How to read a DRHP before an IPO
Learning how to read a DRHP is mostly about knowing which sections carry signal and reading them in the right order. A DRHP, or draft red herring prospectus, is the preliminary IPO document a company files with SEBI, and it can run to hundreds of pages. You do not need all of them. Five sections do most of the work: the objects of the issue, the risk factors, the financials, the promoter and shareholding details, and the related party transactions.
Definition
Reading a DRHP
means working through the offer document's key sections: objects of the issue (use of proceeds), risk factors, audited financials, promoter and shareholding details, and related party transactions. Each is a required disclosure under the SEBI ICDR Regulations, 2018. Source: SEBI.
Start with the objects of the issue
The first thing to check is where the money goes. The objects of the issue tell you whether the IPO raises fresh capital for the company or is largely an offer for sale, in which existing shareholders sell and the company gets nothing. Fresh-issue proceeds are usually earmarked, for example to repay debt, fund capital expenditure, or general corporate purposes.
Objects of the issue
The DRHP section that states how much of the raise is fresh capital versus an offer for sale, and where the money goes
Source: SEBI ICDR Regulations, 2018
Then read the risk factors and financials
The risk factors are drafted by the company and its lawyers, so read them for the specific, company-level risks (customer concentration, litigation, regulatory dependence) rather than the boilerplate. Pair them with the audited financials: revenue and profit trend, debt, and cash flow. The DRHP also gives the basis for the issue price, which lets you see the valuation the company is asking for against those financials.
Check promoter holding and related party transactions
The capital-structure section shows the pre-issue and expected post-issue shareholding pattern, including how much the promoter group will hold after listing. Read this with the related party transactions section, which discloses dealings between the company and its promoters or group entities. Together they tell you how aligned the promoters are and whether value has been moving to insiders. See what a related party transaction is for why this matters.
Remember it is a draft
A DRHP is not the final document. After SEBI issues its observations, the company files the red herring prospectus with the price band, and disclosures can change in between. Always read the latest version, and follow the anchor allocation disclosed just before the issue opens, covered in how to find anchor investors. Flock reads these public disclosures and keeps each one dated and sourced. What any IPO means for your own decision is your call to make.
Frequently asked questions
How do you read a DRHP?
Read a DRHP by sections in order of signal: the objects of the issue (where the money goes), the risk factors, the audited financials, the promoter and shareholding details, and the related party transactions. Each is a required disclosure under the SEBI ICDR Regulations, 2018. Source: SEBI.
What are the objects of the issue in a DRHP?
The objects of the issue state how the company will use the money raised, such as repaying debt, funding capital expenditure, or general corporate purposes. If the IPO is largely an offer for sale, the proceeds go to selling shareholders, not the company. Source: SEBI ICDR Regulations, 2018.
Where do I find promoter holding in a DRHP?
A DRHP shows the capital structure and the pre-issue and expected post-issue shareholding, including the promoter and promoter group stake. This tells you how much the promoters will hold after the IPO and how much is being diluted or sold. Source: SEBI ICDR Regulations, 2018.
Is a DRHP the final IPO document?
No. A DRHP is the draft filed with SEBI for review. After SEBI's observations, the company files the red herring prospectus with the price band. Always check the latest document, since disclosures can change between the DRHP and the RHP. Source: SEBI.
Flock tracks these filings, sourced, dated, and linked back to the original. See what smart-money entities disclosed, without the guesswork about what it means.
Disclosures shown are public regulatory filings. Data may be delayed or incomplete. Smart-money entities may no longer hold positions shown. Not investment advice.