Red Herring Prospectus & its impact on IPO investment
Red Herring Prospectus or RHP is a document that contains comprehensive information about a company planning to raise money through public markets.
Companies file RHPs in accordance with section 32 of the Companies Act 2013 and SEBI’s Issue of Capital and Disclosure Requirements (ICDR) regulations, at least three days prior to the launch of an offer.
An RHP contains multiple sections which include:
- Information pertaining to the offer
- Risk factors
- Company specific information
- Financial information
- Legal information
- Other material information
A careful evaluation of RHP is necessary to decide the attractiveness of an IPO.
For instance, the section on company specific information comprises industry overview. It talks about the company’s strength and weaknesses and offers glimpses of policy regulation framework. Moreover, a sub-section on promoters contains in-depth information on their background, experience, skills and directorships at other companies, if any.
Similarly, the section on financials gives you information on the company’s key numbers and ratios and also touches upon important factors such as its debt and capital allocation strategies.
Information that you may not find in RHP includes
- Exact number of shares of fresh issue on offer
- Issue price
- Lot size
- Specific quota for each category of investors (in terms of number of shares)
Nonetheless, companies usually state explicitly when and where they will advertise the minimum bid and lot size, once finalised.
For instance, a company filing RHP can mention that it will advertise the bid price and lot size information two working days prior to the day of a bid opening day, in newspapers having a daily country-wide circulation.
You can also find bid and lot size information on the respective websites of stock exchanges.
Where can you find RHPs?
You can find RHPs on the Securities and Exchange board of India’s (SEBI’s) website under the Filings section. And then using a simple dropdown you can filter all RHPs filed lately.
Here’s how you can get the latest and achieved RHPs
What is DRHP?
A preliminary version of RHP is a Draft Red Herring Prospectus (DRHP) which companies file with SEBI for its approval/recommendations.
In other words, DRHP opens the line of communication between a company willing to get listed and its potential investors. A DRHP showcases the company’s business thereby hinting at what investors might expect.
Savvy investors check the SEBI DRHP status regularly and compare the RHP and DRHP of the same company to read between the lines. The difference between what the company initially filed vis-à-vis what SEBI approved offers crucial insights.
While companies have to file DRHP only once, i.e. at the time of IPO, RHP has to be launched even for Follow-on-Public Offers (FPOs).
Also checkout IPO notes:
If you don’t have time to thoroughly analyse RHPs on your own, you need not worry. Spare only a few minutes to read our IPO research notes. Our research analysts carefully evaluate various sections of RHPs amongst other things and bring to you incisive observations and easy-to-understand insights.
Whether you invest in an IPO for listing gains or for long term wealth creation, RHP is a vital document you should consider checking out.
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We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in the securities of the company. We do not have any directorships or other material relationships with the company.
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