DRHP - Complete Guide

DRHP (Draft Red Herring Prospectus) is a detailed preliminary document that a company files with the market regulator before launching an IPO or FPO. It provides complete information about the company and the proposed public issue, except the final issue price and exact number of shares.

Below is a full and in-depth explanation:

1. Meaning of DRHP

A Draft Red Herring Prospectus (DRHP) is a draft offer document submitted by a company to SEBI for review and approval prior to a public issue.

• It is called draft because some details are not final
• It is called red herring because earlier such missing details were marked in red

2. Purpose of DRHP

The DRHP is prepared to:

• Disclose complete and truthful information to investors
• Allow SEBI to examine legal and financial compliance
• Enable investors to evaluate the company before investing
• Ensure transparency in capital markets

3. When DRHP Is Filed

• Before an IPO (Initial Public Offering)
• Before an FPO (Follow-on Public Offer)
• Before a Rights Issue (in modified form)

4. Who Prepares and Files the DRHP

• Prepared by the company
• Assisted by merchant bankers / book running lead managers
• Filed with SEBI
• Also submitted to stock exchanges (NSE/BSE)

5. Contents of DRHP (Very Important)

A DRHP contains the following key sections:

1. Company Information

• Business overview
• Industry details
• Company history
• Subsidiaries and group companies

2. Promoters and Management

• Promoter background
• Shareholding pattern
• Board of directors and key managerial personnel

3. Financial Information

• Audited financial statements (last 3 years)
• Revenue, profits, assets, liabilities
• Cash flow statements

4. Details of the Issue

• Type of issue (Fresh Issue / Offer for Sale)
• Objects of the issue (use of funds)
• Tentative size of the issue

5. Risk Factors

• Business risks
• Industry risks
• Financial risks
• Regulatory risks

(This is one of the most important sections for investors)

6. Legal and Regulatory Information

• Pending litigations
• Compliance with laws
• Government approvals

7. Capital Structure

• Share capital before and after issue
• Dilution impact

6. What DRHP Does NOT Contain

• Final issue price
• Final price band
• Exact issue opening and closing dates

These details are included later in the RHP (Red Herring Prospectus).

7. DRHP vs RHP vs Prospectus

8. Public Availability of DRHP

• DRHP is made available on:
• SEBI website
• Stock exchange websites
• Merchant banker websites

This allows public comments and scrutiny.

9. Importance of DRHP for Investors

• Helps assess company fundamentals
• Understand risks involved
• Evaluate use of IPO funds
• Check promoter credibility

10. Example

Before launching its IPO, a company files a DRHP with SEBI. After SEBI’s observations are addressed, the company files an RHP and then opens the IPO for public subscription.

11. In Simple Words

DRHP is a detailed draft document that gives investors almost all information about a company planning an IPO, except the final share price and issue size.