What is the Difference Between RHP & DRHP

A draft red herring prospectus (DRHP) is a written statement meant to present a new company or item to a potential investor. 
A Red Herring Prospectus (RHP), also known as an offer document, is filed with the market regulator SEBI by a firm when it plans to obtain cash from the public by offering equity shares. 

What is a Draft Red Herring Prospectus?

The DRHP is a publicly available document containing essential details about the company planning an IPO. It is filed with the Securities and Exchange Board of India (SEBI) and includes crucial information and detailed insights about the company finances, its promoters, the risks of investing in the company, the reasons for raising funds, how the funds will be used, among other things. However, it does not include any information regarding the quantity and price of shares being offered, and the size of the issuance.

Once submitted, the DRHP is sent for evaluation to see if requisite disclosures were made. The merchant bankers then make the suggested adjustments before filing the final offer with SEBI, the Registrar of Companies (ROC), and the stock exchanges such as the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Before investing, you should read the DRHP attentively because it outlines crucial information that will help you better understand the business and become a more informed investor.

Where can you find the DRHP of a company?

The DRHP of a company can be obtained from the official website of SEBI, the website of the issuing company, and the websites of merchant bankers or stock exchanges.

What is a Red Herring Prospectus?

Red Herring Prospectus (RHP) is an enhanced version of DRHP. It includes additional details such as the IPO dates, prices as well as up-to-date financial data. SEBI has ordered all the companies looking to float an IPO to share specific information about their business, finances, risks, etc. RHP is also known as Final Prospectus.

The final prospectus provides finalized background information once the offering has been made effective and is available for subscription to the public. It discloses the number of shares issued, the offer price, the financial details of the company, use of the proceeds, risk factors, dividend policy, and other relevant information for the investors.

The main difference between a DRHP and RHP is that DRHP is not an official offer to sell the security. On the other hand, the final prospectus is an official document and includes the price of the sold securities. Once approved, DRHP becomes RHP containing the details of the issue.

Where can you find the RHP of a company?

All the RHPs of upcoming IPOs are accessible for free from the SEBI website under the Offer Documents section. You can also find them on websites of merchant bankers and stock exchanges. The company makes a public announcement about their RHP submission to SEBI through at least one newspaper.

What to look for in the RHP?

Business description: You should understand the company's nature of the business. The document outlines how the company conducts its business and how it would benefit you as a shareholder.
Financial information: RHP contains the financial statements of the companies. Investors should use it to gauge the growth and profitability prospects of the company and decide whether to participate in the offering or not.

Use of Proceeds: Investors should look for the company's intention of raising capital through the IPO. The RHP includes not only the total cost of the project, and how the project is being financed but also the information about how the company will utilize the issue proceeds.

Management: Management is responsible for strategic planning such as driving growth, pushing expansions, and marketing. The investors should look into such information as the names, qualifications, and designations of directors and promoters since it can help gather quality insights into the management personnel.

Summary of the issue: The document details the number of shares to be issued, as well as the breakdown of shares allocated to different categories of investors, such as public investors, QIPs, corporate, etc.

The risk involved: The final prospectus also explains the external and internal strengths of the company along with the risks it faces. It is as if the company tells the investors why they should invest in them and the risks that come with it.

Legal information: It also provides insights into pending lawsuits against the company or its directors. It can be criminal, civil, or tax-related. Investors should stay away from companies that have a poor history.

Conclusion

In conclusion, since these documents provide a piece of in-depth information about the company, investors should use them as a tool to analyze the company on their own.