Investing Red Herring Prospectus RHP IPO SEBI ICDR Offer document Financial analysis IPO analysis

Reading a Red Herring Prospectus: a reference guide

From WebNotes, a public knowledge base. Last updated 12 May 2026. Reading time ~12 min.

A Red Herring Prospectus (RHP) is the legally binding offer document that an Initial Public Offering (IPO) issuer files with SEBI , the exchanges, and the Registrar of Companies before the subscription window opens. It is the single authoritative source of information on an IPO and the document from which institutional investors, analysts, and journalists draw their assessments of the issue. For retail investors accustomed to summary notes and social-media commentary, the RHP can be daunting: mainboard RHPs typically run to 300-700 pages. This article provides a structured reference guide to the sections of an RHP that are most relevant to an investor evaluating an IPO, ordered by their analytical importance.

Where to find the RHP

All RHPs filed with SEBI are published on the SEBI primary issues portal at sebi.gov.in/filings/public-issues. The book running lead manager’s (BRLM) website also hosts the RHP. The stock exchange websites (NSE and BSE) link to the RHP in the issue-specific page under the IPO section. The RHP is available as a PDF document, usually split into multiple files due to size. The registrar (KFin Technologies or Link Intime ) is also required to host a copy. For SME IPOs , the platform (NSE Emerge at nseindia.com or BSE SME at bsesme.com) hosts the abridged offer document.

Section 1: the cover page, issue snapshot

The cover page of an RHP gives an investor the first-pass snapshot of the issue:

Issuer name and CIN (Corporate Identification Number).
Nature of the issue: fresh issue, offer for sale (OFS), or combination. An entirely OFS issue means no proceeds go to the company; the entire amount raised goes to selling shareholders.
Issue size: total shares offered (fresh issue shares + OFS shares) and indicative issue value at the upper end of the price band .
Price band (floor and cap).
Lot size and minimum application amount.
Subscription dates.
BRLMs and their SEBI registration numbers.
Registrar: which entity (KFin Technologies or Link Intime for most mainboard issues) will handle allotment and allotment-status enquiries.

The distinction between fresh issue and OFS is often the most consequential item on the cover page. An issue that is 100% OFS raises no money for the company, every rupee paid by investors goes to the selling shareholders. An issue that is 100% fresh issue puts all proceeds to work for the company’s stated objects.

Section 2: objects of the issue, what the money is for

The objects of the issue section specifies how the fresh-issue proceeds will be deployed. SEBI requires sufficiently granular disclosure to allow investors to assess whether the stated use is consistent with the company’s business plan. Common objects include:

Capital expenditure: expansion of manufacturing capacity, new offices, equipment acquisition.
Debt repayment: using IPO proceeds to retire existing debt. High debt-repayment objects can be a signal that the company is raising equity partly to repair its balance sheet rather than to fund growth.
Working capital: funding operating cycles in inventory-heavy or receivables-heavy businesses.
Acquisitions: proposed purchases of specific identified targets or general acquisition strategy. If the target is already identified, the RHP must disclose who it is and the proposed acquisition price.
General corporate purposes: a catch-all category. SEBI caps this at 25% of fresh-issue proceeds; amounts above 25% under this head are not permitted.

Key analytical question: does the total fresh-issue proceeds equal the sum of the identified objects? If the company is raising ₹500 crore but only ₹200 crore is assigned to specific objects and ₹300 crore is “general corporate purposes,” the level of specificity is low.

Section 3: risk factors, reading beyond boilerplate

The risk factors section is the longest narrative section of most RHPs. SEBI requires risks to be disclosed in order of materiality, with the most material risks first. Reading every risk factor in a 700-page RHP is not practical; the following filters help identify the genuinely important risks:

Risks numbered in the first ten positions. SEBI’s ordering requirement means that the first ten or fifteen risk factors are the ones the BRLM and issuer’s lawyers consider most likely to materially affect the investment. Read these carefully.

Concentration risks. Any risk factor indicating that a large percentage (30%-70% or more) of revenue, procurement, or operations is concentrated in a single customer, supplier, geography, or product warrants close attention. Such risks are quantified in the risk factor itself; the quantification is the key data point.

Regulatory and litigation risks. Risk factors disclosing pending government enquiries, income tax demands, GST assessments, or sector-regulator actions are particularly important in regulated industries (financial services, pharmaceuticals, telecom). The legal proceedings section (covered separately) should be read alongside the regulatory risk factors.

Going concern risks and losses. A risk factor disclosing that the company has been loss-making or has a net worth eroded by accumulated losses is a material disclosure. Look for language such as “we have incurred net losses in the past and may continue to do so” or “our net worth was negative as of [date].”

Risks that appear unusual for the industry. Generic risks about macroeconomic conditions, regulatory changes, and competition appear in virtually every RHP. A risk that is specific to this issuer, for example, a risk about a key-man dependency on a founder who controls the company, or about a material customer contract coming up for renewal, or about specific environmental litigation, deserves more weight than the boilerplate macroeconomic risks.

