Most of the investor is confused about “What is DRHP and RHP?” However, with so many firms announcing IPOs on a monthly basis, it can be difficult to pick the ideal one to invest in. Reading the company’s Draft Red Herring Prospectus (DRHP) is a fantastic approach to see if it has a lot of promise. A prospectus is a legal document that provides information about a security that is being offered for sale to institutional or retail investors. It comprises all of the pertinent information about the company and the initial public offering that an investor requires to make an informed investment decision.
The prospectus contains information on the firm and its management team, as well as a description of its strengths, market and offer data, and disclosure of recent financial performance, among other things. Initial Public Offerings (IPOs) are notorious for generating a lot of excitement among investors. The recent initial public offering (IPO) of the Indian Railways Catering and Tourism Corporation (IRCTC) is an excellent example.
Typically, there are different kinds of IPO prospectuses:
- Draft Red Herring Prospectus (DRHP)
- Red Herring Prospectus (RHP)
What is a Draft Red Herring Prospectus (DRHP)?
The DRHP is a publicly accessible document that contains important information about a firm that is planning an IPO. It is filed with the Securities and Exchange Board of India (SEBI), and it contains important information and deep insights into the firm’s finances, promoters, dangers of investing in the company, reasons for seeking funds, and how the cash will be used, among other things. It does not, however, include information on the number and price of shares being issued, as well as the size of the issuance. It also explains how the firm plans to use the funds raised, as well as the dangers that investors may face.
After then, the DRHP is examined to see if all of the mandatory disclosures have been made. Merchant bankers make the recommended revisions to the final offer before filing it with SEBI, the Registrar of Companies (ROC), and stock exchanges like the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Before investing, you should thoroughly study the DRHP because it provides vital information that will help you better understand the business and become a more knowledgeable investor.
Where can you find the DRHP of a company?
A company’s DRHP can be found on SEBI’s official website, the issuing company’s website, and the websites of merchant bankers or stock exchanges.
What is a Red Herring Prospectus (RHP)?
RHP stands for Red Herring Prospectus and is an improved version of DRHP. It also offers other information such as IPO dates, pricing, and current financial statistics. SEBI has mandated that all companies seeking to list on the stock exchange submit particular information about their business, finances, risks, and other factors. Final Prospectus is another name for RHP.
Once the offering has gone live and is open to the public for subscription, the final prospectus contains the most up-to-date background material. It contains information for investors such as the number of shares issued, the offer price, the company’s financial facts, the use of proceeds, risk considerations, dividend policy, and other pertinent information.
The primary distinction between a DRHP and a RHP is that a DRHP is not a formal offer to sell the security. The final prospectus, on the other hand, is a legal document that includes the price of the sold shares. Once authorised, DRHP becomes RHP, which contains the issue’s details.
You also read about: 5 factors to check the IPO before applying
Where can you find the RHP of a company?
Under the Offer Documents area of the SEBI website, all RHPs for upcoming IPOs are available for free. They’re also available on merchant banker and stock exchange websites. At least one newspaper publishes a public notification about the company’s RHP application to SEBI.
Here are a few things as an investor, you should look at in a DRHP and RHP
#1 Business Description
You should be aware of the company’s business model. The document explains how the company operates and how you, as a shareholder, would profit. Financial data: The financial statements of the companies are contained in the RHP. It should be used by investors to assess the company’s growth and profitability potential before deciding whether or not to participate in the offering.
#2 Financial Information
The company’s audit reports and financial statements are contained in this sector, which is one of the most essential. As an investor, you can use the financial statement to estimate future dividends based on the profits reported. The financial statement can help you determine the safety and profitability of your future investment.
#3 Use of Proceeds
Investors should search for signs that the company intends to raise money through an IPO. The RHP contains information about how the company will use the issuance funds, as well as the total cost of the project and how it is being financed.
Strategic planning, such as promoting growth, pushing expansions, and marketing, is the responsibility of management. The names, credentials, and designations of directors and promoters should be investigated by investors since they can provide valuable insight into the management team.
#5 Summary of the Issue
The document outlines the total number of shares to be issued, as well as the allocation of shares to various types of investors, such as public investors, QIPs, corporations, and so on.
#6 The Risk Involved
The final prospectus also discusses the company’s external and internal strengths, as well as the threats it faces. It’s as if the corporation explains why investors should invest in them and the risks involved.
#7 Legal Information
It also gives information about pending lawsuits brought against the company or its directors. It could be a criminal, civil, or tax offence. Investors should avoid companies with a bad track record.
Finally, because these documents provide detailed information on the company, investors should use them to conduct their own research on the company.