Zerodha, an online brokerage service provider, is planning to call for buyback of shares from early employees at a valuation of $2 billion, doubling in a year with stock market climbing the ever-highest ladder, founder and CEO Nithin Kamath tweeted on May 28.
Zerodha announced the plans to buy back employee stock option plans (ESOP) worth about $25 million (Rs 150-200 crore) in July-August 2021, a step that is believed to benefit 900 out of its total 1000 employees, Kamath said in a statement to Moneycontrol.
“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,” Kamath said in a Twitter thread.
“Everyone holds ESOPs & continuously gets new options too. We ran a buyback last year at $1bil valuation & we will this year at $2bil. Maybe conservative valuations, but our business risks are high. Personally, the proudest moment in this journey,” he added.
Zerodha had spent Rs 60-65 crore on the ESPO buyback in 2020, buying back shares from some of its 700 employees of the company.
So far, Zerodha has never raised funds from outside sources. Nithin Kamath, earlier in April this year, had said that the present tie is not apt for the Indian startups should raise funds. “While there is nothing wrong with chasing valuations, but without being profitable, it’s tough to ride out the downturns in the economy. So this tax arbitrage potentially could potentially create (sic) not so resilient businesses which isn’t good for our economy in the long run,” he said.
Nithin Kamath mentioned that easy availability of risk capital in the present times can help a business grow fast. “But there is another reason why startups focus on growth & valuation rather than profits – Taxation.”
We don’t need the money, so there’s no point in raising money just because someone is ready to give it to you. We are profitable, have zero debt. And we don’t spend on marketing and advertising which is probably the single biggest reason for folks raising money. 2/7
— Nithin Kamath (@Nithin0dha) April 7, 2021