Drhp Ipo Analysis

DRHP / IPO Analysis (India)

A DRHP is written by bankers to sell shares. It is also, by SEBI mandate, the most complete disclosure document any Indian company ever produces. Read it as a hostile witness under oath: everything in it is true, and the arrangement is designed to lead you.

Document sequence

• DRHP (Draft Red Herring Prospectus) — filed with SEBI, public, no price band
• SEBI observations — issued after review; the issuer must incorporate them
• RHP (Red Herring Prospectus) — filed with RoC, carries the price band and the anchor allocation
• Prospectus — final, post-issue, carries the discovered price

Read the RHP for a decision. Read the DRHP for what changed between the two.

The read order

Do not start at page 1. Start here:

1. Objects of the Issue
2. Capital Structure — including the average cost of acquisition per share for promoters and selling shareholders
3. Restated Financial Information — the summary statements and the auditor's examination report
4. Risk Factors — the first ten, in full
5. Basis for Issue Price
6. Related Party Transactions
7. Outstanding Litigation and Material Developments
8. Our Business and Industry Overview — last, and sceptically

Step 1 — Fresh issue vs offer for sale

This is the first question and it decides most of the analysis.

Total issue size = Fresh issue + Offer for Sale (OFS)

• Fresh issue proceeds go to the company. Growth capital, debt repayment, working capital.
• OFS proceeds go to the selling shareholders. The company receives nothing. Dilution without capital.

A 100% OFS is an exit, not a fundraise. That is not disqualifying — private equity funds have to exit somewhere — but it changes what you are buying and it removes the "use of proceeds" argument entirely.

Check who is selling and how much of their holding:

• Promoter selling a large share of their stake at IPO
• PE/VC investor exiting fully vs partially (a full exit at IPO from a fund with remaining life is a signal)
• Average cost of acquisition per share, disclosed in the Capital Structure section, next to the issue price. A pre-IPO placement at ₹80 six months before an IPO priced at ₹450 is disclosed, and it is the most informative single line in the document.

Step 2 — Objects of the issue

For the fresh-issue portion, the DRHP must state the use of proceeds with amounts and deployment schedule. Score it:

Later, monitor deployment: SEBI requires a monitoring agency for issues above a threshold, and quarterly deviation statements are filed with the exchanges under LODR. Comparing promised versus actual deployment 12 months post-listing is one of the cleanest management-quality tests available.

Step 3 — Restated financials

DRHP financials are restated under Ind AS for the last three financial years plus any stub period. Restated statements often differ from what the company previously filed with MCA. Look for:

• Revenue growth that accelerates sharply in the two years before filing. Almost universal, and the single most common form of IPO window-dressing. Check whether the acceleration is volume, price, acquisition, or accounting.
• Margin expansion into the IPO year, then examine what happens to it in the first two post-listing quarters.
• Related party revenue — revenue from promoter-group entities that may not recur.
• Cash conversion — CFO versus PAT over the three years. Companies frequently list with strong PAT and negative CFO.
• Restatement adjustments — the reconciliation note shows what the auditor changed and why.
• Stub period annualisation. Bankers annualise a favourable stub period to compute a P/E. Do not accept it; seasonality is usually the reason the stub was chosen.

Step 4 — Risk factors

SEBI requires risk factors in descending order of materiality, with quantification where possible. The first five to ten are the ones the issuer's own lawyers considered most serious.

Specifically hunt for:

• Customer concentration — "our top 5 customers accounted for X% of revenue"
• Supplier or geography concentration
• Promoter litigation, criminal proceedings, and regulatory actions — disclosed by name, individually
• Negative cash flows — SEBI requires an explicit risk factor if the company had negative operating cash flow in any of the last three years. Search the document for "negative cash flow".
• Contingent liabilities as a share of net worth
• Objects of the issue not appraised by any bank or financial institution — a standard but meaningful disclosure
• Dependence on a group entity for brand, distribution, or premises
• Statutory dues in arrears, and any pending regulatory approval the business needs to operate

Step 5 — Basis for Issue Price

The issuer must justify the price using KPIs and a peer comparison of their own choosing. Two things to do:

1. Recompute the P/E and P/B on the issue price using restated FY numbers, not annualised stub numbers.
2. Rebuild the peer set yourself. The peers listed in a DRHP are selected to flatter. Run relative-valuation-india with your own comp set and compare.

Also compute what the promoters and pre-IPO investors paid, versus what you are being asked to pay. Express it as a multiple.

Step 6 — Anchor book

Disclosed in the RHP one day before the issue opens. Read:

• Who anchored — domestic mutual funds and long-only insurance money is a better signal than a list of unknown alternative funds and family offices
• Concentration — a handful of anchors taking most of the book means thin genuine demand
• Lock-in — anchor shares carry a staggered lock-in (a portion released after 30 days, the balance after 90 days). Note both dates; the 90-day expiry is a recurring supply event that is entirely predictable.

Step 7 — Subscription and listing dynamics

• Track QIB / NII / retail subscription separately. QIB subscription is the informed money; heavy retail with weak QIB is a warning.
• The NII category is split between the small (₹2–10 lakh) and large (above ₹10 lakh) bid categories, allotted by lottery and proportion respectively — this drives the leveraged HNI bidding that inflates headline subscription numbers.
• Grey market premium (GMP) is an unregulated, unofficial, illiquid indication. It is not a valuation, it is not a forecast, and it is frequently manipulated ahead of large issues. Report it only with that caveat, and never as a reason to apply.

Step 8 — Post-listing supply calendar

Write down these dates on the day of listing. They explain most of the first year's price action:

SME IPOs are a different asset class

SME platform issues (NSE Emerge, BSE SME) differ materially from mainboard: minimum application sizes are far larger, lots are indivisible, liquidity post-listing is thin, disclosure and review requirements are lighter, and migration to the mainboard has its own criteria. Retail loss rates in SME IPOs have drawn repeated SEBI attention and enforcement. Never analyse an SME IPO with mainboard assumptions, and say so explicitly when the user is looking at one.

Output format

# <Issuer> — IPO Analysis

**Issue:** ₹X cr | Fresh ₹A cr / OFS ₹B cr | Price band ₹P1–P2 | Mainboard / SME

## Who gets the money
- Fresh: ₹A cr → <objects>
- OFS: ₹B cr → <sellers, and % of their holding>
- Selling shareholder average cost: ₹Z vs issue price ₹P (X.X×)

## Financials (restated)
| ₹cr | FY-3 | FY-2 | FY-1 | Stub |
| Revenue | | | | |
| EBITDA / margin | | | | |
| PAT | | | | |
| CFO | | | | |
| Net debt | | | | |
| RoCE | | | | |

## Valuation at issue price
| | Issue | Peer median | Own comp set |
| P/E (FY-1 restated) | | | |
| EV/EBITDA | | | |
| P/B | | | |

## Top risk factors (issuer's own ordering)
1. ...

## Anchor book
<quality and concentration; lock-in dates>

## Verdict
<Apply / avoid / watch post-listing — with the two or three reasons that actually drive it>

## Post-listing calendar
| Date | Event |

Hard rules

• Cite page numbers from the RHP for every material claim.
• Never quote a P/E on annualised stub-period earnings without saying that is what it is.
• Do not use GMP as an input to a recommendation. Mention it only as unregulated market chatter.
• Distinguish clearly between "this is a good business" and "this is a good price". A DRHP is designed to make you conflate them.
• IPO applications are investment decisions. State that this is analysis, not advice, and that the user should consult a SEBI-registered investment adviser.