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Difference Between RHP and DRHP

When a company plans to raise funds through an Initial Public Offering (IPO), it must submit detailed documents to the regulatory authorities, such as the Securities and Exchange Board of India (SEBI). Two key documents in this process are the Draft Red Herring Prospectus (DRHP) and the Red Herring Prospectus (RHP). These documents serve distinct purposes and contain critical information for regulators, investors, and market participants. In this article, we will explore the differences between the two.


What is a Draft Red Herring Prospectus (DRHP)?

A Draft Red Herring Prospectus (DRHP) is the preliminary document prepared by the company planning to go public. It is submitted to SEBI for review and approval.

Key Features of DRHP:

  1. Preliminary Document: It serves as the initial proposal and outlines the company’s intentions for the IPO.
  2. Contains Indicative Information: Includes details about the company, its business model, financial performance, risk factors, and intended use of IPO proceeds.
  3. Review by SEBI: SEBI scrutinizes the DRHP to ensure that the company complies with regulatory requirements and discloses all necessary information.
  4. No Final Pricing or Dates: The DRHP does not mention the final issue price or the dates of the IPO, as these details are determined later.

Purpose of DRHP:

  • Regulatory Approval: To obtain feedback and approval from SEBI.
  • Transparency: To provide potential investors with detailed information about the company.
  • Market Feedback: It allows the company to gauge investor interest and make adjustments before the final IPO launch.

What is a Red Herring Prospectus (RHP)?

A Red Herring Prospectus (RHP) is the final version of the DRHP. It is issued after SEBI’s approval and includes all the final details of the IPO.

Key Features of RHP:

  1. Final Document: It incorporates SEBI’s suggestions and provides finalized details about the IPO.
  2. Includes Key Details: Contains the IPO price band, offer size, dates, and allocation strategy.
  3. No Allotment Information: While comprehensive, it does not disclose details about the final allotment of shares.
  4. Public Availability: It is made available to the public through stock exchanges and the company’s website.

Purpose of RHP:

  • Investor Decision-Making: To help investors make informed decisions by providing all the necessary details.
  • Marketing the IPO: Acts as the official document used during the roadshows and marketing campaigns to attract investors.

Differences Between DRHP and RHP

AspectDRHP (Draft Red Herring Prospectus)RHP (Red Herring Prospectus)
Stage of PreparationPreliminary document submitted for SEBI review.Final document issued after SEBI approval.
Approval StatusNot yet approved by SEBI.Approved by SEBI.
Details of IPODoes not include IPO price, dates, or size.Contains final IPO price band, dates, and offer size.
PurposeTo provide initial information and receive regulatory feedback.To market the IPO and assist investors in decision-making.
Public AvailabilityAvailable on SEBI’s website for review and feedback.Available to the public through exchanges and websites.
Revisions AllowedCan be revised based on SEBI’s observations.No revisions allowed; contains finalized information.

Example of DRHP and RHP in Practice

Let’s take the case of Zomato’s IPO in 2021:

  1. DRHP Stage: Zomato filed its DRHP with SEBI, detailing its business model, financials, risks, and the intended use of IPO proceeds. However, it did not specify the price band or issue dates.
  2. RHP Stage: After receiving SEBI’s approval, Zomato issued its RHP, which included the final price band (₹72–₹76 per share), IPO dates, and allocation details.

Conclusion

Both the DRHP and RHP are critical components of the IPO process, each serving distinct purposes. The DRHP is an initial draft used to secure regulatory approval and test the waters, while the RHP is the final, comprehensive document that equips investors with all the necessary details to make informed investment decisions. For anyone planning to invest in an IPO, understanding these documents is essential to evaluate the company and its offering thoroughly.

Harshvardhan Mishra

Harshvardhan Mishra is a tech expert with a B.Tech in IT and a PG Diploma in IoT from CDAC. With 6+ years of Industrial experience, he runs HVM Smart Solutions, offering IT, IoT, and financial services. A passionate UPSC aspirant and researcher, he has deep knowledge of finance, economics, geopolitics, history, and Indian culture. With 11+ years of blogging experience, he creates insightful content on BharatArticles.com, blending tech, history, and culture to inform and empower readers.

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