What is DRHP (Draft Red Herring Prospectus)? 8 Reasons Why you must read it before applying for an IPO?

DRHP stands for Draft Red Herring Prospectus and it includes every financial detail of the company which is a must for an investor to know to make the decision for investing with the company. Red Herring Prospectus (RHP) is prepared by the underwriter to be presented to the SEBI well within time to complete the registration for Initial Public Offering (IPO). The registration statement includes each and every financial detail about the company which is mandated by SEBI such as Red Herring Prospectus (RHP).

what is DRHP?

DRHP (Draft Red Herring Prospectus)

Once the company signed the underwriting agreement, the next step is to prepare the DRHP document. SEBI and Companies act makes it mandatory for every company to submit RHP in advance to SEBI along with a registration statement to complete registration for IPO. DRHP of the company includes every financial detail of the company which is a must for an investor to know to make a decision for investing with the company. SEBI has mandated every company to provide information about a company before offering them an IPO. DRHP includes some important details for investors and every investor must go through these detail before applying for an IPO, and some details are as follows:



This part of RHP includes some pre-defined industry-specific definitions or terms which are going to be used in the RHP repeatedly. You can go through this section if you get confused with any of the terms used in DRHP.

Usage of funds raised through IPO:

Here, the company needs to disclose everything about how it is going to use the funds raised by IPO. It will tell an investor where the money invested will be used by the company like for repaying the debts or for the installment of new operating units etc. That means this section will reflect why the company needs additional funds in actuality.

Associated Risks:

Here, in this section company will disclose each and every risk factor associated with the business operations of the company which can affect its finances i.e profits and loss. This is a very important section for an investor to go through as it will make an investor aware of the possible risks associated with his money going to invest with the company.


Details of the company:

It will dictate the complete details as per the industrial segmentation. Suppose the company belongs to the Manufacturing sector, then here in this section company will discuss the current trend and scenario of the sector and the share of the company in its sector. It will also tell the investor about future potential growth, predictions, forecasting, and any associated risks with the particular sector to which the company belongs.

Core Business Description:

Here the company will tell about the core business in which the company is engaged in detail. Through this section, you can forecast a bit about the future potential of the company.

Key Holdings/Management:

It means Management which is involved with the company and company will provide each detail about the person sitting in the management like his salary, experience, etc. This section helps the investors to ascertain the growth of the company for example if a company has many changes in the management in the recent past, it is not a good sign for the company’s future.

Reports of the company:

This section includes every financial statement of the company like P&L statement etc. It also shows the net profit, assets and liabilities, and revenues with quarterly statements. It also contains audit reports which will help an investor to ascertain the financial performance and growth of the company.

Legal Documents:

Every investor must go through this section minutely as this section tells about any litigations or court proceedings in which the company is involved. You must also check the key position holders for any legal proceedings initiated against them. As if any company is involved with legal issues, its future depends on the judgment to be delivered by the court w.r.t those litigations.

Where you can locate DRHP

You can find the DRHP of any company that is going to issue a new IPO on the official website of SEBI. You need to click the “Offer Document” section to locate it. You can also find DRHP on the Websites of Stock Exchanges and select Merchant Bankers as well. In addition to it, you can search DRHP in the newspapers as well because the company has to make a public announcement through a minimum of one newspaper after the submission of DRHP to SEBI. Newspapers can be of National level or local language newspapers. Additionally, the issuing company has to make a public announcement through at least one newspaper after submitting the RHP to SEBI. It can be a Hindi, English, or Regional language newspaper.

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Bottom Lines:

DRHP/RHP is an important document that is submitted by the company to SEBI prior to taking approval for the public issue. SEBI scrutinizes this document and issues its approval to the company of all things as per standards. If not, then DRHP returned back to the company by SEBI for necessary amendments. 

Being an investor, we must go through this document minutely before applying for an IPO of the company. This document tells everything about the company and has the information which can help us in deciding whether to apply fo this IPO or not.

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