Zoho, Zerodha shrug Covid blues to shine
MUMBAI: Notwithstanding newage technology companies that are raising millions of dollars from private equity (PE) and venture capital (VC) firms but fail to show profits even as their valuations shoot up, two bootstrapped companies adopted a different path to success and profitability that is paying dividends. Zoho, one of India’s oldest software-as-a-service (SaaS) platforms, and Zerodha, India’s largest broking firm, reported robust earnings for financial year 2020-21. Both the firms were profitable even in 2019-20 (FY20), and have built on their success since then, the companies’ filings with the ministry of corporate affairs show.
Zerodha reported a sharp rise in its operating revenue with demand for online broking soaring in the pandemic-battered year. Zerodha, operated by Zerodha Broking Ltd, reported a near 200% rise in its operating revenue to ₹2,729 crore for FY21 from ₹938.45 crore a year earlier. The company’s net profit jumped over 160% to ₹1,122 crore.
Zoho, operated by Zoho Corporation Pvt Ltd, reported a net profit of ₹1,918 crore for FY21, up 116.6% from ₹800.8 crore a year earlier. While the company’s revenue from operations grew a little over 22% for the year to ₹5,230 crore, the company managed to cut its expenses by over 10% for the year to ₹3,024.2 crore, which helped its bottomline. The strong earnings of the two companies, which have not raised funds from any PE or VC firms till date, come at a time when their new-age technology counterparts have been questioned over profitability by public shareholders.
Companies like Paytm, operated by One97 Communications Ltd, PB Fintech Ltd that runs Policy Bazar, and Zomato Ltd, among others, which got listed last year, have repeatedly reported quarterly losses. Share prices of these companies have consequently fallen 22-36% since January. All three companies are trading below their IPO (initial public offering) prices.
A K Prabhakar, head of research at IDBI Capital Markets, believes that companies like Paytm and Zomato have got into a position where they need to burn cash to continue their operations. “Paytm and Zomato addressed a need for a limited population. But now they have to go deeper and add more customers and for this, you need to burn a lot of cash and this will continue to be the case. I don’t see these companies making a profit in at least five to six years, and I would stay away from these stocks and invest in companies I am more comfortable with,” Prabhakar said. He said Zerodha and Zoho, on the other hand, were focused on their core businesses, and since they had not raised any capital from private markets, their primary aim was to become profitable. “Zerodha’s business model is entirely different. He (Nithin Kamath) never went for PE funding. Everything is his cash or his family’s. So, the priority for him was to generate profits by focusing on the company’s core business. Moreover, I feel, broking was an old concept. He disrupted the market by building an asset-light business by going completely digital and that’s where he got his market share,” he said.