerships, or research and
development activities.
6
BASIS FOR OFFER PRICE
The Offer Price shall be determined by our Company in consultation with the Selling
Shareholder and the Managers, based on evaluating market demand for the Equity Shares
being offered through the Book Building Process and various quantitative and qualitative
factors. The Equity Shares carry a face value of ₹1 each.
The IPO size stands at 1200 crores with a Price Band of Rs. 115 to Rs. 120 per share.
The Offer Price is (x) times the face value at the lower end of the Price Band and (y) times the
face value at the higher end of the Price Band. Total shares being offered at the higher end of
the Price Band = 1200 crores/120 = 10,00,00,000 shares.
The following are the quantitative factors that may form the basis for the offer price:
Basic Earnings per Share (EPS):
Return on Net Worth (RoNW
7
Earnings before interest, taxes, depreciation and amortization (EBITDA)
margin:
The following are the qualitative factors that may form the basis for the offer price:
Market Dominance
Its user-friendly proprietary trading platform and low-cost trading solutions have attracted
a larger customer base in the market in comparison to its competitors
Product Innovation
Our company has expanded its product offerings and now also comprises options trading,
catering to more sophisticated investors by customizing the platform to their needs
Technology Integration
Our company has integrated with various financial service providers, which facilitates a
much more seamless experience for customers.
8
SECTION 5: FINANCIAL INFORMATION
9
10
11
ANALYSIS
Strong Revenue Growth: Zerodha’s revenue has increased significantly in the last 5years,
growing from 33.7 cr in FY 2018-19 to 6877.1 cr in FY 2022-23, reflecting a compound
annual growth rate (CAGR) of over 200%. Major contributors for this growth is the
recent rise in Retail Trading and company’s low cost trading solutions.
Zerodha’s expenses has grown in line with their revenue but the rate is relatively slower,
increasing from 517.7 cr in FY 2019-20 to 2992.7 cr in FY 2022-23. But the slow rate
indicates that the company was able to maintain a healthy operational efficiency.
Zerodha’s Profit growth has been skyrocketing, increasing from 25.1 cr in FY 2018-19 to
3884.4 cr in FY 2022-23, indicating a CAGR of 252.71%. Also, a profit margin of more
than 50% is commendable in the brokerage industry.
Zerodha’s Equity has grown significantly from 118.3 cr in FY 2018-19 to 6927.5 cr in FY
2022-23. It is majorly contributed by Other Equity which includes retained earnings,
reserves and surplus. The equity share capital has been steady at 100cr. This growth in
equity compliments the profitability growth.
Both Current and Non-Current Liabilities have been growing significantly, from 2840.9
cr in FY 2018-19 to 18168.5 cr in FY 2022-23 and from 0 cr to 473.5 cr respectively. But
current liabilities have been mainly driven from “Current trade payables” and in the
brokerage business it usually indicates customer funds or pending trade settlements
rather than a financial constraint. The non-current liabilities have been driven from
“Noncurrent Provisions” which usually indicates employee benefits or other long-term
obligations which are very common for a growing business.
Current Assets have increased in line with Current Liabilities, from 2895 cr in FY 2018-
19 to 21238.5 cr in FY 2022-23, primarily driven by “Bank balance other than cash &
cash equivalents” and “Other Current Assets”. Which mailnly represents settlement
funds or short-term investments.
Non-Current Assets have increased from 64.4 cr in FY 2018-19 to 4331.1 cr in FY 2022-
23, largely due to “non-current financial assets” which represents long term receivables,
investments and other assets. This indicates confidence in company’s stability and
growth. Non-Current Assets have increased from 64.4 cr in FY 2018-19 to 4331.1 cr in
FY 2022-23, largely due to “non-current financial assets” which represents long term
receivables, investments and other assets. This indicates confidence in company’s stability
and growth.
Zerodha’s Cash flow from operating activities have been increasing substantially from
2804 cr in FY 2018-19 to 9047.3 cr in FY 2022-23. Though facing a negative inflow of
503 cr in FY 2020-21, it was mainly due to the market volatility due to the COVID – 19
Pandemic, but they bounced back in a much better position in the following years.
