Nitin Kamath explains why Zerodha values ​​itself at only $2 billion. view Post

Explaining the reason behind the low valuation, Kamath said that Zerodha does valuation exercise every year only for its ESOP buybacks. He explained the reason behind this conservative approach in a series of tweets.

Kamath begins by explaining how ESOPs are delivered in Zerodha. “We don’t promise ESOPs to anyone on our team. Frankly, we never thought we were building something that could be so valuable. That’s why we never thought about ESOPs. But 2017 When the business started growing around 12:30, we created an ESOP plan to share the success.”

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“People who complete 1 year of Zerodha get ESOPs. It is to be sure whether they are with us for the right reasons. We ask everyone to consider the ESOP scheme as your retirement fund, which will compound in the long run if we work well together as a business,” he said.

The CEO of Zerodha said that all ESOPs come with zero strike price, which means there is no cost, and liquidity is on top of the preference. Also the new ESOPs issued every year are more than the bought back ESOPs.

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“ESOP buyback is optional. We also have a loan scheme where our team can take loans against the implied ESOPs at almost bank FD rates.”

Kamath said to focus on profitability, Zerodha’s ESOP buyback is from the company’s profits and not through external fundraising.

“This is so that everyone can focus on profitability which improves our odds of being sustainable and resilient in the long run. Then the ESOP will truly be a retirement fund for all.”

“I have been in the markets for several cycles only to find that what happened in the last 18 months was different. It is not easy to make money in the markets in the long run. When the going gets tough, the greed disappears and that With increased trading activity and volumes and valuations,” Kamath added.

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“For example, if the market remains bearish for a few more weeks, the activity for all capital market participants will drop by at least 30 per cent. No matter if the product is made in heaven or not. Our business is cyclical and highly correlated to the markets.”

“We want the ESOP to be like a low volatility retirement fund because it will probably be a large part of the net worth for many people on the team. Volatility in valuations can be mentally taxing. Since our outsized funds There are no plans to raise, so we thought around 15X PAT was a fair value,” Kamath explained.