Tiger Global-backed Upstox grows faster than Zerodha for third straight year, achieves breakeven

Upstox founders from L-R Shrini Vishwanath, Ravi Kumar, Kavitha Subramanian

Tiger Global-backed brokerage unicorn Upstox has grown faster than its biggest rival Zerodha for the third consecutive fiscal year, registering an over 40 percent increase in its operating revenue in FY23 (2022-23) thanks to robust growth in its user base.

Upstox’s operating revenue (broking revenue) grew 44 percent in FY23 (2022-23) and breached the Rs 1,000 crore mark, its co-founder and CEO Ravi Kumar told Moneycontrol in a virtual interaction. Upstox surpassed 10 million unique clients during the period, and, according to data on the NSE (National Stock Exchange), had close to 3 million active clients as of March 31, making it the second-largest broker in the country after Zerodha. To be sure, Groww has more clients than Upstox, but a large portion of it is mutual fund clients, unlike Zerodha and Upstox.

In FY22 (2021-22), Upstox had recorded broking revenue of Rs 765.6 crore, so a 44 percent increase in FY23 would mean that the company’s revenue topped Rs 1,100 crore in that fiscal. Upstox, however, did not provide exact numbers. Kumar also told Moneycontrol that Upstox achieved breakeven for FY23 and generated positive net cash of around Rs 130 crore in the fourth quarter of FY23. With that, Upstox concluded the fiscal year with cash reserves of close to Rs 1,000 crore, he said.

With an over 40 percent increase in its broking revenue in FY23, Upstox grew faster than Zerodha, albeit on a smaller base. Zerodha’s operating revenue grew about 20 percent during the year, chief executive Nithin Kamath said in a recent media interaction.

Upstox’ operating revenue grew threefold in FY21 (2020-21) and doubled in FY22 (2021-22).

During these years, Zerodha’s broking revenue grew 164 percent and 81 percent, respectively, according to the company’s regulatory filings. However, Zerodha’s operating revenue was much higher in FY22 compared to Upstox, with the bootstrapped broking company almost topping the Rs 5,000 crore mark.

The pandemic-induced stay-at-home restrictions in 2020 and 2021 led to rapid adoption of digitisation, leading to a strong surge in demand for online trading platforms such as Upstox and Zerodha. Further, central banks across the world slashed interest rates sharply during the Covid years and pumped billions of dollars into banks to mitigate the impact of the pandemic, which led to an era of easy money. Consequently, millions of Indians started investing in stock markets in search of higher returns. Online discount brokers were among the biggest beneficiaries of this shift.

While Upstox claims to have achieved breakeven this year, Zerodha is profitable and had reported a net profit of close to Rs 2,100 crore in FY22, thanks to its low customer acquisition costs (CAC), unlike Upstox and Groww, which have invested heavily in brand building.

Brand-building efforts

In FY22, Upstox spent over Rs 400 crore on advertising and promotions. The company is also among the few startup sponsors of the Indian Premier League (IPL) T20 cricket tournament this year — a lot of venture capital-backed companies have cut down on advertising spends amid the prolonged funding winter.

“The beauty of our space is that all of us are basically profitable. We have a lot of time to just build our brand in a way that we think is best. Now, what I think is best for Upstox may be different than what our competitor thinks is best for them. But we believe in the power of the brand. We think that the brand is extremely important,” said Kumar.

“We think that the IPL is a fantastic medium. There is not a single platform today in the world that has a reach of 500-600 million people, young people, watching match after match after match. Before the IPL, brand recognition was like 25 percent; now, brand recognition is 94 percent. You cannot get that kind of brand creation in a country the size of India,” he added.

Kumar said that while it will be hard to predict Upstox’ growth trajectory for the current financial year, he is confident of FY24 (2023-24) turning out to be a good year for the company, despite short-term fluctuations.

“Not at all,” Kumar said when asked if he expects growth to flatten this year.

“I still think it'll grow. I think on a net aggregate basis, on a month-on-month basis, we’re still adding. But what I also think will happen is, because we’ve launched Upstox Invest (a platform that suggests investment avenues to users), a lot of our clients who may have turned passive in the past two years may turn active,” he added.

Kumar’s comments come at a time when Zerodha’s Kamath, in a media interview, said that he expects the company’s revenue and profit to drop by at least a third this fiscal year as he sees fewer new accounts getting added compared to previous years.

Upstox’s journey and its backers

The company was founded in 2009 by Ravi Kumar and Shrini Vishwanath as RKSV Securities Pvt Ltd, and was used to offer a trading platform to brokers for a low brokerage. The name was changed to Upstox in 2016, and Kavitha Subramanian was brought in as a co-founder.

Upstox has raised more than $140 million to date and counts Tiger Global, and Kalaari Capital among its backers. It has also raised angel investments from Ratan Tata and cricketer Shikhar Dhawan. The company last raised funds in November 2021, at a post-money valuation of $3.4 billion.