There have been Large Outflows by Zerodha in the Investing Activities in the recent 2
years, by 2044 cr in FY 2021-22 and 9853.8 cr in FY 2022-23. Which indicates that the
company is heavily investing in long term assets, acquisitions or technology development.
This is a positive sign for long term sustainability of the company.
12
There has been minimal Financing Activities by the company which indicates strong self-
sufficiency.
Zerodha has maintained a fairly high EBITDA margin over the years, which is 54 – 57 %.
Though declined from 75% in FY 2018-19 it was primarily due to increased competition
and due to the implications of Covid 19 Pandemic.
Zerodha has a consistent growth in its Net Profit margin over the years with an average
of more than 42%. It peaked in FY 2018-19 by 54%, though the decline after it, the
company was still resilient and highly profitable which is commendable.
Rising Return on Assets (ROA) from 1% in FY 2018-19 to 11% in FY 2022-23, indicates
better asset utilization and efficiency over the years.
High Returns on Equity (ROE), peaking in FY 2018-19 by 78%, though the decline the
ROE is still high above 40% which indicates company is able to give great returns to its
shareholders. The decline in ROE indicates the scalability increase of shareholders over
the years.
Decreasing Leverage ratios, Debt to Equity of Zerodha has taken a fall from being 24.01
in FY 2018-19 to 2.69 in FY 2022-23. As equity is rising, it indicates that the company is
moving towards a more Equity-Financed operation which will result in reduction of
interest payments and reduced the financial leverage risk.
Summary
Zerodha has experienced phenomenal growth in revenue, profit, and operational efficiency
over the last five years. Its robust profitability metrics, improved return on assets, and
reduced reliance on debt signify a financially sound company. While profit margins have seen
slight declines since their peak, they remain impressively high. The firm’s strong cash flow
from operations and conservative financing strategy further reinforces its solid financial
foundation.
Zerodha’s financial health and prudent management indicate that it is well-positioned to
sustain its growth and remain competitive in the evolving brokerage industry.
13
SECTION 6: KEY RISKS
1) The business may get heavily impacted due to any sort of increased regulatory scrutiny since
regulatory policies can rapidly change, therefore affecting our operations.
The financial and brokerage sector in India is regulated heavily by the Securities and
Exchange Board of India (SEBI). It was noted that in the past when SEBI had introduced
new rules on peak margin requirements and intraday leveraging in 2021, it highly impacted
the trading volumes and broker revenues of Zerodha and not just Zerodha, but across the
industry. Reports indicated that this regulation led to a decrease in trading volume by 20-
25% for retail investors. These retail investors are essentially Zerodha’s main customer base.
Therefore, in essence, any regulatory changes in the future could potentially limit our ability
to offer low-cost trading, eventually causing a decline in trading volumes and reduced
profitability.
2) The growth has been predominantly driven by retail trading. So, any decline in interest from
retail investors, volatility in markets or reduced disposable income could negatively impact our
revenue growth.
In FY 2022-23, our revenue skyrocketed to 6877.1 cr from 33.7 cr in FY 2018-19 which was
majorly driven by retail investors. But retail investor involvement is based on the market
conduction which was apparent during Covid-19 Pandemic wherein the market volatility had
temporarily reduced the trading volumes. Hence, a prolonged bearish market or fall in the
financial markets can lead to reduction in retail participation which threatens our business
model at its core.
3) Our reliance on external market infrastructure such as on stock exchanges (BSE & NSE) for
transactions can harm our operations and reputation by creating frustration among our clients
and leading to financial losses for not just clients but for our business as well.
We faced a significant outage due to a BSE related issue back in June, 2023. During critical
hours, many of our clients dealing with BSE F&O orders were unable to access their
portfolios. This led to frustration among our customer base, widespread backlash on online
platforms and numerous complaints. Although we performed the best possible crisis
management strategies and tried to resolve the issue in minimal time, despite these efforts,
such issues could seriously harm our operations and reputation. Therefore, our reliance on
third-party infrastructures can lead to disruption in our services due external technical service
despite robust internal systems of Zerodha.
