Broking firms are bracing for higher taxes on trading during the current fiscal, have been earning lower exchange rebates since the middle of the last fiscal, and are facing stricter restrictions on retail F&O trading since late last year
Groww, the country’s largest stockbroker by the number of active investors, filed for an initial public offering (IPO) on May 26 under the Securities and Exchange Board of India’s (Sebi’s) pre-filing mechanism, marking its first formal step toward a stock market debut.
Groww is likely to take a conservative IPO valuation of $7-8 billion, considering the market sentiment and volatility, Moneycontrol reported on May 15. Based on the valuation, a typical 10-15 percent equity dilution could imply an IPO size of around $700-920 million.
The Bengaluru-based fintech firm, founded in 2016, is also expected to close its pre-IPO round of $300 million at a post-money valuation of $7 billion next month.
Interestingly, Zerodha, the country’s largest discount broker by revenue, was valued around $7.7 billion by the Hurun Report late last year. Hurun is a research company that evaluates wealth and valuation of private companies. In fact, Zerodha last valued itself at $3.6 billion or somewhere between 10-15 times the annual net profit for ESOP (employee stock ownership plan) buyback in September 2023.
Using the same metric, as per the FY24 financials, the company is likely be valued around Rs 45,000 crore or somewhere between $5-5.5 billion.
Angel One, which is listed on the stock exchanges, had a comparable revenue to Groww in FY24, and is currently trading around $2.5 billion in valuation.
The hiccup
However, Groww is getting ready for the IPO at the most inopportune time for the large discount brokers in the country.
Broking firms are bracing for higher taxes on trading during the current fiscal, have been earning lower exchange rebates since the middle of the last fiscal, and facing stricter restrictions on retail Futures & Options (F&O) trading since late last year.
Most broking firms could see a 30-50 percent hit to the top line during the second half of FY25, several brokerage houses told Moneycontrol.
“We would like to wait and see the impact of the recent regulatory changes that reduced F&O trading, before taking a call on the company’s valuation. It is no more about the 30x multiple that they are asking. The DRHP (Draft Red Herring Prospectus) will give us an idea of the impact this can have on current year earnings as well,” said a senior executive at an investment firm that has bought and sold multiple new economy company shares.
Angel One reported a 49 percent fall in net profit for the three months that ended in March 31, 2025, to Rs 175 crore, compared to Rs 340 crore in the corresponding quarter in FY2024. Consolidated revenue sank 22 percent to Rs 1,056 crore, sinking from Rs 1,357 crore in the same period last year.
Most businesses go through cyclical challenges and the investor sentiment in the country is bound to get better as the country’s economy improves, says a founder of a competing stockbroker. This has been particularly true for broking companies as the number of investors in the equity markets has more than quadrupled over the last five years.
Ambitious or conservative?
According to a source, Groww’s asking valuation of $7-8 billion is conservative by new economy company standards. Companies such as Zomato, Swiggy and Paytm also went for high valuations with a much higher price-to-earnings (PE) multiple.
The startups command a higher valuation because of the high growth trajectory of around 40-50 percent annual revenue growth even after going public. The other key reason is that the incremental revenue growth is not expected to add proportional expenditure for technology-led companies.
Groww has more than doubled its FY24 revenue to Rs 3,145 crore at a consolidated level. The company’s FY25 numbers are not yet public and are likely to be part of the DRHP data.
The company’s consolidated operational profit rose 17 percent to Rs 535 crore in the year ended March 2024, compared to the Rs 458 crore it had reported a year back. Its consolidated revenue for FY23 stood at Rs 1,435 crore.
To put Groww’s valuation in context, Zerodha reported Rs 8,000 crore in revenue and Rs 5,000 crore in profit during FY24.
Is the valuation steep?
There are two opinions on whether the valuation is steep.
