Primary Market is on boom right now. Many IPOs like paras defense, Clean Science & Nykaa have given tremendous returns to its investors. IPOs like them attract many new investors & traders to the stock market.
Although, before applying in any IPO you must check it’s DRHP. However, many beginners don’t know what is DRHP? Let’s discuss DRHP meaning, DRHP Full form & things which we need to look into a DRHP.
Table of Contents
DRHP Meaning
DRHP is the initial registration document, also known as the offer document, created by merchant bankers for companies wanting to float an IPO for book building issues.
It has been filed with SEBI (Securities and Exchange Board of India), with the goal of raising funds by selling firm shares to investors.
Many people are uncertain about DRHP meaning, but it simply explains why the firm wants to raise funds from the people, how the funds will be used, and the risks that come with investing.
As a result, this document contains information regarding the company’s financials, business activities, industry position, promoters, and listed or unlisted competitors.
DRHP Full Form
The full form of DRHP is draft red herring prospectus. It doesn’t have information of the share price and the quantity of the issue.
The number of shares, as well as the lower and upper price bands, are indicated if the price is not disclosed. Nevertheless, the issuer can declare the size of the offering and then specify the number of shares afterwards.
Information like these are not included in the red herring prospectus submitted with the Registrar of Companies (ROC) in relation to the provisions of the Companies Act for book-built issues.
The Sebi inspected it once it has been submitted to see if relevant disclosures have been made. The merchant bankers are then notified of the observations in order to file the final Prospectus.
How to Read a Prospectus of an IPO?
A merchant banker is hired by a firm looking to float an IPO to compile the offer document. A merchant banker is hired by the issuer company to produce the document.
The merchant banker is responsible for legal compliance and ensuring that all prospective investors are kept informed about public offerings. The following are the key elements of a draft red herring prospectus:
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First Page of IPO Document
On the first page of the offer document, firms mention the registered name of the company, address & other details like phone number & email id on the top. After that some details about the issue are mentioned like it includes a fresh issue or offer for sale or both.
Next to it, issuers mention the quota for QIBs, HNI & retail investors (sometimes it also includes a separate quota for employees or shareholders of the parent company). After quota risk & general risk can be found.
Next to general risk, Absolute responsibility of issuer & seller shareholders are mentioned by the company. In the end you will find the name of listing exchanges (NSE or BSE), lead managers & registrar of the company.
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General Information
Next Important section is the general Information draft prospectus. In starting of it you will find definitions and abbreviations which company has used in their company prospectus pdf.
After that certain conventions, use of financial information and market data together with the currency of presentation.
One most important thing about the company can be found next to it which is their forward-looking statements. It will help you understand where the management is looking for the future.
In the end of this section you will find the summary of the offer document which will help you in understanding the next sections.
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Risk Factors
This section majorly has information about the threats to the business of the company. Mainly they share the information about their competition, legal issues with the company, regulatory risks, some other risks related to capital & nature of the business.
This section is most important for the people who are investing in a company with a long term view as you will be able to understand the factors which may affect your investment in that company.
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Introduction
This section includes the details of the offer in starting, after that you can find a small summary of the financial of the company. Next to financials general information about the offer can be found.
After that, capital structure is mentioned by the firm which can help you understand the history of the share capital. Next part of the section covers objectives of the offer document like what they are planning for the funds which they are raising from the IPO.
in the last you can find the basis of the offer, which means on what basis they are coming with an IPO. This includes details of the company’s key strengths. So you can understand the capacity of the company.
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About the company
This section offers you all the information about the business, Regulations & Industry. In starting , you will find an outlook of the industry. Next major information about the business & operation activities followed by key regulations and policy in India.
After that this section has history and certain corporate matters followed by the information about the management of the company.
Next to management you will find the information about Promoters or principal shareholders if there is no promoter of the company. in the last names & details of the group companies along with dividend policy can be found.