14
4) We depend heavily on our online presence and technology infrastructure to offer satisfactory
and seamless trading services and experiences. Any technological failure or cybersecurity breach
can disrupt operations, create nuisance for our customers, damage our reputation and cause
financial losses.
We have experienced a few outages in the past such as in October, 2021, when our systems
crashed during peak trading hours. This was followed by more scrutiny, when due to
implementation issue/ developers’ bug, a trader lost INR 10,00,000 which were refunded
within 48 hours by Zerodha and two more crashes or server functionality issues in June and
July of 2023. We focus on low cost, digital first approach for our customer base but
vulnerability due to such technological issues can severely impact our business and lead to a
potential downturn or decline in our performance in the long-run.
15
SECTION 7: LEGAL AND OTHER INFORMATION
1) Outstanding Litigation.
As of this date, Zerodha has no material litigation or ongoing lawsuits that could have
adverse impact on our business operations. We are compliant with all the regulatory
requirements applicable by SEBI and other governing authorities, Like, any other financial
and brokerage institution, Zerodha is subject to risk of litigation or potential legal
proceeding due to regulatory complexities, customer disputes or any operational issues. We
remain cautious and vigilant in terms of keeping a check on the legalities in terms of risks and
emerging legal concerns.
2)Material Developments
Since the last financial period, multiple material developments have taken place in Zerodha,
which have material impact on the company’s capital structure, financial performance and
position and the company’s governance:
a) Re-appointment of Key Executives
The Board of Directors has approved the re-appointment of Mr, Nithin Kamath as
Managing Director and Chief Executive Officer (CEO), as well as the Chairman of the
Company, for a period of 5 years beginning from 25th of February, 2025 to 24th of
February, 2029.
Mr. Nikhil Kamath has been reappointed as the Whole-Time Director and Chief Finance
Officer (CFO) for the same period with provisions for annual re-election.
Ms. Seema Patil has been re-appointed as Whole-Time Director for a term of 5 years,
from 28th of September. 2023, to 27th of September, 2028.
b)Restatement of Financial Statements
The financial statements for FY 2020-21 and FY 2021-22 were restated, following the
merger of Zerodha Broking Limited with Austin Global Ventures Private Limited as per
the National Company Law Tribunal (NCLT) order. These restated statements showcase
the impact of merger on the company’s balance sheet, profit and loss and overall
financial reporting.
c)Amendments to ESOP 2022
The Board has approved the amendments to the “Zerodha Broking Limited Employee
Stock Options Plan- 2022” with the total stock options not exceeding 7.5% of the
company’s paid-up capital that is equivalent to INR 5,51,05,125These changes, which
include the vesting of options after a period of three years, are with the purpose of
encouraging long-term growth, incentivize employees and aligning their interests with the
shareholders and higher management to promote long-term growth of our company.
d)Buyback of Equity Shares
The company has initiated a buyback of an amount equivalent to 5% of the paid-up share
capital, which is for a total of 36,73,675 equity shares, with per share price of 4,2023.79,
amounting to a total buyback offer size of INR 15.44 billion.
16
3)Corporate Governance and Legal Framework
a)Resolution on Amendments of Main Objects Clause of the Memorandum of Association
(MOA)
We passed a special resolution on 27th of July, 2022, during our First Extra Ordinary
General Meeting (EGM) to amend our Memorandum of Association (MOA) under section
13 of the Companies Act, 2013. The sole purpose was to increase our operational efficiency,
pursue and explore news investment options and to diversify our strategies.
Clause 3(A)9: To invest the capital or other funds of the Company in moveable and
immoveable property to use assets as security for borrowing or acquisition of moveable
or immoveable property, or shares, stocks, debentures and other assets and securities.
Clause 3(A)10: To lend money on pledge, hypothecation, mortgage or otherwise and on
such terms and conditions, with or without security, as deemed fit by our management
and we will no longer continue complying with our business of banking as per the
Banking Regulation Act, 1949.
