IPO Prospectus: The Investor Gateway

An IPO Prospectus is a formal document that brings a company to the public when it is intending to raise money through an Initial Public Offering (IPO). It's filled with important information that guides investors toward making an informed investment choice.

Imagine it as the company resume to the public market — with lots of financials, risks, business information, and future strategies.

What is an IPO Prospectus?

The prospectus is not a contract — it's an invitation to the public to subscribe to the IPO. Investors are at liberty to analyze the company and make their own decision on whether or not to invest.

The document is drawn up by the issuer and the lead manager (merchant banker) according to SEBI's guidelines.

There are various types of offer documents depending on the stage of the IPO. The two principal ones are:

1. Draft Red Herring Prospectus (DRHP)

Also referred to as a draft offer document, the DRHP is the initial formal move in the IPO process.

DRHP Meaning & Purpose:

• It is filed with SEBI and the stock exchanges to initiate the IPO.
• Available for public comments on SEBI, stock exchange, merchant banker, and issuer websites.

Includes major details such as:

• Company background and finances
• Promoters and directors
• Risk factors
• IPO structure (fresh issue/offer for sale)
• Application of funds

Note: DRHP doesn't specify the exact price, share number, or final issue size — that appears later in the RHP.

DRHP Filing Procedure:

• Issuer company files DRHP through a SEBI-registered merchant banker.
• DRHP is placed on public and market feedback and is also seen by SEBI, stock exchanges, and receives feedback from them.
• The issuer and the merchant banker work on revising the document according to SEBI's observations.
• Once finalized, it's submitted to SEBI, ROC (Registrar of Companies), and exchanges.

DRHP Validity & Timelines:

• SEBI sends an observation letter in 30 days (in the case of Mainboard IPOs).
• The letter is effective for 12 months — i.e., the IPO has to be launched within a year of its date of issue.
• SEBI would respond in 15 days to any clarification queries after the first examination.

2. Red Herring Prospectus (RHP)

Once SEBI clears the DRHP and all the recommendations are made, the Red Herring Prospectus (RHP) is filed.

This one contains the last-minute details:

• Price band
• Number of shares issued
• Issue size
• Last risk and financial disclosures
• It is the document that investors go through before bidding for an IPO.

3. Final IPO Prospectus (Prospectus)

Final IPO Prospectus is the final legal offering document that includes all the most important details investors should be aware of prior to the listing of the shares.

Most Important Points in the Final Prospectus:

• Final Issue Price
• Number of Shares Offered
• Net Offer Size
• Final Risk Disclosures
• Post-approval Financials

When Is It Filed?

• Fixed Price Issue: Registered prior to the issue opening with the Registrar of Companies (RoC).
• Book Building Issue: Registered once the issue closes with the RoC.

This document is the final step in IPO documentation — a final, comprehensive version investors trust before listing.

4. Abridged Prospectus

An Abridged Prospectus is a summary sheet of the complete IPO prospectus — released along with the application form to help investors grasp the offer at a glance.

Purpose:

• To save investors' time.
• To bring out the most important information of the IPO.
• A Companies Act requirement.

What Does It Contain?

• Promoter & Director Information
• Price Range & Minimum Bid Size
• Provisional Timetables
• BRLM & Intermediary Details
• Business Overview & Approach
• Financial Highlights
• Outstanding Litigations or Regulatory Orders
• Application Process & Conditions

Shortened prospectus = "All you need to know" snapshot for the investor.

The IPO prospectus is a detailed legal document that delivers important information for prospective investors. The following is a listing of the major sections that go into an typical IPO prospectus:

1. Definitions and Abbreviations

List of all terms and abbreviations used within the document with their meanings.

2. Summary of the IPO Prospectus

Summary of:

• Company's main business
• Industry
• Promoters and Promoter Group
• Size & purpose of offering
• Shareholding details
• Financing arrangements
• Summary of risk factors

3. Risk Factors

Detailed risks that may affect the business including:

• Legal cases
• Financial risks
• Market risks
• Operational challenges

4. Introduction

Includes:

• Summary of the offering
• Snapshot of financials
• Capital structure overview

Both DRHP (Draft Red Herring Prospectus) and RHP (Red Herring Prospectus) are important documents in the IPO process. Although they have the same format and structure, the stage at which they are published and the content they carry are different.