The three offer documents of an IPO, how they differ and which parts are worth reading before you apply.
Every IPO in India goes through a set of offer documents. They carry the same core information about the company and the issue, but they are filed at different stages and with different levels of detail.
DRHP, RHP and prospectus at a glance
| DRHP | RHP | Prospectus | |
|---|---|---|---|
| Full name | Draft Red Herring Prospectus | Red Herring Prospectus | Prospectus |
| When | Months before the IPO | Just before the issue opens | After bidding closes |
| Filed with | SEBI (mainboard) or the stock exchange (SME) | Registrar of Companies | Registrar of Companies |
| Final price and size | No | No; the price band is announced separately | Yes |
DRHP: the draft for review
The company and its lead managers file the DRHP to have the offer reviewed. It is published for public comments, and SEBI then issues its observations. If the company makes material changes, it files an updated draft (UDRHP). A company usually has twelve months from SEBI's observations to open the issue.
RHP: the document to read before you apply
The RHP is filed with the Registrar of Companies before the issue opens. It has everything investors need except the final price and the exact number of shares, which is why it is called a "red herring" prospectus. The price band is announced in a separate advertisement at least two working days before the issue opens.
Prospectus: the final version
After bidding closes and the price is fixed, the company files the prospectus with the final issue price and issue size.
What to read in the RHP
- Objects of the issue: what the fresh money will be used for, and how much of the IPO is an offer for sale by existing shareholders.
- Risk factors: the company's own list of what could go wrong.
- Financial information: revenue, profit, debt and cash flows for recent years.
- Basis for offer price: EPS, return ratios and the valuation of listed peers. Check it with the P/E ratio calculator.
- Outstanding litigation and promoter holding before and after the issue.
Where to find the documents
Offer documents are published on the SEBI website under public issue filings, on the NSE and BSE websites, and on the websites of the company and its lead managers. IPO pages on IPO Darbaar link to the RHP when it is available.