What is DRHP in IPO? Meaning, Importance & Process Explained

When a company decides to raise capital from the public and get listed on the stock exchange, one of the most critical documents it files is the Draft Red Herring Prospectus (DRHP). This document forms the basis of transparency, compliance, and trust in the IPO (Initial Public Offering) process.

But what exactly is DRHP in IPO? Why does it matter so much to investors? And how does the process work? This blog answers all your questions with clarity and depth so you can understand the IPO process better.

What is DRHP in IPO?

DRHP in IPO stands for Draft Red Herring Prospectus, a document submitted by a company to the Securities and Exchange Board of India (SEBI) before launching an IPO. It provides in-depth information about the company’s financials, business model, risk factors, promoters, and objectives of the IPO, but excludes the issue price and number of shares.

The DRHP is essentially a preliminary disclosure that allows SEBI and investors to evaluate the merits and risks of the company going public.

Why is the DRHP in IPO Important?

Transparency for Investors

The DRHP offers detailed insights into the company’s business operations, past performance, and future plans. It helps investors make informed decisions instead of relying on market hype.

Regulatory Compliance

Filing a DRHP is mandatory under SEBI regulations. It ensures that companies planning an IPO follow due diligence, proper disclosure, and compliance with applicable laws.

Evaluation of Risks

The document includes a comprehensive list of risk factors, including business challenges, market threats, legal issues, and sector-related uncertainties. Investors can assess whether these risks align with their appetite.

Insights Into Use of Funds

It outlines how the IPO proceeds will be used—whether for expansion, debt repayment, acquisitions, or working capital. This helps determine the company’s growth direction.

Key Sections in a DRHP

Understanding the content of the DRHP is essential before participating in any IPO. Here are the main components you’ll find:

✔️ Company Overview

Details about the company's history, mission, product offerings, and market positioning. It also includes competitive strengths and business strategy.

✔️ Financial Information

Audited profit & loss statements, balance sheets, and cash flow reports for the past 3–5 years are provided. These figures help assess financial stability and growth.

✔️ Risk Factors

This section discloses potential internal and external threats—legal, economic, operational, or geopolitical—that may affect business performance.

✔️ Promoter and Management Details

Information about the company’s promoters, board of directors, and key managerial personnel, including their background, qualifications, and shareholding patterns.

✔️ Purpose of the Issue

Also called the Objects of the Offer, this section explains why the company is raising funds and how it plans to utilize them.

✔️ Legal and Regulatory Information

Includes details of any ongoing litigations, regulatory challenges, or compliance issues involving the company or its executives.

DRHP vs RHP: What’s the Difference?

Investors often confuse DRHP with RHP (Red Herring Prospectus). Here's how they differ:

Feature	DRHP	RHP
Status	Draft version	Final version
Filed With	SEBI	Registrar of Companies (RoC)
IPO Price Details	Not included	Includes price band and lot size
Availability	SEBI and company websites	Stock exchange websites
Purpose	Review by SEBI and investors	Basis for actual IPO subscription

The DRHP in IPO is the first step. Once SEBI clears it, the company files the final RHP with updated financials and price details.

The DRHP Filing Process: Step-by-Step

Here’s a look at how companies file the DRHP in an IPO:

Appoint Intermediaries

The company appoints merchant bankers, legal advisors, auditors, and registrars to manage the IPO documentation and process.

Drafting the DRHP

Merchant bankers coordinate with the company to draft the DRHP, ensuring compliance with SEBI regulations and disclosures.

Filing with SEBI

The DRHP is submitted to SEBI. The regulator reviews it and may seek clarifications, suggest changes, or raise objections.

Public Availability

Once SEBI allows, the DRHP is uploaded on SEBI’s website, as well as the company’s and merchant banker’s websites, for public and investor scrutiny.

SEBI Observations

SEBI responds with observations that the company must address. After clarifications, the company can proceed to file the final Red Herring Prospectus (RHP).

How to Analyze DRHP in IPO Before Investing

If you're thinking about subscribing to an IPO, analyzing the DRHP in IPO is a crucial step. Here’s how to do it smartly:

✅ Read the Risk Factors

Pay close attention to the risks mentioned early in the document—they’re listed in order of importance. This section is critical for assessing red flags.

