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Zoho Corporation Achieves Milestone in Revenue Growth

Zoho Corporation has established itself as the first bootstrapped startup in India to surpass the Rs 12,000 crore revenue mark, demonstrating a consistent growth rate of 17.8% year-on-year. Despite this achievement, the profits for the company, founded by Shridhar Vembu, have remained stable during this period.

Based on consolidated financial statements obtained from the Registrar of Companies, Zoho witnessed its revenue nearly double in the past three fiscal years, escalating from Rs 6,711 crore in FY22 to Rs 12,313 crore in FY25. The majority of its income was generated through the sale of its proprietary enterprise IT management and business application software. The prominent products, ManageEngine and Zoho, were significant contributors to this growth.

Revenue Breakdown of Zoho

The Zoho suite accounted for 57% of the overall revenue, amounting to Rs 7,051 crore, while ManageEngine contributed 39%, totaling Rs 4,863 crore. The remaining Rs 399 crore was sourced from service sales. Additionally, the company secured Rs 1,231 crore as other income, primarily from interest and gains on current investments, resulting in an overall revenue increase to Rs 13,544 crore in FY25 from Rs 11,193 crore in FY24.

Geographical Revenue Distribution

Naturally, North America remained the largest market for the company, making up 41% of the revenue at Rs 5,028 crore. Asia and Europe followed closely with contributions of 30% (Rs 3,711 crore) and 23% (Rs 2,819 crore), respectively. The remaining revenue originated from regions such as Latin America, Africa, Australia, and New Zealand.

Cost Analysis for Zoho Corporation

On the expenditure side, employee benefits emerged as the largest cost, constituting 47% of total expenses. This cost surged by 29%, reaching Rs 4,347 crore in FY25, compared to Rs 3,372 crore in FY24. Furthermore, advertising and promotional expenses increased significantly by 31.3% to Rs 2,230 crore.

The company’s total expenditure rose by 30.5% year-on-year to Rs 9,217 crore in FY25 from Rs 7,062 crore in FY24, mainly driven by higher outlays on legal matters, server maintenance, data centres, depreciation, and travel. This significant rise in costs exceeded the revenue growth, leading to a slight dip in profits to Rs 3,191 crore in FY25, down from Rs 3,299 crore in FY24. Tax expenses, inclusive of deferred tax, escalated to Rs 1,112 crore from Rs 820 crore, adding strain on the net income.

Unit Economics and Financial Metrics

For every rupee earned in FY25, Zoho spent Rs 0.75. The company’s Return on Capital Employed (ROCE) and Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) margins stood at 16.85% and 31.27%, respectively. As of FY25, total current assets reported were Rs 6,010 crore, which included cash and bank balances of Rs 1,880 crore.

Management Changes and New Ventures

In the course of the year, Sridhar Vembu transitioned from his executive role to the position of Chief Scientist, while Shailesh Kumar Davey has been named the new Group CEO. Concurrently, Zoho Corporation has entered the consumer fintech space with the introduction of Zoho Pay, a payments application integrated into its chat platform, Arattai, marking its expansion beyond enterprise software.

With the firm remaining absent from public markets and enjoying a robust cash reserve, it appears that Zoho’s lower margins may stem from its focus on the domestic sector. It has made notable achievements such as becoming the email provider for several Indian government ministries. Although these ‘prestigious’ contracts may be modest in value, they bolster founder Vembu’s Swadeshi narrative and reputation.

The company is well-positioned to capture market share in India, even at slimmer margins, while also facing the evolving impact of AI on its business in other regions. The launches of ZohoPay and Arattai serve as experimental ventures for the domestic market, where the firm aims to play a more substantial role as a service provider beyond just catering to businesses.

However, Vembu’s ongoing legal challenges in the US, related to his divorce proceedings, cast a shadow over the firm. This situation may explain the company’s efforts to lessen its reliance on him, as US courts have the potential to claim the company’s assets. A resolution of these legal matters may lead to a new surge in growth and opportunities for expansion, although for the time being, the company intends to grant the new Group CEO ample time to establish himself in the role.

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