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Financial Information
This section includes financial information including the balance sheet of the company. In the starting you will find financial information like assets & liabilities along with the balance sheet of the company.
After that other financial information like accounting ratios can be found along with capitalization and indebtedness statements.
In the end of this section management’s discussion and analysis of financial condition and results of operations is mentioned.
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Legal information
This section comprises all the data of legal issues in which the company is currently involved. The legal issue against the company, tt’s subsidiaries, Promoters, Directors including criminal proceedings or regulatory actions everything can be found here.
This section also includes information if a company or subsidiaries files any case against anyone along with government and other approvals required or taken by the company.
In the end of this section other regulatory and statutory disclosures are mentioned by the firm.
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Offer related Information
This section is majorly terms & other less important information. In the starting of the is section you can find terms and conditions of the IPO document.
Following the terms offer structure can be found along with procedure which may clear many of your doubts about the offer document.
In the end of it information like restrictions on foreign ownership of Indian securities is available.
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Main provisions of the articles of association
This section includes all the data of provisions made by the company like association along with Share capital and variation of rights.
It includes all the rules & regulations of the corporate governance made by the company including all pre-offer and post offer.
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Other Information
This is the last section of the draft red herring prospectus. In this part you can find other related information about the company like material contracts and documents.
In the first section material contracts and documents are mentioned for inception which can give you a brief idea about the company’s partners.
In the end of the you will find all the declaration from the promoters or principal shareholders.
Need of DRHP
Before seeking the ROC, Sebi has made it mandatory for all enterprises to file a DRHP. The offer document is examined by Sebi, and once all of the suggested adjustments have been made and the final document has been reviewed and approved by Sebi, the ROC, and the stock exchanges, this becomes a Red Herring Prospectus (RHP).
Where can we find DRHP of a company?
The merchant banker website, the firm’s official website, stock exchange websites, and the official Sebi website are all good places to look for a company’s DRHP. Furthermore, both online news portals and newspapers issue notifications in several languages.
Uses of DRHP for Retail Investors
The draft red herring prospectus is a strong tool that contains all of a company’s key information, allowing investors to make an intelligent decision. The document must be properly scrutinised, and all relevant considerations must be considered.
Furthermore, conducting further research on the performance of other firms and IPOs in the same industry will aid you in comparing possibilities and reaching a well-researched conclusion as an investor.
A complaint can be filed with either the merchant banker in charge or Sebi if the DRHP contains any incomplete or inaccurate information.
Conclusion
All the investors or traders must read draft red herring prospectus of the company & this should be in your regular habit if you want to become an Intelligent investor.
This is all from our side regarding DRHP. Let us know your views about dhrp full form in the comment section.
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Frequently Asked Questions About drhp full form
What is difference between Drhp and RHP?
The lead manager prepares the IPO Draft Prospectus (DRHP) and submits it to SEBI for approval of the IPO. This PDF paper contains details about the company, its promoters, the IPO, and its risks. The approval of the DRHP from SEBI takes several months. The IPO Red Herring Prospectus (RHP) is a more detailed version of the DRHP that includes information on the IPO date, price, and most recent financial statistics. IPO Final Prospectus is another name for RHP.
What is included in Drhp?
The Draft Prospectus paper contains details about the company, its promoters, the IPO, and its risks.
What happens after filing Drhp?
When no major revisions are required, SEBI typically takes 4 to 6 weeks to approve a Draft Prospectus. It takes between 4 to 6 weeks to bring an IPO to market after receiving SEBI permission. SEBI approval takes one week after the RHP is submitted. ROC It takes about a week to file with the exchanges before launching the IPO.
What is difference between FPO and IPO?
The initial public offering of shares of a private firm that is coming public is known as an IPO, but the second or subsequent public offering of shares in a publicly traded company is known as an FPO.
What is the purpose of Drhp?
Reading the company's Draft Red Herring Prospectus (DRHP) is a fantastic approach to see if a company has a lot of upside or not.
