What is DRHP (Draft Red Herring Prospectus)?
” DRHP stands for Draft Red Herring Prospectus. It is a preliminary offer document that a company files with SEBI before launching an IPO. It contains important information about the company’s business, financials, risks, promoters, and use of IPO proceeds, but does not contain the final issue price or final issue size. “
Every initial public offering (IPO) that you read about in the news begins as a document that the majority of ordinary investors never open.
In simple words, the Draft Red Herring Prospectus, or DRHP, is a comprehensive disclosure document that a company must submit to the market regulator prior to inviting the public to purchase its shares. The DRHP is where you start if you’ve ever wanted to see past the IPO hoopla and comprehend a firm on its own terms.
This tutorial describes what a DRHP is, why its name is so strange, who creates it, what it includes, and how you might use it for your own study.
What is a DRHP?
The Draft Red Herring Prospectus is the complete form of the DRHP. When a business intends to seek money from the public through an Initial Public Offering (IPO), it files this preliminary offer document with the Securities and Exchange Board of India (SEBI) and the stock markets.
Consider it the company’s initial official market debut. Inside, the business describes its operations, revenue streams, hazards, financial situation, and plans for raising money. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, often abbreviated as the SEBI ICDR Regulations, govern the filing and outline precisely what must be revealed.
Many new investors are confused by one point: a DRHP does not include the precise issue size or the final share price. These figures are determined closer to the IPO through a procedure known as book building, in which the price is determined in part by investor demand. The majority of what follows, including the document’s name, is explained by that one truth.
What makes it a “Red Herring” prospectus?
The company is not concealing anything, despite the name. A DRHP must include a cautionary statement, usually written in red, stating that important information, including the final price, is still lacking and might change. The disclaimer in red letters is the “red herring.” It alerts readers to the fact that the material is preliminary and not final.
Therefore, the “draft” indicates that SEBI is still reviewing the paper, and the “red herring” indicates that the price and a few other details have not yet been finalized.
Who prepares and files a DRHP?
A company does not put together a DRHP on its own. It works with a team of professionals: SEBI-registered merchant bankers (also called lead managers or book-running lead managers), legal advisors, and auditors. Before filing, the company must also meet SEBI’s IPO eligibility criteria for a mainboard or SME issue. The lead manager is responsible for filing the DRHP with SEBI and the stock exchanges on the company’s behalf.
Once filed, the DRHP is not kept private. The public has a minimum of 21 days to view and comment on it on the websites of SEBI, the lead managers, and the stock exchanges. Before a single share is offered, the system incorporates transparency throughout the IPO process through this public-review phase.
Read more: Types of IPO
What information does a DRHP contain?
The DRHP is a dense document, often running to several hundred pages, but its disclosures, laid out under Schedule VI of the ICDR Regulations, are worth knowing. The main sections include:
- Business overview: It contains what the company does, its products or services, and how it operates.
- Industry overview: All about the market, the company competes in and where it sits within it.
- Financial statements: Includes restated, audited figures covering the company’s recent performance.
- Risk factors: All the challenges and uncertainties facing the business, from competition to litigation to regulatory risk.
- Promoters and management: Those who own and run the company, and their background.
- Objects of the issue: A plain explanation of how the money raised will be used, whether for expansion, repaying debt, or general corporate purposes.
- Capital structure: The shareholding before and after the IPO.
- Legal and regulatory matters: All about pending cases and material litigation.
For a serious investor, the risk factors and the objects of the issue are two of the most revealing sections, and, unfortunately, two of the most frequently skipped. If you are weighing an issue, our guide on the key things to check before investing in an IPO works well alongside the DRHP.
DRHP vs RHP vs Prospectus
Although these three documents represent separate phases of the IPO process, they sound similar and are frequently used interchangeably in headlines.
| Document | When it is filed | What it adds |
|---|---|---|
| DRHP (Draft Red Herring Prospectus) | First, with SEBI and the exchanges | Full business, financial and risk disclosures, but no final price or issue size |
| RHP (Red Herring Prospectus) | After SEBI’s review, with the Registrar of Companies before the IPO opens | Incorporates SEBI’s observations and adds the price band and issue details |
| Prospectus (Final) | After the issue closes | Locks in the final issue price and allotment details |
Important: The RHP must be submitted to the Registrar of Companies at least three days before the offer opening in accordance with Section 32 of the Companies Act, 2013.
