When a company plans to go public through an Initial Public Offering (IPO), it must provide detailed information to potential investors. The company discloses this information through a prospectus, a key document that outlines its financial status, business operations, risk factors, and more. Among the different types of prospectuses, the Draft Prospectus holds significant importance. This guide delves into the Draft Prospectus, its role in the IPO process, and how it differs from other types of prospectuses like the Red Herring Prospectus (RHP).
A company submits a Draft Prospectus (often referred to as the Draft Red Herring Prospectus, or DRHP) to the Securities and Exchange Board of India (SEBI) before an IPO. It is the first stage of the prospectus filing process, providing a comprehensive overview of the company’s business, its plans for the funds raised, and any risks associated with the offering.
SEBI reviews the DRHP, and the company must address any concerns or queries raised before it can proceed to the next phase: the Red Herring Prospectus (RHP). Once SEBI approves the RHP, the company publishes it and can move forward with its IPO.
In essence, the Draft Prospectus serves as a preliminary offering document that allows the regulators and potential investors to review and understand the company’s financial health, business strategy, and the specifics of the IPO.
DRHP Full Form: The full form of DRHP is the Draft Red Herring Prospectus.
IPO Filing Process: The DRHP is the first document filed by a company with SEBI during the IPO filing process.
Contents of DRHP: The Draft Prospectus includes key details such as:
You may also want to know the Green Shoe Option
The Draft Prospectus is a crucial document in the IPO filing process. Here’s a step-by-step breakdown of its role:
Though closely related, the Draft Prospectus and the Red Herring Prospectus serve different purposes in the IPO process. Here’s a comparison:
| Feature | Draft Prospectus (DRHP) | Red Herring Prospectus (RHP) |
| Purpose | Initial document filed with SEBI for approval | The final document that allows investors to apply for shares |
| Contents | Does not include the issue price or the final details about the offering | Includes final offer price, issue details, and other investor-specific information |
| Legal Status | Preliminary document, not final | Final document that allows investors to apply for shares |
| Approval Process | Filed for SEBI review and approval | Issued after SEBI approval and made available to the public |
| Investor Participation | No investor participation yet | Investors can apply for shares based on the information in the RHP |
The Draft Prospectus is a detailed document that provides in-depth insights into the company’s business, financial health, and the risks associated with investing in the IPO. Below are the critical sections included in the DRHP:
You may also want to know the Cut-Off Price
The DRHP plays a significant role in guiding investors through the IPO process. Although the document does not allow for immediate investments, it serves as a valuable tool for investors to evaluate the potential of the company. Here’s how investors can benefit from reviewing the DRHP:
The Securities and Exchange Board of India (SEBI) plays a critical role in the approval process of the DRHP. It ensures that the prospectus complies with the relevant regulations and guidelines:
SEBI sets out the following regulations for the DRHP filing:
Reading and understanding a Draft Prospectus can be a complex task for potential investors. Here’s a guide on how to approach the document:
The Draft Prospectus is a vital document in the IPO process, providing essential information to regulators and investors. While it is the first stage in a company’s public offering journey, it serves as a key tool for due diligence, helping investors make informed decisions. Understanding the contents and importance of the DRHP can provide significant insights into the potential success of the IPO and the long-term growth prospects of the company.
As an investor, reviewing the DRHP carefully can give you an edge in evaluating the risks and opportunities associated with an IPO, ultimately guiding your investment strategy.
A Draft Prospectus (or Draft Red Herring Prospectus) is a preliminary document filed by a company with SEBI before an IPO. It provides essential information about the company, its business, and the planned IPO, but does not include the final price details.
The DRHP serves as an initial offering document submitted for regulatory review by SEBI. It allows potential investors to evaluate the company’s financials, business model, and risks before the company moves forward with its IPO.
The DRHP is a draft version filed with SEBI that does not include final pricing, while the RHP is the final version issued to the public, containing all the details of the offering, including the final price.
Investors can use the DRHP to assess a company’s financial health, risk factors, and business strategy, helping them make informed decisions about whether to invest in the upcoming IPO.
The DRHP includes information about the company’s background, financial statements, risk factors, use of proceeds, management details, and IPO specifics such as the number of shares and proposed issue details.
SEBI typically takes around 30 days to review and provide feedback or approval for the DRHP before the company can move on to the next stage of the IPO process.
No, the DRHP is a preliminary document, and investors can only apply for shares after the Red Herring Prospectus (RHP) is published, which contains the final offer details.
The DRHP is crucial for ensuring regulatory compliance and transparency in the IPO process. It helps build investor confidence and allows SEBI to ensure that all necessary disclosures are made before the public offering.
Get the link to download the App
