Similarly, the DRHP is also an essential document for the IPO. Are investors aware of the DRHP process?
The DRHP preliminary documents were filed with the SEBI for the IPO process, along with all necessary information, which will help investors apply for the IPO. Once SEBI reviews the document, the company decides on the IPO price band and subscription duration.
❖ Understanding the DRHP process step by step:
The above content consists of generic documents and DRHP work; however, the next content focuses on the DRHP definition, process, important, and “red herring” reasons briefly.
What is DRHP?
A DRHP (Draft Red Herring Prospectus) is a preliminary document used in the IPO launch process. The company submits this draft paper to SEBI.
Why is DRHP called a red herring?
The DRHP contains preliminary information, which does not include final information like issue price and subscription duration. A red herring means information could be changed.
DRHP information:
The DRHP documentation consists of all significant details, including a business overview, financial Statements, promoters & management, strengths and weaknesses, risk factors, and many more.
DRHP process:
Normally, the private companies and merchant bankers make DRHP documentation and filed with the SEBI. Afterthat, SEBI observed that IPO papers may suggest changes. Then, the company must address these observations before moving forward.
DRHP importance:
DRHP is essential for showing that the IPO process is clearly disclosed, and without DRHP, the IPO process can not be done.
From this paperwork, investors can know about the firm’s finances, risks, concerns, and many other things.
Promoters’ holdings in the company, Management credentials, Industry outlook, Restated Audited Financials, and other things could be checked.
❖ What should investors check in the DRHP?
- Business overview: Business overview is a major point for investors to check the history, mission, vision, etc.
- Financial details: With the help of financial statements, investors could make their investment decision.
- Promoters and Management: The promoters’ and management’s shareholding in the company before and after the IPO can be checked.
- Industry growth: the overall industry growth history is also shown in the DRHP, so that investors can make long-term financial decisions.
- Risk and concern: the DRHP also shows the firm’s risk and concern transferentially, which can help capital providers to make investment decisions.
❖ Conclusion
In short, DRHP is the crucial point for Initial Public Offerings by which companies can show their strengths, weaknesses, and growth and financial factors. On the flip side, the capital provider also makes sure to do so before an investment decision.
In the preliminary documents, SEBI regulations also make a significant contribution by observing the company’s pros and cons, which helps investors in their research.
Frequently Asked Questions
DRHP (Draft Red Herring Prospectus) is a draft document a company submits to SEBI before an IPO. It contains financials, business info, risks, and IPO details.
The company, planning to go public along with its merchant bankers/underwriters, files the DRHP with SEBI.
DRHP is important because it allows regulators and investors to review the company’s details.
There is various crucial information that the DRHP includes are given below.
– Company overview and history
– Financial statements
– Promoters and management details
– Risk factors
– Purpose of IPO (how funds will be used)
Not yet. DRHP is preliminary. Investors can only apply after the final prospectus (RHP) is filed.
Once the private company filed the DRHP with SEBI, they observed and may suggest changes. Moreover, the company updates info and files the Red Herring Prospectus (RHP).