What happens once DRHP is filed?
Filing the DRHP starts SEBI’s review, not the IPO itself. The disclosures are reviewed by SEBI to ensure that they adhere to regulatory requirements and that the risk factors accurately reflect what an investor is committing to. Depending on how complicated the problem is and how fast the business answers questions, this evaluation often lasts a few weeks to a few months.
SEBI then issues its observations, comments, or clarifications the company must address. It is important to read this correctly: SEBI’s observations are not an endorsement of the company, its valuation, or the IPO’s prospects. They confirm that disclosure requirements have been met, nothing more. Once the company incorporates these observations, it files the RHP, and only then can the IPO open. Companies generally have up to 12 months from SEBI’s observations to launch the issue.
SEBI has also introduced an optional pre-filing route, which lets a company file its draft offer document confidentially for initial review before making it public, an alternative path some larger issuers now use.
Read More: How IPO Works?
How should investors use a DRHP?
Read a DRHP for what it is: a research tool, not a buy signal. It gives you an unusually honest look at a business, in its own words but under regulatory scrutiny, before the marketing around an IPO takes over.
A practical way to use it is to start with the risk factors and the objects of the issue, then move to the financials and the promoter details. Notice what the company itself flags as a concern.
Keep one caveat in mind. Between the DRHP and the RHP, financials get updated, risk factors can be expanded, and the offer size may change. So while the DRHP is excellent for understanding the business, the RHP is the document to read before you actually apply for the IPO, because it reflects SEBI’s observations and carries the price band. Once the issue closes, you can check your IPO allotment status online. Remember that the DRHP gives you information; it does not tell you how the share will perform after listing.
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Frequently Asked Questions
Neither one “approves” it. Under Regulation 25 of the SEBI ICDR Regulations, 2018, SEBI issues observations on the draft, not an approval. NSE and BSE give a separate in-principle approval for listing. Both are disclosure and eligibility checks. Neither is a comment on the company’s quality, valuation or how the share will perform.
SEBI may issue its observations within 30 days, counted from the later of: the date it receives the DRHP, the date the lead manager gives a satisfactory reply to any clarification sought, the date another regulator responds, or the date the exchanges give in-principle approval. Because the clock restarts with each clarification round, the real wait is often longer.
There is no fixed timeline. The DRHP stays open for public comments for 21 days, SEBI then issues observations, and the company files the RHP with the Registrar of Companies at least three days before the issue opens. After observations are received, the company can choose its launch window based on market conditions.
The DRHP itself does not expire; SEBI’s observation letter does. Under the standard route, the issue must open within 12 months of the date of SEBI’s observations. Under the pre-filing (confidential) route, the window is 18 months, provided the UDRHP-I is filed within 16 months. If the window lapses, the company has to file afresh.
The DRHP is the first draft filed with SEBI and the exchanges, without the price. A UDRHP is an updated draft in the pre-filing route, UDRHP-I carries SEBI’s observations and goes public for 21 days of comments, and UDRHP-II incorporates those comments. The RHP is the final pre-issue document filed with the Registrar of Companies, carrying the price band.
It does not bind the company to go ahead with the IPO; many filed issues are never launched. But it is a legally filed document. The company, its promoters, directors and lead managers are responsible for the accuracy of what it says, and a misstatement can attract liability under the Companies Act, 2013 and SEBI regulations.
All of these are free and public. Go to the SEBI website under Filings → Public Issues → Draft Offer Documents, or check the NSE and BSE websites. The lead managers and the company itself also host the document. Always download from these official sources, not from a forwarded PDF or a social media link.
Yes, as a research tool but not as the final one. The DRHP tells you what the business does, what it earns and what can go wrong, in the company’s own words. It does not carry the price band, so you cannot judge valuation from it. Read the RHP before you apply, since it reflects SEBI’s observations and the final offer details.