How to Read a DRHP / RHP Before You Apply
The prospectus is the one document that actually tells you what you'd be buying. You don't need to read all 500 pages — just the sections that matter, and what to look for in each.
What is a DRHP / RHP?
The Draft Red Herring Prospectus (DRHP) is the detailed document a company files with SEBI when it wants to go public; the Red Herring Prospectus (RHP) is the near-final version with the price band and dates. Together they are the official, legally-accountable source of information about the business — far more reliable than GMP chatter or social-media tips. You can download them from SEBI, the exchanges, or the lead manager’s site.
The sections worth your time
1. Risk factors
Read these first. Companies are required to disclose what could go wrong — customer concentration, regulatory dependence, pending litigation, promoter pledging, debt. Skim for risks that are specific to this business (not boilerplate) and material to earnings.
2. Objects of the issue
Where the money goes. Fresh-issue proceeds fund the company (growth, debt repayment, working capital); an Offer for Sale (OFS) simply lets existing holders cash out — the company gets nothing. A large OFS component is worth understanding: who is selling, and why now?
3. Financials
Look at three-plus years of revenue, profit, margins and cash flow. Is growth real and consistent, or a one-year spike just before the IPO? Are profits backed by operating cash flow? Is debt rising?
4. Valuation
Check the P/E and P/B implied by the price band against listed peers (the RHP usually gives a peer comparison). An issue priced far above comparable listed companies needs a very good growth story to justify it.
5. Promoters & management
Who runs the company, their track record, their post-issue shareholding, and any pledged shares. Falling promoter stake or heavy pledging deserves scrutiny.
6. Litigation & regulatory
Material pending cases against the company, promoters or directors, and any regulatory actions.
Red flags to watch for
- Profit that appears suddenly in the year before the IPO.
- The bulk of the issue being OFS (insiders exiting) rather than fresh capital.
- Heavy promoter share pledging or a sharply falling promoter stake.
- High customer/supplier concentration — one client driving most revenue.
- Valuation well above listed peers without a clear reason.
- Frequent related-party transactions.
Frequently asked questions
Where do I find the DRHP/RHP?
On the SEBI website, the NSE/BSE IPO sections, and the lead manager’s website. The RHP is the one with the final price band.
Is a high subscription a substitute for reading the RHP?
No. Subscription and GMP reflect short-term demand; the RHP tells you what you actually own for the long term.