How to read an RHP

A red herring prospectus (RHP) is the offer document a company files before its IPO opens. It can run to several hundred pages, but ten sections tell you most of what matters: the risks, where the money goes, the price, the business, the owners, the numbers and the court cases.

By IPO24by7 Research. Updated .

The ten sections that matter most

  1. Risk factorsRead the first ten in full. Companies are asked to list the most material risks first.
  2. Objects of the offerShows how much is a fresh issue for the company and how much is an offer for sale by existing holders, and what the fresh money is for.
  3. Basis for offer priceEPS, return on net worth, net asset value per share and the peer comparison the company itself has chosen.
  4. Our businessWhat the company sells, to whom, from where, and how concentrated its customers and suppliers are.
  5. Industry overviewUsually from a report the company paid for. Useful for context, but read it with that in mind.
  6. Capital structureWho owns what before and after the IPO, recent share allotments and the promoters' average cost per share.
  7. Our promoters and promoter groupWho controls the company and their other business interests.
  8. Restated financial informationThree years of audited numbers, plus a recent stub period. Look at cash from operations, not just profit.
  9. Outstanding litigationCases against the company, its promoters and directors, with amounts where they can be quantified.
  10. Offer structure and termsCategory split, lot size, dates and the timeline for allotment and listing.

Things worth checking

  • A large offer for sale with little or no fresh issue.
  • Big dividends or buybacks just before the IPO.
  • Profit rising faster than cash from operations.
  • Changes of auditor or key managers shortly before filing.
  • A high share of revenue from one customer or related parties.

Our read before you apply panel on each IPO page pulls these points out of the RHP and shows them beside the company's strengths, with the section each one comes from. How we work.

Source: SEBI ICDR Regulations 2018, Schedule VI (disclosures in an offer document).

Frequently asked questions

What is the difference between a DRHP and an RHP?

The DRHP is the draft filed with SEBI or the exchange for review. The RHP is the updated document filed before the IPO opens. It has everything except the final price and issue size.

Where can I download an RHP?

From the websites of SEBI, BSE and NSE, the lead managers and usually the company itself. Each IPO24by7 IPO page links to the documents once they are filed.