Why is Zerodha So Profitable While Its Competitors Are Struggling?

Introduction

Zerodha is one of those rare startups in India that’s done something almost unheard of in today’s startup world — it became wildly profitable without raising a single rupee of external funding. In FY23 alone, the company made a net profit of ₹2,907 crore on a revenue of ₹6,875 crore. That’s a staggering profit margin of over 40%. In contrast, its competitors like Groww, Upstox, and Paytm Money are either loss-making or barely breaking even. What is Zerodha doing differently?

The Business Model: Simple, Scalable, and Self-Sufficient

Zerodha was a pioneer of the “discount broking” model in India. While traditional brokers charged a percentage of your trade value, Zerodha introduced a flat fee — ₹0 for delivery trades and ₹20 for intraday or F&O trades. For the average retail trader, this meant massive savings.

But where does the money come from if so much is free? Zerodha earns revenue mainly from:

• High-frequency intraday and F&O traders, where each trade still incurs ₹20 per order.

• Interest on client margins, i.e., when traders borrow funds.

• Float income, where Zerodha earns interest on the idle money parked in user accounts (while still giving users instant access to it).

• Low overheads — the company doesn’t spend on celebrity endorsements or splashy ad campaigns. It has no salesforce and minimal customer acquisition cost.

Why Aren’t Competitors Profitable Then?

While Zerodha focused on building a lean and profitable business from the start, competitors like Groww and Upstox chose the venture capital route. They prioritized rapid growth over profitability, pouring money into digital ads, cashback offers, and influencer marketing to gain users.

However, this strategy has led to a burn-heavy model. Despite strong user growth, they are still far from profitable because:

• Their average revenue per user (ARPU) is low.

• Customer loyalty is weak — many accounts go inactive.

• They depend heavily on external funding to survive.

Zerodha, meanwhile, chose a slow and steady path. It didn't chase vanity metrics but instead focused on delivering a reliable trading platform for active investors.

The Flip Side: Is Zerodha’s Model Future-Proof?

While Zerodha’s profitability is impressive, there are some concerns that are worth keeping an eye on.

First, over 70% of its revenue comes from F&O (Futures & Options), which is considered speculative and risky. If SEBI or the government decides to tighten regulations or increase margins in this space, Zerodha’s core revenue could take a serious hit.

Second, Zerodha hasn’t diversified much. It has launched Coin (mutual funds) and smallcase integrations, but these are yet to become major revenue drivers. If active trading volumes drop, its profits may fall sharply.

Lastly, Zerodha’s success is deeply tied to India’s bull market. If markets enter a long-term bearish phase, trading enthusiasm could dry up, directly affecting revenues.

Conclusion

Zerodha is a rare case of a startup that scaled profitably without external capital. It chose product quality, tech efficiency, and user trust over aggressive growth. But while it is currently the king of the hill, its heavy dependence on a single revenue stream and market cycles makes it vulnerable in the long run. Whether it continues to dominate will depend on how well it diversifies and adapts to regulatory and market shifts.