Zerodha is basically a discount broker and It is also trying its hands in AMC business - True Beacon.
Zerodha Broking has invested in only BSE Limited as per their shareholdings in Trendlyne and the invested amount is worth 52.7 crores. Their core earnings are estimated to be 400 crores per year. Zerodha gave itself a modest market capitalization of 1 billion $ - ~7000 cr INR to buyback 65 crores worth shares from its employees in June 2020. It is valued at 3 billion $ - ~21000 cr INR by another firm Hurun. Looking at the way Zerodha founders have set it up and did raise the platform without taking external funding from 2010, I see their business chemistry as pioneers. A pioneer looks at the big picture.
Given their background in trading, in case they wanted to set aside their profits as financial assets in the form of buying shares, they had ample of opportunities in the market especially in Q2 & Q3 of FY21.However, they bought only the shares of BSE Limited.
I see the below possibilities -
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Zerodha is neither listed nor sold stake to any PE player so far. It is using its cash to buyback shares at modest valuation so that the value of the remaining shares will go up. Advantage to existing share-holders who are not submitting during buyback.
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Zerodha would have understood there is a disproportionate opportunity in BSE Limited stock which is not very clear to others. This can be due to insider information or based on their market research in trading. Looking at the revenue streams of BSE, I see only BSE Star MF and India INX as the ones which can give that edge for now. The stock is available below book value and so downside risk is covered.
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Like ICE bought NYSE, Zerodha may be planning to slowly take over BSE Limited. They can leverage their existing fintech capabilities and get more market share. Some people try to hold the BSE bull by its horns and fulfill their fantasy. If Zerodha buys Bombay Stock Exchange Limited, it is a material for a nice movie :). Trader --> Broker --> Exchange Owner. The market cap of BSE is hovering below 3000 cr and Zerodha can get this by external funding based on the valuation it is commanding.
.BSE (Bombay Stock Exchange)- Bet on Financialization?
As per the above article - In case of an existing exchange or a depository, any entity may acquire up to 100% shareholding and lower its holding 51% or 26% in 10 years, Sebi said.
Disclosure - Invested. Portfolio - Southern_Cross's Portfolio