As fintechs scramble to shore up revenues and find a path to profitability, stock broking startups stand out with strong positive bottom lines. They are mostly riding the rapid adoption of F&O trading in the country, which helps them generate strong revenue lines.
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Large brokers like Groww, Zerodha and Angel One get almost 80-85% of their revenues from F&O traders. Even early-stage startups in this space like Dhan is focused on professional traders who undertake very high frequency trades.
Dhan has been Ebitda profitable from December last year.
Two people in the know told ET that Mumbai-based Dhan is being evaluated by prospective investors for a series B round of funding at a much higher valuation than its previous round. Till date, Dhan has raised $22 million from Beenext, 3One4 Capital and others at a valuation of $100 million. Emailed queries to Dhan went unanswered.
Dhan was started by ex-Paytm Money top executive Pravin Jadhav in 2021. According to data from NSE, as of September, Dhan has around 2.5 lakh active traders on the platform.
“The company is operationally profitable and is generating positive cash flow, no wonder investors are interested in taking a bet on the company,” said one of the persons quoted above.
Even Upstox, which has seen a decline in the number of active clients, saw its stock broking revenue jump 44% between FY22 and FY23. The Tiger Global-backed startup recorded total revenue of 1,000 crore in the last financial year.
Unlike other fintech sectors where profits have been elusive, wealth management has been profitable for most of the new generation startups. Peak XV-backed Groww, which started broking just three years back, reported a 252% jump in total revenue to Rs 1,294 crore between FY23 and FY22.
The core broking business generated a net profit of Rs 73 crore.
Zerodha Profitable for Years
Zerodha has been profitable for years, with its FY23 revenue at Rs 6,875 crore and a net profit of Rs 2,900 crore. Mumbai-based Angel One reported operational revenue at Rs 1,047 crore for the September quarter, up 40% from Rs 745 crore a year ago. Its net profit stood at Rs 304 crore for the September quarter, compared to Rs 213 crore last year.
AngelOne gets around 84% of its revenue from the F&O segment.
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“People often treat F&O as a secondary source of income, youngsters treat it like speculation…people will learn from their mistakes in the market once they lose money, but that is natural. We are investing heavily in the education of our client base to help them make the right choices,” said Prabhakar Tiwari, chief growth officer, Angel One.
Risks involved
Wealth tech startups have benefitted from the massive influx of new generation retail traders into this segment. Innovative use of social media videos for customer acquisition, a digital onboarding journey through Aadhaar and smooth user interface of mobile apps, have helped new age brokers grab customer attention.
But with the market regulator Sebi hinting about cracking down on uncontrolled retail participation in F&O and the restrictions on finfluencers, the question now is how long will the party last?
A report released earlier this year by Sebi found out that out of around 45 lakh F&O traders surveyed in FY21-22, only 11% made profits.
“The regulator has been giving signals about scrutinising the F&O space, we do not know if they are planning to bring in strict rules around retail participation in this segment,” said a founder of a major stock broking platform.
Also, with the regulator reining in ‘finfluencers’, a major customer acquisition route for new generation brokers could potentially get disrupted. ET wrote on September 21 how the market could be impacted by Sebi’s move on the ‘finfluencer’ community.
Nithin Kamath, hinting at the potential impact of regulations on trading revenues, in a recent social media post pointed out that one circular could wipe out 50% of Zerodha’s revenues.
To protect from risks emanating from one specific business sector, brokers are building alternate revenue lines.
Diversifying revenue opportunities
Dhan, for instance, is launching its direct mutual fund platform with the idea of diversifying its revenue base. Groww, currently the largest broking platform in terms of active clients, has expanded into lending, long-term investments through mutual funds, and payments.
“We are trying to diversify with everything we are doing in Rainmatter, our public holdings, and with large investments in the AMC business, insurance advisory, and loan against securities,” wrote Kamath in a social media post recently.
Angel One has built a fintech super app which offers a host of financial services. Tiwari said Angel One sells around 2.5 lakh direct mutual fund systematic investment plans every month.
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“We will launch lending in the next three to four months and set up an AMC business over the next 10 months,” he added.
