Online broker Zerodha set to launch  ₹200-cr ESOP buyback

Bengaluru: Online brokerage Zerodha aims to roll out a buyback plan for its employees worth ₹200 crore at a self-assessed valuation of $2 billion, a senior executive of the company told Mint on Friday.

Close to 850 employees, or 85% of Zerodha’s employee base, will be eligible to participate in the buyback, which is expected to be rolled out in July. It will allow employees to sell up to 33% of their vested employee stock ownership plans (ESOPs) to the company at a valuation of $2 billion.

Zerodha entered India’s unicorn stable in June last year after spending ₹65 crore to buy back employee stocks at a value of $1 billion. The brokerage has been self-funded since its inception in 2010 and never picked up external capital.

It converted itself into a public limited company in 2019 and at present its employees own 6-6.5% stake through ESOPs. Zerodha will allocate newer ESOPs this year, which may push the overall ESOP pool to an 8% shareholding in the company.

“We continue to run Zerodha in the most cost-effective way and have gross margins up to 60%-70%. Our ambition is to keep rewarding our employees who have contributed to this journey, along with the annual growth they achieve for Zerodha. The idea is to give 10% of our profits to buybacks every year,” said Zerodha co-founder Nithin Kamath.

For the fiscal year ending March 2021, Zerodha more than doubled its profit to ₹1,000 crore, Kamath told Mint. Zerodha made ₹442 crore in profit in fiscal 2020, while posting a 15% growth in revenue at ₹1,093.64 crore, up from ₹950 crore in FY19.

The company passed a special resolution approving an annual remuneration of up to ₹100 crore each for its founders, Nikhil Kamath, Nithin Kamath and his spouse Seema Patil, according to regulatory filings. Patil has recently been promoted from director to whole-time director.

The three will get a basic salary of ₹4.17 crore per month each, along with perks and allowances of the same amount, adding up to a neat ₹100 crore as salary per year each.

Besides Patil, Madhav Kota Subramanya has also been appointed as a whole-time director for five years effective 10 May. His remuneration will be ₹2 crore per annum.

Nithin Kamath told Mint that the approval may not essentially mean that the founders would draw out ₹100 crore as final salaries from the company.

“It is just the upper limit and may differ from the actual salaries we are drawing from the company. We have always drawn a certain portion of the profits and kept it away to mitigate any kind of company risks in the future,” he said.

As the company does not look to raise external capital, it has to raise liquidity for founders and employees, Kamath said. “We aren’t looking at selling our stake to raise liquidity. The options that are left for us to raise liquidity include salaries, dividends, and buybacks. We may exercise any of these options, depending on various factors, including considerations about tax efficiency. Note that even on salary income, the tax payable will be upwards of 40%,” said Kamath.

Over the past year, several startups including Cred, Razorpay, and Udaan have announced liquidity events for employees as they continue to raise new funds.