Why not IPO @zerodhaonline when you can potentially get ridiculous valuations?Firstly, we think an IPO is the beginning & not the end. As soon as you have lakhs of conservative retail investors on your cap table, the obligations go up exponentially. 1/4— Nithin Kamath (@Nithin0dha) November 12, 2021
India has seen a stellar year in terms of valuations and public offerings and IPOs of companies like Zomato, Paytm, Paras Defence, and Nykaa received an incredible response from the market. Many firms are on their way to cross Rs 1 trillion in money raised through the public offerings while the number of unicorns has surged to 35.
Despite the talks of a new bull cycle for the Indian equity market, Zerodha CEO Nithin Kamath remains unconvinced that going public is the best bet for his company.
“‘Why not IPO @zerodhaonline when you can potentially get ridiculous valuations?’ Firstly, we think an IPO is the beginning & not the end. As soon as you have lakhs of conservative retail investors on your cap table, the obligations go up exponentially,” he wrote on Twitter.
The co-founder of India’s largest stockbroker said, companies are getting priced to perfection based on all the future growth potential. “For a stock to do well, you have to outperform. As CEO, I dread to think how you can outperform the already really high expectations that growth companies have today,” he added.
Unlike most others, Kamath took Zerodha to a unicorn status without any external funding. The completely bootstrapped company is also one of the select few startups that are profitable. The company recently unveiled a new employee stock ownership plan (ESOP) programme worth Rs 100 that saw itself self-value at $2 billion, based on earnings, past performances and other traditional metrics.
“Had we taken the route of taking external money, we would have been compelled to take the venture capital route which pushes you for higher growth and higher valuation,” Nithin had told Yourstory earlier.
But for the swathe of companies, which are still losing money hand over first, going public, valuations have been based on metrics like growth and future earnings. With sky-high valuations, companies need to constantly outperform the market in order to keep investors happy.
“We have never set revenue or growth targets, always believed that if we can do what is right for the customer & if goddess of luck smiles, the rest will happen. Our core team dreads moving away from that philosophy to be in a chase all the time, which it will be after an IPO,” Kamath added on his Twitter thread.
According to him, the reason the chase is scarier is that broking has hardly any predictability. “When someone asks me for a 3-year projection, I usually respond, can you predict what the Nifty Midcap index can do in 3 years as everything from our user to revenue growth almost mirrors that,” he tweeted.
Nithin’s brother, Nikhil Kamath, Zerodha co-founder and CFO, has shared similar views in the past.
“A company on average survives for 8 to 10 years and I am talking beyond a certain scale. I do not buy into the story that something is growing at x today and it will continue to grow for the next 20 years and based on that, I will pay a certain multiple today! I am not on that side of the boat and you know I do not believe in valuing companies like that,” he told ET earlier this month.