What to Learn from DRHP of Current IPOs

Before investing in a Current IPO, one of the most valuable documents at your disposal is the DRHP—Draft Red Herring Prospectus. Every company looking to go public must file this document with SEBI, outlining crucial details about its operations, financials, risks, and objectives. Understanding the DRHP not only helps you make a more informed decision but also lets you spot potential red flags that may not be evident in the hype surrounding a new listing. Even many Listed IPO stocks that performed well post-listing had transparent and detailed DRHPs that boosted investor confidence.

So, what exactly should you focus on in a DRHP?

📊 1. Business Overview and Model

This section explains what the company does, how it earns revenue, who its customers are, and what differentiates it from competitors. For retail investors, understanding the business model is key to assessing the sustainability of future growth. If the company has multiple revenue streams or is part of a growing sector, that’s a positive indicator.

💰 2. Use of IPO Proceeds

The DRHP clearly outlines how the company plans to use the funds raised. Look for whether the money will be used for growth (e.g., expansion, R&D, debt reduction) or if it’s mainly an Offer for Sale (OFS) by existing shareholders. A high OFS percentage could suggest promoters are just cashing out, not necessarily betting on future growth.

📉 3. Risk Factors

This is one of the most important sections. It lists all the risks that could affect the company—regulatory, operational, legal, financial, or market-related. While some risks are generic, others are more specific and should be noted carefully. For example, if a company is heavily reliant on one client or supplier, it increases risk.

🧾 4. Financial Performance

The DRHP includes profit and loss statements, balance sheets, and cash flow reports for the last three years. Look for consistent revenue growth, healthy profit margins, manageable debt, and positive cash flows. Also, watch out for any sudden spikes in profits before the IPO, which might not be sustainable.

📈 5. Industry Outlook

A well-prepared DRHP will include details on the industry landscape, market trends, and the company’s competitive positioning. Understanding this helps you see whether the business is aligned with future economic and sectoral growth.

👥 6. Promoter Background and Shareholding

Knowing who is behind the company can give you insight into their credibility and track record. The DRHP includes details about promoters, their past ventures, and their stake in the company post-IPO. Strong promoter skin in the game is generally a good sign.

Final Thoughts

The DRHP of a Current IPO is like the company’s resume—it helps you evaluate its story, strengths, and weaknesses before you commit. Don’t just rely on social media or analyst commentary; go directly to the source. Many successful Listed IPO stocks had solid DRHPs that painted a clear picture of long-term value.

By learning how to decode a DRHP, you become a smarter, more confident IPO investor.