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Zerodha, a prominent Indian brokerage firm, has made a strategic decision to forgo an initial public offering (IPO) despite the potential for soaring valuations. This decision, articulated by Zerodha founder Nithin Kamath, stems from a deep-rooted concern about revenue predictability. In his view, an IPO, while promising financial benefits, would also usher in a new era of investor expectations, demanding consistent revenue growth, potentially jeopardizing the company's long-term sustainability.
Kamath emphasizes that an IPO is not a mere culmination but rather a commencement of a new chapter, one where the company's performance is scrutinized by a wider range of stakeholders, including retail investors. This scrutiny necessitates greater revenue predictability, an area where Zerodha has struggled historically. Kamath candidly admits that over the past 14 years, he has not been able to accurately forecast revenue growth and dips, highlighting the inherent volatility of the brokerage business.
Beyond the challenges of revenue predictability, Kamath expresses reservations about the potential for short-term gains to overshadow long-term goals. He contends that, once listed, companies are often compelled to prioritize quarterly growth at all costs, potentially compromising their fundamental business principles. This focus on immediate returns, driven by investor expectations, is a risk that Zerodha is willing to forgo in favor of a more sustainable trajectory.
Zerodha's approach underscores the importance of aligning business strategy with long-term goals, even if it means foregoing the immediate benefits of an IPO. The company's resilience in the face of fluctuating market conditions and regulatory shifts demonstrates its commitment to building a lasting enterprise. While its current financial performance might appear stable, Kamath acknowledges the inherent vulnerability of the brokerage industry to external factors, reinforcing the need for a more proactive approach to revenue predictability.
Source: Will Zerodha come out with an IPO: Nithin Kamath says ‘most companies forced...’