Section 4: financial statements, the numbers

The three-year restated financial statements (balance sheet, profit and loss, cash flow) are the quantitative core of the RHP. Key metrics to extract:

Revenue and growth trajectory. Is the top line growing year-on-year, and at what rate? Stagnant or declining revenue in a company seeking growth capital is a mismatch that demands an explanation in the management discussion and analysis (MD&A) section.

EBITDA margin and trend. The earnings before interest, taxes, depreciation, and amortisation margin measures operating efficiency. A declining EBITDA margin over the three-year period suggests cost pressures or pricing competition.

Profit after tax (PAT) and PAT margin. Is the company profitable? If not, is there a credible path to profitability disclosed in the MD&A or in the commentary on the objects? Pre-IPO losses are permissible but require more scrutiny.

Debt levels and interest coverage. Total debt (short-term plus long-term borrowings) and the interest coverage ratio (EBIT divided by interest expense) indicate financial leverage. High leverage combined with high debt-repayment objects is a combination that warrants analysis of whether the business generates enough cash flow to service the remaining debt post-issue.

Working capital cycle. Receivables days, inventory days, and payables days give a picture of how efficiently the company manages its operating cycle. Deteriorating working capital metrics (extending receivables, growing inventory) are sometimes a leading indicator of revenue quality issues.

Cash flow from operations. A company that shows PAT profits but negative operating cash flow may have aggressive revenue recognition or may be growing its receivables faster than its collections. Operating cash flow is a more conservative measure of earnings quality than PAT.

Section 5: promoters and management, who runs the company

The promoter section discloses:

Names and background of each promoter.
Their current shareholding and post-issue diluted shareholding.
Other directorships and business interests (potential conflicts of interest).
Any SEBI or court enforcement actions against the promoter.

The key check: is there any undisclosed regulatory action, conviction, or ongoing criminal proceeding against any promoter or director? This is disclosed in the legal proceedings section but referenced here. The Companies Act and SEBI regulations require unconditional disclosure of criminal proceedings; investors should cross-check the legal proceedings section against the promoter profiles.

The related-party transactions (RPT) section discloses all transactions between the issuer and its group companies, promoters, directors, or key management personnel in the preceding three years. High RPT volumes relative to the issuer’s revenue may indicate that the issuer’s business is partially dependent on or intertwined with promoter-group entities in ways that may not be at arm’s length. Questions to ask:

Are any significant customer revenues from related parties?
Are any significant purchase costs paid to related parties?
Are any loans outstanding between the issuer and related parties (at what interest rate, and on what terms)?

Section 7: the subscription section, the mechanics of applying

The final section to read carefully before placing a bid is the subscription mechanics section, which specifies:

The price band .
The lot size and minimum application value.
The cut-off price option availability (retail only).
The ASBA and UPI ASBA application process.
Bid revision and withdrawal rights.
The registrar’s name and the allotment-status check facility.
The timeline to listing.

The commissioned industry report: a caveat

Most RHPs include an industry analysis section based on a report commissioned from a market research firm (such as CRISIL, ICRA, Frost and Sullivan, or Redseer). The methodology, assumptions, and data currency of these reports vary considerably; the research firm is paid by the issuer (through the BRLM) and its findings are incorporated into the RHP as furnished without independent verification by SEBI. Investors should treat commissioned industry reports as illustrative context, not as independently verified market data.

Common patterns and red flags

High pre-IPO OFS by promoters. If promoters are selling a large block in the OFS component while simultaneously retaining control, the IPO may be primarily a liquidity event for the promoter rather than a capital-raising exercise for the business.

Related-party revenue concentration. Revenue that is primarily from related parties may not be reflective of the company’s ability to win business in the open market post-listing.

Objects that are vague. If the majority of fresh-issue proceeds are slated for “general corporate purposes” or “inorganic growth” without identifying targets, the issuer has significant discretion over deployment that may not be in minority shareholders’ interest.

Repeated auditor emphasis-of-matter or qualified opinions. In the statutory financial statements section, any qualified audit opinion or emphasis-of-matter (EOM) paragraph deserves attention; it signals that the auditor has identified something material in the financial statements.

References

Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, Schedule VI, Mandatory Disclosure Contents of Offer Documents.
SEBI Circular SEBI/HO/CFD/DIL2/CIR/P/2022/0002 dated 4 January 2022, KPI Disclosures.
Companies Act, 2013, Sections 34-36, Liability for Statements in Prospectus.
SEBI, FAQ on Primary Market, Offer Documents, available at sebi.gov.in.
ICAI Guidance Note on Audit of Financial Statements of Entities in the SME Sector, 2022.

Reviewed and published by

WebNotes Editorial Team

The WebNotes Editorial Team covers Indian capital markets, payments infrastructure and retail investor procedures. Every article is fact-checked against primary sources, principally SEBI circulars and master directions, NPCI specifications and the official support documentation published by the intermediary in question. Drafts go through a second-pair-of-eyes review and a separate compliance read before publication, and revisions are tracked against the SEBI and NPCI rule changes referenced in the methodology section.

Last reviewed: 12 May 2026
Conflicts of interest: WebNotes is independent. No relationship with any broker, registrar or bank named in this article.