Read a red herring prospectus (DRHP) — Hinglish notes

1.3.5 · Stock-Market › Primary vs Secondary Market & IPOs

DRHP kyun exist karta hai?

Price kyun nahi hoti? Kyunki Indian IPOs mein book-building use hoti hai: price investor bids se discover hoti hai ek price band ke andar (jaise ₹100–₹105). Jab tak market na bataye ki wo kya chahti hai, tab tak final price print nahi kar sakte.

SEBI ke under kyun? Chhote investors ko fraud se bachane ke liye. Core principle hai disclosure-based regulation: SEBI nahi kehta "yeh achi company hai." Woh sirf ensure karta hai ki company ne itna sach disclose kiya ki tum decide kar sako. Buyer beware, but buyer is informed.

Document family (confuse mat karna)

Document	Kab	Price hai?	Final rupee size hai?
DRHP (Draft RHP)	Pehle SEBI ke paas file hota hai	Nahi	Nahi
RHP (Red Herring)	Bidding khulne se pehle RoC ke paas file hota hai	Sirf Price band	Nahi (sirf ek band/range)
Prospectus (final)	Bidding ke baad, listing se pehle	Haan, final price	Haan

Actually kaise padhen (80/20 map)

Tum kabhi 500 pages nahi padh paoge. 20% sections mein 80% decision hota hai. Yeh rahe, us order mein jisme ek smart investor scan karta hai:

Figure — Read a red herring prospectus (DRHP)

Worked Example 1 — Offer Structure padhna

Ek DRHP kehta hai: Total issue ₹1,000 crore = Fresh Issue ₹300 cr + OFS ₹700 cr. Price band ₹200–₹210.

Q: Company ko kitna milta hai, aur flag kya hai?

Step 1: Company proceeds = Fresh Issue = ₹300 cr. Yeh step kyun? Sirf fresh shares naaye hain; OFS mein purane shareholders bech rahe hain.
Step 2: Promoters/selling holders ko milta hai = ₹700 cr. Kyun? OFS proceeds company ko bypass karke directly jaate hain.
Step 3: Interpret karo: raise ka 70% insiders exit kar rahe hain. Kyun flag hai? Business ko sirf ₹300 cr mila; baaki kisi ka exit fund hua. Fatal nahi hai (PE funds ko kabhi na kabhi toh exit karna hi hai) lekin padho ki kaun bech raha hai aur kitna stake bech raha hai.

Worked Example 2 — Basis for Issue Price (valuation sanity check)

DRHP: EPS = ₹5. Upper price band = ₹210. Peer average P/E = 25.

Q: Kya pricing rich hai?

Step 1: IPO P/E $= 210/5 = 42$ . Kyun? Jo price pay karoge use per share profit se divide karo.
Step 2: Peers se compare karo: $42 > 25$ . Yeh step kyun? Peer P/E similar businesses ke liye market ka "going rate" hai.
Step 3: IPO peers ke muqable 68% premium pe priced hai ( $42/25 - 1 = 0.68$ ). Kyun care karein? Tum competitors ke 25 saal ke muqable current profit ke 42 saal pay kar rahe ho. Yeh tabhi justify hota hai jab growth bahut superior ho — Financials mein growth numbers check karo.

Worked Example 3 — Objects of the Issue

DRHP Objects (fresh issue ₹300 cr): (a) ₹150 cr debt repay karne ke liye, (b) ₹100 cr nayi plant ke liye, (c) ₹50 cr "general corporate purposes."

Q: Fund use ki quality rate karo.

Step 1: Debt repayment (₹150 cr): interest cost kam hogi → theek hai lekin defensive, growth nahi. Kyun? Purana loan pay karne se nayi revenue nahi aati; sirf balance sheet clean hoti hai.
Step 2: Nayi plant (₹100 cr): productive growth capex. Accha hai. Kyun? Yeh directly zyada kamaane ki capacity banata hai.
Step 3: "General corporate purposes" (₹50 cr $= 50/300 \approx 16.7%$ of the fresh issue): vague hai. Kyun mild flag hai? SEBI is bucket ko cap karta hai (usually ≤25% of fresh issue) kyunki yeh undefined hota hai. Yahan cap ke andar hai, lekin jitna bada hoga, utna kamzor plan hoga.

