What Is a Red Herring Prospectus (RHP)? Meaning and DRHP vs RHP
A red herring prospectus (RHP) is the offer document an Indian company files before its IPO opens. It contains almost everything an investor needs, but not the final issue price or the exact number of shares. Those are fixed only after bidding closes, and then go into the final prospectus.
The name comes from the cautionary legend traditionally printed in red on the cover, warning that the document is not yet final. In India, Section 32 of the Companies Act, 2013 permits it for book-built issues, and the SEBI (ICDR) Regulations, 2018 govern its content.
Red Herring Prospectus Meaning: Where It Sits in the IPO
An IPO moves through three documents, each more complete than the last:
Draft red herring prospectus (DRHP): filed with SEBI and the stock exchanges for review, and made public for comments.
Red herring prospectus (RHP): filed with the Registrar of Companies after SEBI's observations are addressed, shortly before the issue opens.
Prospectus: filed after the book closes, carrying the final price and issue size.
The RHP is the document investors actually read when deciding whether to bid. The DRHP is a regulatory draft; the final prospectus is largely a record of what has already been decided.
What the RHP Contains
An RHP runs to several hundred pages. The sections that carry most of the weight are:
Risk factors, specific to the business rather than boilerplate.
Objects of the issue: how the fresh money will be spent.
Restated financial statements and management's discussion of results.
Promoter and group company details, including related party transactions.
Outstanding litigation and regulatory actions.
Basis for the issue price, with peer comparison and key ratios.
The price band itself is usually announced separately, by advertisement, a few working days before the issue opens.
DRHP vs RHP: What Changes Between the Two
The move from DRHP to RHP is where SEBI's review shows up. Typical changes include:
Responses to SEBI and exchange observations, often expanding risk factors or clarifying the objects of the issue.
Updated financial statements, where the DRHP numbers have gone stale.
Issue dates, the book running lead managers' final structure and anchor investor details.
Any material developments since filing, such as new litigation or changes in shareholding.
For a promoter, this stage is where the timetable usually slips. Observations that require a restatement or a change in the objects can take weeks to resolve.
Why the RHP Matters to Promoters
The RHP is a legal document, not a marketing brochure. Directors and promoters carry liability for untrue or misleading statements in it under the Companies Act, 2013, and SEBI can act on disclosure failures long after listing.
It also becomes the benchmark the market holds the company to. Every post-listing quarter is read against the objects, projections of capacity and risk disclosures in the RHP. A deviation in the use of proceeds, for instance, needs shareholder approval and is reported to the exchanges.
Key Takeaways
The RHP is the near-final IPO offer document; only the price and issue size are left open.
It follows the DRHP and precedes the final prospectus.
The price band is announced separately, a few days before bidding opens.
Its contents create lasting liability and set the yardstick for post-listing performance.
By CA Dhruv Seth, Seth & Associates, Chartered Accountants, Lucknow | dhruv@sethspro.com
This article is for general information and does not constitute audit, legal or tax advice. Regulations change; please verify the current position or speak to a qualified adviser before acting.
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