Clause 3(A)11: To form, promote, subside and assist other with similar objectives acquire
partnerships, to promote and acquire businesses and invest company funds and capital
for such purposes. We will further pay for the same including their goodwill in the form
of cash or issue of shares.
Clause 3(A)12: To provide or assist in obtaining advisory services in various fields such
as management, finance, investment, technology, administration, commerce.
Clause 3(A)13: To offer services in any takeover bids, mergers, amalgamations,
acquisitions, diversification, spinning off, consolidation, rehabilitation or restructuring of
any business, concern, undertaking, company, body corporate, partnership firm as
deemed fit.
Clause 3(A)14: To act as managing and issue agents, prepare projects, and feasibility
reports for third parties.
b)Board Resolutions and Approvals: Resolution for transferring share in Trustx Internet Private
Limited which is our wholly owned subsidiary.
During the EGM held on February 15, 2024, the shareholders of Zerodha Broking
Limited agreed and gave their consent to approve transfer of entire shareholding in
Trustx Internet Private Limited, wholly owned subsidiary of the Company, jointly to Mr.
Nithin Kamath and Mr. Nikhil Kamath with equal shareholding in totality at 50%
amongst them as the subsidiary had not commenced its operation since the date of
incorporation on July 2, 2021.
On the same day, the Board of Directors approved it in the meeting thereof. All the legal
and regulatory procedural steps shall be complied with as per the provisions of the
Companies Act, 2013.
Post- transfer of shareholding, Trustx Internet Private Limited will no longer be under
the control of Zerodha Broking Limited.
17
4)Government and Other Approvals
We comply with all the necessary regulatory requirements as per set by the Government for
smooth functioning and operations. Therefore, we hold the following approvals and licenses.
SEBI Registration: We are a registered stockbroker with Securities and Exchange Board
of India (SEBI) and we hold all the mandatory permissions required to execute trades on
behalf of clients.
Stock Exchange Membership: We are a member of both the Nation Stock Exchange
(NSE) and the Bombay Stock Exchange (BSE) with full access to India’s major
exchanges.
Depository Participant: We operate as a depository participant with Central Depository
Services (India) Limited (CDSL). Hence, we have the allowance to provide demat
account services to our customers.
Insurance and Investment Advisory: We hold the necessary licenses that allow us to offer
investment and advisory services as per the laws and regulations.
5)Legal and Regulatory Proceedings
Approval of Special Resolution for Diversification and New Business Areas
The Board of Directors approved a special resolution to amend the company’s MOA during
our First Extra Ordinary General Meeting on July 27th, 2022. The Board’s decision was
based on a consideration of proposals by our company’s need to diversify into a profitable
sector which would be highly advantageous for the company’s business as per our Shorter
Notice for Extra Ordinary General Meeting document’s contents.
6)Regulating and Statutory Disclosures
We are committed to maintaining strict adherence to all the necessary regulatory and
statutory requirements. We guarantee strict adherence to the following:
Financial Reporting Standards: We follow the Indian Accounting Standards (Ind AS)
for financial reporting purposes.
Tax Obligations: We are compliant with all tax laws applicable such as Income Tax,
Goods and Services Tax (GST) and other indirect taxes. We have no material
outstanding tax disputes or allegations and are up-to-date with our Tax filings.
Environmental & Social Governance (ESG): Our business has limited environmental
impact with that being said, we still are focussed at strategizing and implementing the
best suited strategies to reduce energy consumption and waste accumulation along with
supporting sustainable development practices. We also actively promote humanitarian
concerns, with an emphasis on financial literacy and environmental sustainability
through our Rainmatter Foundation which supports social causes.
18
7)Subsidiaries and Associates
We hold ownership in several subsidiaries and maintain an associate company. The relevant
information is as follows
8)Group Companies
We also operate as a part of a wider group of companies to align our core business with
supporting pillars that can help us expand our business. The group companies are as follows:
19
CONTRIBUTION
20