Forecast-then-Verify drill

Answers padhne se pehle, predict karo:

Agar IPO 100% OFS hai, toh company ko kitna cash milta hai? → Predict karo, phir check karo: ₹0.
Price band ₹95–₹100, EPS ₹4 → upper-band P/E? → Predict karo: 25.
Kaun sa section company ke khilaf lawsuits list karta hai? → Predict karo: Risk Factors / Management & Promoters.

Flashcards

DRHP ka full form kya hai?

Draft Red Herring Prospectus.

Ise "red herring" kyun kehte hain?

Kyunki red-ink disclaimer hota hai jo kehta hai ki information incomplete hai aur final price abhi fix nahi hui.

Red Herring Prospectus mein kaun si key information nahi hoti?

Final issue price aur/ya exact number of shares (issue size), kyunki price baad mein book-building se set hoti hai.

Kya RHP final rupee issue size fix karta hai?

Nahi — RHP sirf ek price band deta hai; final price aur total amount raised sirf final Prospectus mein hoti hai bidding ke baad.

Kya SEBI ka DRHP clearance matlab hai IPO achi investment hai?

Nahi — iska sirf matlab hai ki disclosures complete aur compliant hain. Quality/price ka judgement tumhara apna hai.

Fresh Issue aur Offer for Sale (OFS) mein kya fark hai?

Fresh Issue = naaye shares, paisa company ko jaata hai (growth). OFS = existing holders purane shares bechte hain, paisa unhe jaata hai, company ko kuch nahi milta.

₹1000cr issue mein ₹300cr fresh + ₹700cr OFS ho toh company ko kitna milta hai?

₹300 crore (sirf fresh issue).

IPO mein company proceeds ka formula kya hai?

Fresh Issue Shares × Issue Price.

"Objects of the Issue" section kya hota hai?

Statement ki company IPO ka paisa kaise use karegi (debt repayment, capex, working capital, GCP).

Upper band pe IPO ka P/E kaise compute karte hain?

Upper band price ÷ EPS; phir peer average P/E se compare karo.

IPO ke liye correct document sequence kya hai?

DRHP → SEBI review → RHP → Bidding → Final Prospectus.

Kya Grey Market Premium (GMP) DRHP ka part hai?

Nahi — GMP unofficial aur unregulated hai; yeh kisi bhi prospectus mein nahi hota.

Sab kuch galat kya ho sakta hai yeh kaun sa section list karta hai?

Risk Factors.

Recall Feynman: 12-saal ke bachche ko explain karo

Socho ek lemonade stand hai jo strangers se paisa chahti hai grow karne ke liye. Koi bhi pay kare usse pehle, bacche ko ek badi honesty letter likhnī padegi: "Main kitna lemonade bechta hoon, maa ko kitna debt hai, aur rain aane ka risk hai toh koi nahi kharidega." Woh letter DRHP hai. Ismein abhi ek share ki exact price nahi hoti — woh baad mein decide hoti hai jab buyers batate hain ki wo kitna bid karenge. Ek referee (SEBI) check karta hai ki letter complete aur honest hai, lekin referee kabhi nahi kehta "yeh stand great deal hai." Tumhe khud letter padhna hai aur decide karna hai. Aur dhyan raho: agar letter kehta hai ki sara paisa purane partners ke exit pe jaata hai, toh stand ko kuch nahi milta (woh hai OFS).

Connections

Primary vs Secondary Market — DRHP primary market ka hissa hai (pehli sale).
Book Building & Price Band — explain karta hai kyun RHP mein price nahi hoti.
SEBI Role & Disclosure Regulation — mandatory disclosure ke peeche ki philosophy.
IPO Process Timeline — DRHP/RHP/Prospectus flow mein kahan aate hain.
Fresh Issue vs Offer for Sale — cash-flow direction ka deep dive.
Valuation P-E Ratio — pricing sanity check tool.