📘 What is DRHP? A Complete Guide to Draft Red Herring Prospectus

Investing in IPOs (Initial Public Offerings) has become a popular trend among Indian investors. But before making an investment, it’s crucial to understand the backbone of any IPO — the Draft Red Herring Prospectus (DRHP). This blog explores everything about DRHP in detail: from its definition and components to how investors can analyze it and use it to make informed decisions.

📌 Table of Contents

1. What is a DRHP?
2. Why is a DRHP Important?
3. Who Prepares the DRHP?
4. When is DRHP Filed?
5. Key Components of a DRHP
6. DRHP vs RHP: What’s the Difference?
7. How to Read and Analyze a DRHP
8. Where Can You Find a DRHP?
9. Common Misconceptions About DRHP
10. Final Thoughts

1. 🧐 What is a DRHP?

The term DRHP stands for Draft Red Herring Prospectus. It is a preliminary registration document that a company submits to SEBI (Securities and Exchange Board of India) before launching an IPO. The DRHP outlines all vital information about the company, including its financials, risks, operations, and purpose of raising funds.

The company excludes the price and the number of shares from the DRHP. It adds these details in the final version, called the RHP (Red Herring Prospectus).

2. ✅ Why is a DRHP Important?

DRHP serves multiple stakeholders:

• SEBI: It helps regulators ensure transparency and fairness in the IPO process.
• Investors: It acts as a guide to assess whether the company is worth investing in.
• For Analysts & Media: It becomes the source of all pre-IPO discussions, valuations, and opinions.

By reading a DRHP, investors can identify the strengths and weaknesses of the issuing company, allowing them to make informed decisions.

3. 🧾 Who Prepares the DRHP?

A company’s merchant bankers or lead managers (also known as Book Running Lead Managers – BRLMs), usually prepare the DRHP in consultation with legal experts and auditors.

They then submit the document to SEBI for review. After thoroughly vetting it, SEBI may ask them to make revisions or provide clarifications. Once SEBI approves the document, the company releases it to the public.

4. ⏱️ When is DRHP Filed?

DRHP is filed before the IPO process begins. It is the first formal step in the journey of going public. Once the DRHP is filed and approved, it becomes the base for the Red Herring Prospectus (RHP), which includes the final price band, number of shares, and subscription dates.

5. 📄 Key Components of a DRHP

A well-structured DRHP typically includes the following major sections:

🔹 Company Overview

This section gives a snapshot of the company’s history, mission, vision, business model, products, and services.

🔹 Risk Factors

This is one of the most important sections. It highlights internal and external risks that can affect the company’s business and performance.

🔹 Financial Information

The DRHP provides audited financial statements for the last 3-5 years, including profit & loss statements, balance sheets, and cash flow.

🔹 Promoter & Management Details

Details about the promoters, their backgrounds, and their shareholding in the company are disclosed here.

🔹 Use of Proceeds

How the funds raised from the IPO will be used — e.g., for expansion, debt repayment, R&D, or working capital.

🔹 Legal Proceedings

Any ongoing litigation or regulatory scrutiny involving the company or its promoters is mentioned in this section.

🔹 Industry Overview

The DRHP includes an overview of the industry in which the company operates, along with market trends and competition.

6. 🔍 DRHP vs RHP: What’s the Difference?

Many investors confuse DRHP with RHP (Red Herring Prospectus). Though both documents look similar, they have key differences:

Essentially, the DRHP is an incomplete draft awaiting approval, whereas the RHP is the final version used to attract public investment.

7. 📘 How to Read and Analyze a DRHP

Reading a DRHP may seem overwhelming due to its length (200–500 pages), but focusing on key sections can make it easier:

Step-by-step approach:

1. Start with the Risk Factors – Are there regulatory, financial, or operational concerns?
2. Analyze Financials – Is revenue growing? Are profits consistent?
3. Check Promoters’ Background – Do they have a credible track record?
4. Understand the Use of Funds – Are they being raised for growth or to repay debt?
5. Look at Peer Comparison – How does the company stack up against listed competitors?

8. 🌐 Where Can You Find a DRHP?

DRHPs are available for public review on multiple platforms:

• SEBI’s official website – www.sebi.gov.in
• Stock exchange websites – NSE and BSE portals
• Company’s official website – under the ‘Investors’ or ‘IPO’ section
• IPO-tracking portals – e.g., Chittorgarh, IPO Central, Moneycontrol IPO page

9. ❌ Common Misconceptions About DRHP

❗ “DRHP guarantees IPO approval”

Not true. SEBI may reject or demand major changes in the DRHP before approval.

❗ “It’s only useful for regulators”

Incorrect. DRHP is a critical tool for retail and institutional investors to assess the company’s potential.

❗ “Too long, not useful for small investors”

While the document is lengthy, a quick scan of the risk, financials, and objectives can offer valuable insights.

10. 💡 Final Thoughts

The DRHP plays a vital role in maintaining transparency and empowering investors with knowledge. Although reading such technical documents may seem tedious, even a partial understanding can significantly enhance your ability to evaluate IPO opportunities.

Informed investors are more likely to make profitable decisions — and the DRHP is your starting point to becoming one.

🔎 FAQs About DRHP

❓ Is DRHP legally binding?

No, it is a draft. Only the final RHP becomes a legally binding offer document.

❓ Can DRHP be withdrawn?

Yes, companies can choose to withdraw their IPO application after submitting the DRHP.

❓ What happens after DRHP approval?

Once SEBI approves the DRHP, the company files the RHP, announces the IPO dates and price band, and begins the roadshow.

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