✅ Check Financial Trends

Look for consistent revenue growth, profitability, and stable cash flows. Compare YoY performance to see if the company is financially healthy.

✅ Understand the Use of Funds

Ensure the company is raising funds for growth-related objectives, not just debt repayment or shareholder exits.

✅ Promoter Background

Study the track record and qualifications of the promoters. Their experience and reputation can significantly influence company performance.

✅ Compare with Listed Peers

Use the DRHP to compare the company’s valuation, margins, and debt-to-equity ratio with other companies in the same sector.

Where Can You Access DRHP in IPO?

To read the DRHP in IPO, visit:

SEBI website – www.sebi.gov.in
Company’s official website (Investor Relations section)
Merchant Banker websites
Stock exchange portals (BSE/NSE)

Make sure you download and review it at least 3–5 days before the IPO opens to make an informed investment decision.

Benefits of Reading the DRHP in IPO

📘 Informed Investing

Instead of relying on hearsay or marketing, the DRHP gives you fact-based insights to evaluate the IPO objectively.

📘 Early Signals

Investors and analysts often spot red flags or undervalued opportunities well before the IPO hits the market.

📘 Better IPO Strategy

By understanding the company and its risks, you can decide whether to invest during the IPO or wait for listing day.

Final Thoughts

The DRHP in IPO is more than just a regulatory document—it's your blueprint for IPO analysis. It gives you a window into the company’s financials, management, operations, and potential risks. Whether you're a first-time investor or a seasoned market participant, reviewing the DRHP can help you make smarter and safer investment decisions.

In a market driven by momentum and sentiment, grounding your decisions in solid analysis is what separates informed investors from speculative ones. And it all starts with the DRHP in IPO.

What is DRHP in IPO and why is it important for investors?

Answer:
DRHP in IPO stands for Draft Red Herring Prospectus. It is a preliminary document submitted by a company to SEBI before launching its IPO. It contains vital information such as company background, financials, promoter details, objectives of the issue, and risk factors. DRHP in IPO is crucial for investors because it provides transparency and allows them to evaluate the business fundamentals before investing. It acts as a due diligence tool for informed decision-making. Without reviewing the DRHP, investors might fall prey to hype rather than facts. Hence, it is the cornerstone of a trustworthy IPO process.

How does DRHP differ from RHP in an IPO process?

Answer:
The DRHP in IPO is the draft version of the Red Herring Prospectus, filed with SEBI for review and public feedback. It doesn’t include the final issue price or lot size. Once SEBI’s observations are addressed, the company files the final RHP (Red Herring Prospectus) with all details, including the price band, lot size, and issue opening dates. While DRHP is used to assess investor interest and regulatory compliance, the RHP is used during the actual IPO subscription. Understanding the DRHP in IPO helps investors track changes between the draft and the final prospectus.

What information is included in a DRHP document?

Answer:
The DRHP in IPO includes comprehensive details such as the company’s history, business operations, industry overview, financial statements for the past few years, risk factors, promoter background, legal proceedings, and intended use of IPO proceeds. It provides a deep dive into the company’s fundamentals, helping investors gauge its strengths and weaknesses. This transparency enables retail and institutional investors to make informed choices. Although the DRHP in IPO does not include the final price band, it equips investors with all necessary data to evaluate the IPO’s attractiveness before final terms are announced.

Is the DRHP in IPO legally binding on the company?

Answer:
While the DRHP in IPO is not a legally binding offer, it is a critical regulatory document. Companies must ensure that all disclosures in the DRHP are accurate and truthful. SEBI thoroughly reviews the DRHP for compliance, and any misleading statements can lead to penalties or IPO withdrawal. Investors rely on the integrity of the DRHP in IPO to assess risks and opportunities. Once the final RHP is filed, it becomes a binding legal document. Therefore, companies must treat the DRHP seriously, as errors can impact credibility, delay IPO plans, or invite regulatory action.

Where can investors access a company's DRHP before the IPO?

