Discount brokerage firms have increased their market share as more retail investors have started investing and trading stocks according to a recent research report. The new-age retail investors have embraced tech-based trading platforms with relatively simpler UI/UX provided by these new-age brokers such as Zerodha, Upstox and Groww.
While the former posted its best profitable year during the last fiscal, Upstox also improved its annual income by 99.6% to around Rs 154.7 crore in FY20. As per data provided by the National Stock Exchange (NSE), Upstox has the second-highest number of active users among all of the stockbrokers with an active client base of more than 1.85 million.
Zerodha led the list with an active client base of more than 3.14 million as of January 31, 2021.
Decoding the numbers, Upstox collected 80.7% of its income through brokerage and allied services fees charged from users on its platform. These collections grew by 104.05% to Rs 124.9 crore in FY20.
Further, interest on bank deposits earned 14.5% of the total income while miscellaneous non-operating income accounted for the rest 4.8%.
The growth was evident for the share trading platform floated by RKSV Securities but it sure came at a price. The Tiger Global-backed company increased its scale of operations 2.01X but its annual expenditure ballooned 3.11X to nearly Rs 187 crore during FY20.
The costs incurred on employee benefits surged 2.5X to Rs 32.4 crore in FY20 from Rs 13.09 crore in FY19. Costs attributable to directors’ remuneration made up 25% of these expenses and grew 3.7X during the same period.
During FY20, Upstox’s expenditure on advertisement and promotion had grown 6.6X to Rs 47 crore from only Rs 7.1 crore spent on the same during FY19. Upstox has also signed a two-year sponsorship deal with the Board of Control for Cricket In India to be an official partner of the Indian Premier League. The deal will reportedly cost the company Rs 45 crore per year.
Upstox paid Rs 15.2 crore as sub brokerage expenses in FY20 which increased 2.5X from Rs 6.06 crore paid in FY19. Costs related to clearing fees and e-sign charges also jumped 3.3X to Rs 7.7 crore in FY20.
Costs related to transaction processing surged by 68.7% to around Rs 28 crore while customer support expenses jumped 3.5X to Rs 25.2 crore during FY20.
Upstox paid Rs 20.2 crore as legal and professional charges which ballooned 6.7X during the fiscal FY20. Rental and office costs of Rs 5.5 crore pushed the net cash flow from expenses to Rs -85.02 crore during FY20 from positive inflows of Rs 32.02 crore in FY19.
Upstox had posted a post-tax profit of Rs 13.06 crore in FY19 but with an increase in costs, it slipped into losses of nearly Rs 38 crore during FY20. Its EBITDA margins have also depleted severely from 19.57% in FY19 to -24.35% in FY20.
The financial performance of Upstox hasn’t been great in FY20 but still, it is healthy when we compare it with other growth-stage startups in the B2C space. It looks like the company had prioritised scale after raising funds from Tiger Global in FY20.
Upstox was profitable in FY19, however, on the lines of FY20, the company is likely to post a loss in FY21 as online stock buying space has turned hyper-competitive with Zerodha, Paytm Money and Sequoia-backed Groww.
While Upstox has continued to be the second top player in the stockbroking space until now, it’s likely to face an enormous threat from Paytm Money and Groww which is in talks to mop up over $100 million from Tiger Global and Ribbit Capital.
