Zerodha Claims Unicorn Valuation In ESOPs Buyback Plan

Stock trading platform Zerodha has claimed a unicorn valuation in its latest employee stock ownership plan (ESOP) buyback offer. The investment platform claims it will spend INR 60 Cr to INR 65 Cr to buy back ESOPs from senior management and long-term staffers and offer liquidity options in its 10th year. With this, the company will be valuing itself at INR 7000 Cr ( roughly $1 Bn).

Commenting on its self-assessed valuation, Zerodha’s cofounder and CEO Nithin Kamath told Economic Times that the company has arrived at this valuation due to its current profitability and price-to-equity margins. Inc42 had picked Zerodha as a soonicorn in 2019, with the expectation of it making it to the unicorn club within the next two years.

Last year, Zerodha had created an ESOPs pool of around INR 200 Cr for 850 employees. Under the buyback, the employees will be allowed to sell 5%-50% of the shares that will be vested this year. The company has specified that the buy-back is being done at more than four times its book value, i.e. INR 700 per share, and will benefit close to 700 employees.

The company decided to take this step in order to offer some sort of liquidity to its shareholding employees as it plans to remain bootstrapped for the next few years. “We looked at ICICI Direct which is our closest publicly-listed competitor and thought we should be valued on similar lines. Potentially, we could be valued a lot more than this, but since we are putting our own money into this buyback, we had to be conservative,” Kamath was quoted as saying.

Bengaluru-based Zerodha was founded in 2010 by Nithin and Nikhil Kamath and offers stockbroking services. It claims to have over a million active clients who trade and invest and generates more than 15 lakh revenue-generating trades daily in the pre-Covid times.

However, the company has noted an increase in adoption even though the stock market has been severely impacted by the pandemic. Kamath added that the Indian stock market is the most active right now since 2007 as first-time investors have been entering the market. He elaborated that there is less panic now as the fall in stock prices wasn’t as bad as anticipated. This has resulted in at least 40% to 50% year-on-year (YoY) increase in investment activity to their platform in the first quarter of the financial year 2021.

Until January, over 70K to 1 Lakh customers were signing up on Zerodha every month. However, in March, almost 3 Lakh customers signed up for stock broking through the platform. “Right now, we are opening between 150,000 to 200,000 for April, May, and June,” Nithin added. With this, the average age of investors in Zerodha has dropped from 32 to 28, alongside the average trade size of INR 25K to INR15K.

Despite a bootstrapped model and profitability, Zerodha is reluctant to join the initial public offering (IPO) game. Nithin specified that going public would increase the compliance burden on the company, which generally slows the business. “I generally spend one hour every week or every fortnight with my chartered accountants to figure out what’s happening, but if I IPO, my life will become just about that,” he added.

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