Answer:
Investors can access a company’s DRHP in IPO on multiple platforms. The most reliable source is SEBI’s official website (www.sebi.gov.in), which hosts all draft filings. Additionally, the issuing company publishes the DRHP on its investor relations page. Merchant bankers or lead managers involved in the IPO also make the DRHP available for public review. Some stock exchange websites like NSE and BSE may also link to it. Reading the DRHP in IPO before subscribing helps investors make better decisions, evaluate risks, and understand the company’s growth prospects and financial health.

How long before an IPO is the DRHP typically filed?

Answer:
The DRHP in IPO is usually filed several weeks to months before the actual IPO date. This timeline allows SEBI to review the document, raise queries, and provide observations. Companies must then revise the DRHP accordingly before submitting the final RHP. During this period, the DRHP is also made available to the public for feedback and scrutiny. This gap helps investors study the business, promoters, and risks in detail. Early access to the DRHP in IPO enables analysts and institutional investors to prepare for the offering well in advance.

What role does SEBI play in reviewing the DRHP in IPO?

Answer:
SEBI plays a regulatory oversight role in reviewing the DRHP in IPO. Once a company submits the draft, SEBI examines it for accuracy, transparency, and compliance with disclosure norms. It ensures that the company has clearly presented all material information—financials, risks, litigations, and management structure. SEBI may raise queries or request revisions to protect investors. Only after SEBI’s observations are addressed can the company proceed to file the final Red Herring Prospectus (RHP). Hence, SEBI ensures that the DRHP in IPO is reliable, investor-friendly, and in line with market regulations.

Can investors trust the data mentioned in a DRHP document?

Answer:
Yes, the data in the DRHP in IPO is generally trustworthy because it undergoes SEBI scrutiny. The company’s merchant bankers and auditors help prepare and verify the document. However, investors should still critically evaluate the contents, especially risk factors and financial statements. Although DRHP in IPO documents are regulated, due diligence is essential. Cross-check financial trends, peer comparisons, and management track records. Red flags like inconsistent profits or unresolved litigations must be noted. Ultimately, DRHP is a tool for transparency, but investor interpretation plays a key role in its effectiveness.

What are the major risk factors disclosed in a DRHP?

Answer:
The DRHP in IPO contains a dedicated section listing the company’s key risk factors in descending order of severity. These may include market volatility, regulatory changes, operational challenges, pending litigations, dependency on key customers, and promoter history. Macroeconomic factors or sector-specific issues may also be mentioned. Investors should not skip this section, as it reveals vulnerabilities that may impact stock performance post-IPO. DRHP in IPO documents ensure that all potential threats to business continuity and profitability are disclosed beforehand to allow for an informed investment decision.

Does the DRHP in IPO include the share price or price band?

Answer:
No, the DRHP in IPO does not contain the final issue price, price band, or the number of shares being offered. It is a draft submitted for SEBI review and investor feedback. The pricing details are added later in the final Red Herring Prospectus (RHP), once the company receives regulatory clearance. However, the DRHP includes enough financial data and business information for investors to estimate the valuation range. Understanding this limitation in the DRHP in IPO helps avoid confusion and sets realistic expectations about pricing closer to the IPO launch.

Who is responsible for preparing and filing the DRHP?

Answer:
The responsibility of preparing and filing the DRHP in IPO lies with the company planning to go public, assisted by merchant bankers, auditors, legal advisors, and registrars. Merchant bankers act as lead managers, coordinating the entire drafting process to ensure compliance with SEBI’s disclosure norms. Auditors provide verified financial data, while legal advisors assist with statutory and regulatory information. Once the DRHP in IPO is complete, it is filed with SEBI for review. This collaborative process ensures that all necessary details are disclosed to help investors evaluate the IPO thoroughly and accurately.

Can a company withdraw or modify its IPO after filing DRHP?

Answer:
Yes, a company can withdraw or modify its IPO plans even after filing the DRHP in IPO. If SEBI raises serious concerns or if market conditions turn unfavorable, the company may choose to delay or cancel the IPO. In some cases, companies revise the DRHP to reflect updated financials, change the offer size, or update business strategies. These changes are then incorporated into the final RHP. Filing a DRHP in IPO does not obligate the company to proceed unless all compliance, feedback, and approvals are satisfactorily addressed.

How should retail investors analyze a DRHP before subscribing to an IPO?

