What is Draft Red Herring Prospectus DRHP

25 Jan 2022|

2 min read |

by ICICI Securities Team

Introduction

A way to reduce risks from investments is to review all the facts and details before investing. Before you decide to invest in a company's initial public offer (IPO), you need to analyse its Draft Red Herring Prospectus (DRHP). Through its DRHP, the company lets you judge its financials, quality, valuation, etc., based on its past and present performance. It will provide you with all the details to make an informed investment decision.

The document is split into several sections. While it is essential to analyse all the information provided carefully, let us look at a few key things that you need to look at in the DRHP.

Important Aspects that You need to Look at in the DRHP

About the company:

This section lets you know the company's history and its market opportunities. It also mentions the business operations, value propositions, growth strategy, and critical metrics. Read through the regulations to know the laws in India that apply to the business. Find out how any changes in these laws will affect the company's operations and industry.
The industry overview will provide you with an understanding of the sector. It lets you know the business and economic factors at play. Check the company's position in comparison to its peers and competitors.
Understand the company's strengths, present and future risks, and opportunities. It is crucial to know the company's risks and check if it is prepared to face these risks.

Additional Read:Difference between IPO and FPO

Financial statements:

The company's financial information can provide you with an idea of how it might perform in the future. You can look at the company's profits and check for consistency in growth. Also, check the amount of debt and the capital structure post the IPO. The document also has a summary of all financial statements. Ask for assistance from professionals if you are unable to understand the figures.

Management and promoters:

Check if the founders still run the company or there are new faces on the board. Get to know the level of expertise and experience of the key personnel of the board. Check for any pending litigations or criminal cases in their names. Also, it is good to know the background of company's promoters. Check their idea of the company's growth potential.

Additional Read:What is an IPO? How can I apply in an IPO with my Demat account?

Objects of the offer:

You need to know what the company plans to do with the money you invest in it. This section mentions how the company will use the raised funds. Some companies will use the funds to repay old debt. Before investing in these companies, you need to analyse the impact of these things on the company’s financials. Others will want to use that money for expansion and re-investment. That might increase their revenues and, in turn, increase your chances of a good return.

Dividend policy:

One of the ways you can earn income from your investment is through dividends. This section lets you know the company's interim and financial dividends policy. It also mentions the previous dividends declared on equity shares.

Additional Read:How to track upcoming initial public offerings (IPOs)

Conclusion

There is a boom of IPOs in the market, and as an investor, you have several options. The DRHP serves as a valuable tool to help you choose a good investment among all those options. You need to find value among many IPOs on stock market app and choose the one that can provide good returns to you.

Disclaimer

ICICI Securities Limited has its registered office at ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400025, India, Tel No:- 022 - 2288 2460, 022 - 2288 2470. The non-broking products / services like iLearn and Financial Learning are not exchange traded products / services and ICICI Securities Ltd. is just acting as a distributor/ referral Agent of such products / services and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism. iLearn is not an exchange traded product/service of ICICI Securities Ltd. All disputes with respect to the activity on the platform would not have access to Exchange investor redressal or Arbitration mechanism.

ICICI Securities Ltd. is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. ICICI Securities Ltd. is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. Name of the Compliance officer (broking): Mr. Atul Agrawal, Contact number: 022-69997051, E-mail address: complianceofficer@icicisecurities.com Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. ICICI Securities Ltd. and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Such representations are not indicative of future results. The securities quoted are exemplary and are not recommendatory. AMFI Regn. No.: ARN-0845. PFRDA registration numbers: POP no -05092018. ICICI Securities Ltd. acts as a Composite Corporate agent having registration number -CA0113. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund, Corporate Fixed Deposits, Bonds, Alternate investment funds, Tax planning, Succession planning, NPS, IPO, Investment Advisory and Loans related services are not Exchange traded products and ICICI Securities Ltd. is acting as a distributor to solicit these products. Please note, Insurance related services are not Exchange traded products and ICICI Securities Ltd. is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

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