“Companies raise a pre-IPO round to discover a price before the IPO. These are often leading global investors doing due diligence, and they need to exit at a higher valuation to make a profitable exit. The capital at stake is too high, and they are answerable to their investors. So, if they see $7 billion value, it is not a decision they took lightly,” said a senior executive who is a partner for deals and startups at an audit firm.
Anas Rahman Junaid, founder and chief researcher at Hurun India, said that the valuations in private markets and public markets should always go in tandem.
Interestingly, Hurun valued Groww at $3 billion in the same report (published last year) where it valued Zerodha at $7 billion. Junaid said that he has not researched independent companies or brokerage houses based on current trends.
“Going by the current trading situation, I would mark down the broking firms’ valuation by 20 percent,” he said, clarifying that the situation could have changed for a few companies since the Hurun report.
What explains Groww’s valuation premium
Zerodha has a focus on equity trading, especially in F&O trading, and has seen its active customers falling for five straight months.
Groww started as a platform that focused on attracting new customers with long-term investment products, mutual funds, especially systematic investment plan (SIPs), and then moved on to direct equity investment on its broking platform. Its entire customer acquisition and marketing strategy is anchored on this premise.
Analysts expect that a wider range of options will likely help Groww remain relatively steady even in a choppy market.
Factors analysts like
Moneycontrol spoke with multiple fintech analysts and consultants, and these are the key factors that make Groww different from some other competitors and help them command a leadership premium.
1. Capital-efficient: Compared to several other startups, Groww has proved to be extremely capital-efficient to reach its current position of market leadership. The company reported operating profitability for FY23 and FY24. It is likely to repeat its performance in FY25, even after the Sebi regulations.
2. Liquidity premium: A listing provides investors with liquidity, whereas exiting is not easy in a privately held company.
3. Diversified business: A lot less dependent on F&O, compared to other top brokers.
4. Mutual Funds like Groww’s distribution engine: “We have spoken with multiple mutual fund houses, and they like Groww and its ability to educate and bring new customers,” said a consultant who works with one of the top four audit firms.
5. Growth trajectory: Groww doubled its FY24 revenue, though it remains to be seen whether the company can keep the pace. The new active investor addition in calendar year 2024 stood at 50 lakh users.
6. Many competitors are legacy companies: Many of the top 20 brokers in the industry are not technology-led and are full-service brokers charging a much higher fee. Industry trend over the last decade has moved towards a self-service model with low brokerage. The discount brokers have a technology DNA and is likely to be ahead of the full-service brokers in innovation, especially by deploying AI.
7. Groww’s AMCs are doing well: The company runs Groww Mutual Fund AMC with several index funds and other products. It also recently acquired Indiabulls AMC.
Challenges remain
Despite all these advantages, Groww does not have a moat in a crowded industry. There are more than 32 companies with more than a lakh active investors.
Most large banks have a strong presence in the brokerage industry, with some of them even launching low-brokerage model apps to compete with the likes of Groww. Their strong balance sheet could act as a counterweight to Groww’s tech prowess.
“In financial services, it is difficult to build a moat. Customer journeys are a passe. It is only a matter of time before someone with more money replicates what you do,” said Naveen Kulkarni of Axis Securities. He did not comment about Groww specifically, adding that he has not studied the company.
Another public market investor said that it is difficult to give Groww a similar multiple to a Swiggy or Zomato despite its profitability.
“Groww is a good digital company. But the two online food delivery companies operate in an oligopolistic market. They have disrupted the market in ways we could not imagine. Here, I am not sure what I am paying for and hence not confident of giving a very high PE,” said the investor.
However, Groww could prove its detractors wrong, says a source close to the company.
“Over the next few months, you will see a slew of new products and financial services that could build a well-rounded business,” the person added.
On May 16, Groww entered into an agreement to acquire wealth management startup Fisdom in a $150 million all-cash deal. The deal is awaiting Sebi approval. Fisdom offers mutual funds, stocks, bonds, portfolio management services (PMS), and tax filing solutions and has over a million customers.
Source: www.moneycontrol.com