Answer:
Retail investors should analyze the DRHP in IPO by focusing on five key areas: the company’s financial performance, risk factors, use of funds, promoter credibility, and industry outlook. Carefully examine the profit margins, revenue growth, debt levels, and peer comparisons. Promoter and management backgrounds provide insight into leadership strength. Understanding how the IPO proceeds will be used—whether for expansion or debt reduction—is critical. The DRHP in IPO provides all this information, enabling investors to assess whether the company is worth investing in before it hits the stock market.

What happens after SEBI approves the DRHP?

Answer:
Once SEBI reviews and approves the DRHP in IPO, the company moves forward with preparing the final Red Herring Prospectus (RHP). The RHP includes updates to financials, the IPO price band, share allotment details, and key issue dates. It is then filed with the Registrar of Companies (RoC) and made available on stock exchange websites. After this, the IPO is opened for subscription. Thus, approval of the DRHP in IPO signals that the company has passed regulatory scrutiny and can proceed with its fundraising from the public markets.

Is it mandatory for all IPOs in India to file a DRHP?

Answer:
Yes, filing a DRHP in IPO is mandatory for all companies in India planning to raise capital through the public market. This requirement is governed by SEBI’s ICDR (Issue of Capital and Disclosure Requirements) regulations. The DRHP ensures that investors and regulators receive full disclosure before any shares are offered. It forms the basis of transparency, accountability, and investor protection. Without a DRHP in IPO, a company cannot proceed to file the final RHP or open its IPO for subscription. It is a non-negotiable step in the Indian capital market ecosystem.

Does the DRHP in IPO include information about promoters and management?

Answer:
Yes, the DRHP in IPO includes comprehensive information about the company’s promoters, directors, and key managerial personnel. This section covers their backgrounds, experience, shareholding patterns, compensation, related-party transactions, and any pending legal cases involving them. It helps investors evaluate the credibility and governance practices of those in charge. A promoter with a strong track record can increase investor confidence, while past controversies may raise red flags. By studying the promoter section in the DRHP in IPO, investors can better assess the leadership and long-term vision of the company.

How do institutional investors use the DRHP for decision-making?

Answer:
Institutional investors such as mutual funds, insurance companies, and foreign portfolio investors rely heavily on the DRHP in IPO to perform deep due diligence. They evaluate business models, assess financial metrics, compare valuations with listed peers, and identify long-term growth potential. They also attend roadshows and ask questions directly to management. The DRHP in IPO serves as the primary research document, helping them decide whether to participate during the anchor or QIB (Qualified Institutional Buyer) portion of the IPO. Their participation often influences retail investor sentiment and boosts credibility.

What red flags should investors look for in a DRHP?

Answer:
When reading a DRHP in an IPO, investors should watch for red flags like inconsistent profits, high debt levels, legal proceedings, frequent auditor changes, and heavy reliance on a single customer or market. A lack of business diversification or vague use of funds can also be concerning. Additionally, promoter history—if marred by regulatory issues—deserves scrutiny. If the company is raising funds primarily to repay debt or offer an exit to early investors, it may signal a lack of future growth focus. Carefully analyzing these risks in the DRHP in the IPO is essential.

Are financial statements in the DRHP audited or unaudited?

Answer:
The financial statements included in the DRHP in IPO are audited by registered chartered accountants. These statements typically cover the past three to five years and include profit and loss, balance sheet, and cash flow statements. Auditing adds credibility and ensures compliance with Indian Accounting Standards (Ind AS). However, investors should still analyze the numbers critically, looking at growth trends, profitability, and debt ratios. The DRHP in IPO offers a factual and regulated representation of the company’s financial position, making it a valuable tool for assessing investment quality.

How can DRHP help in comparing an IPO company with its listed peers?

Answer:
The DRHP in IPO provides key financial and business data that can be compared with listed companies in the same sector. Metrics like revenue, EBITDA margins, return on equity (ROE), and debt-equity ratio help benchmark the IPO valuation. It also includes peer comparison tables, industry outlooks, and market share estimates. By using the DRHP, investors can assess whether the IPO is fairly priced, overvalued, or offers better growth potential than competitors. This comparative analysis allows investors to make smarter allocation decisions and avoid investing in overpriced or weak offerings.