DRHP

DRHP stands for Draft Red Herring Prospectus. It is the preliminary offer document that a company intending to do an IPO files with SEBI for review and approval. It contains the company’s full business and financial disclosures but does not include the final IPO price, price band, or exact issue size.

What Is the DRHP?

When a company decides to go public, it works with investment banks and lawyers to prepare a detailed disclosure document. This document is submitted to SEBI as the DRHP before the IPO is announced publicly.

The DRHP includes:

– Company overview and business model
– Audited financial statements (3 years)
– Objects of the issue (how the IPO money will be used)
– Risk factors
– Management and promoter details
– Litigation history
– Shareholding structure and promoter lock-in details

However, the price band and final issue size are not included in the DRHP as they are determined after SEBI review and market conditions are assessed.

DRHP Review Process

1. Company files DRHP with SEBI through its lead managers
2. SEBI reviews the document and issues observations within 30 days (75 days for smaller companies or those without IPO track record)
3. SEBI may ask for additional disclosures or clarifications
4. After SEBI’s no-objection, the company incorporates changes and files the RHP
5. The company announces IPO dates, price band, and lot size

Public Access to DRHP

SEBI makes all DRHPs public on its website (sebi.gov.in) so that investors and analysts can review the company’s disclosures before the IPO opens. This is part of SEBI’s transparency mandate.

Practical Example

A pharmaceutical company files its DRHP with SEBI in January. Analysts reading the DRHP notice that the company has ongoing litigation related to a drug patent. After SEBI review, the company adds more detailed disclosures about the litigation risk. In April, the company files its RHP with the price band and the IPO opens for subscription.

Key Takeaways

– DRHP is the draft offer document filed with SEBI before an IPO is launched
– Does not contain final price or issue size; only preliminary financial and business disclosures
– SEBI reviews DRHP and provides observations; company incorporates changes before filing RHP
– Publicly available on SEBI’s website for investor and analyst review
– Reading the DRHP risk factors before applying to an IPO is important for informed decision making