DRHP vs RHP: What the IPO Offer Documents Contain

The offer document is the single most important source of information about an IPO. It is prepared by the company and its lead managers and carries legal responsibility for its contents. In India it goes through three versions: the Draft Red Herring Prospectus (DRHP), the Red Herring Prospectus (RHP) and the Prospectus. This guide explains the difference and which sections repay reading.

The three versions

It is called a red herring prospectus because it is incomplete: the price is not yet in it. Companies can also use a confidential pre-filing route, in which case the first public version appears later in the process.

For an IPO you are considering, read the RHP. The DRHP is useful earlier, to follow an upcoming issue, but figures and disclosures can change between the two.

Where to find them

Offer documents are published on the SEBI website (for mainboard issues), on NSE and BSE, and on the lead managers' websites. Our IPO pages link to the RHP or DRHP where we have the link.

Sections worth reading first

An RHP can run to several hundred pages. These sections carry most of the information an individual investor needs:

1. Risk Factors. Near the front. Read the first 10–15 risks closely; they are required to be specific to the company, and the order and wording often reveal what the management sees as material. Look for customer concentration, dependence on a few suppliers or licences, related-party dealings and pending regulatory actions.
2. Objects of the Issue. How the fresh-issue money will be used, with amounts. A large, unspecific “general corporate purposes” line or money earmarked for unidentified acquisitions is worth noting. See fresh issue vs OFS.
3. Basis for Issue Price. How the company justifies its price: key performance indicators, comparisons with listed peers (with P/E ratios), and the prices at which shares changed hands in the recent past. Compare the IPO price with what recent investors paid.
4. Our Business and Industry Overview. What the company does, how it earns money, its customers and competitors. Industry sections are usually based on a commissioned report — useful context, but not independent research.
5. Financial Information and Management's Discussion and Analysis (MD&A). Restated financial statements for the last three years and any stub period, and management's explanation of the numbers. See how to read IPO financials.
6. Outstanding Litigation and Material Developments. Legal cases against the company, promoters and directors, including tax and regulatory matters, with amounts involved.
7. Capital Structure and Our Promoters and Promoter Group. Who owns what before and after the issue, what is locked in, and the promoters' other businesses.

Useful checks

• Does the business description match what the financial statements show (for example, a claimed growth segment that is a small share of revenue)?
• Are there large related-party transactions, and are they reducing or growing?
• How much of the issue is OFS, who is selling, and at what average cost did they buy?
• Are there contingent liabilities that are large relative to net worth?
• Did anything material change between the DRHP and the RHP?

What SEBI's review does not mean

SEBI reviews offer documents for disclosure, not merit. Every offer document carries a disclaimer to that effect: SEBI does not vouch for the soundness of the business or the price. The same applies to the exchanges' review of SME offer documents.

Related: What is an IPO? · How to compare IPOs objectively