What to Check in a DRHP Before Applying for an IPO

Before you apply for an IPO, open the DRHP and check five things: the risk factors, the financials (revenue, profit and cash flow), the use of IPO money, the promoter and selling-shareholder details, and any legal or related-party issues.

That is the short, honest answer. A DRHP is a draft filing, so it will not give you the final price band or dates, which means your only job at this stage is to understand the business and its risks, not to rush an application.

Key takeaways

• A DRHP is the draft IPO filing, so price, dates and offer size can still change.
• Read the risk factors first, before any grey-market or social media chatter.
• Check whether the money is a fresh issue (goes to the company) or an offer for sale (goes to existing sellers).
• Make sure profit and cash flow back the growth story, not just revenue.
• The final apply decision needs the RHP, not the DRHP alone.

If you are following one specific company, read PaisaSeed's Jio Platforms IPO buzz guide alongside this. That piece covers the buzz; this one is the checklist behind it.

What a DRHP actually is

DRHP stands for Draft Red Herring Prospectus. It is the draft document a company files before an IPO is launched.

As of July 2026, an Indian IPO still moves through this draft stage and then an offer stage, so the paper doing the rounds online is often the draft, not the final one.

A DRHP can tell you about the business model, promoters, financial statements, risks, use of IPO money, industry information, legal matters and related-party transactions.

Here is the catch: because it is draft-stage, not every offer detail is final. Numbers, disclosures and dates can move before the offer opens.

So when you read a DRHP, you are not deciding in five minutes. You are deciding whether this business is worth tracking all the way to the offer stage.

Check 1: The risk factors, before anything else

Start with the boring pages. Yes, boring.

The risk factors section is where the company is legally required to list what can go wrong, and it is usually the most honest part of the whole filing.

Read it before the glossy business story, and definitely before any grey-market premium number floating around on social media.

Honest aside: most people skip this section because it is dry. That is exactly why reading it puts you ahead of the crowd chasing the same buzz.

If a risk directly attacks the way the company earns money, mark it. That matters far more than a generic "market conditions may change" line.

Check 2: The financials, especially cash flow

Revenue growth on its own means very little. You want to see whether profit and cash flow grow with it.

A company can show rising revenue while burning cash every single year. That gap is your warning sign.

Worked example: suppose a DRHP shows revenue rising from Rs 400 crore to Rs 900 crore in three years, but operating cash flow stays negative the whole time.

That tells you growth is being funded by outside money, not by the business paying for itself. It is not an automatic no, but it is a reason to read more, not less.

Also check debt. Heavy borrowing plus weak cash flow is a harder load for any company to carry after listing.

Look at the three-year trend, not one good quarter. A single strong year before an IPO is easy to arrange; a steady trend is harder to fake.

Check 3: Where the IPO money actually goes

This is the check most retail investors skip, and it matters a lot.

An IPO can be a fresh issue, an offer for sale, or both. That difference decides who gets your money.

Neither is automatically good or bad. But if the whole issue is an offer for sale, the company itself raises no new money, and you should know that before you apply.

Then read the "objects of the issue" to see where any fresh money is meant to go: expansion, debt repayment, working capital, or general corporate purposes.

If you cannot explain who gets the IPO money, you are not done reading yet.

Check 4: The promoters and selling shareholders

Look at who controls the company and how much they hold before and after the issue.

Then check the selling shareholders. If early investors or promoters are offloading a large chunk, that is not automatically a red flag, but it is worth understanding why.

Direct question to ask yourself: are the people who know this business best increasing their stake, or reducing it?

The DRHP will not judge this for you. It just hands you the numbers. The reading is your job.

Check 5: Legal cases and related-party transactions

Two sections quietly carry a lot of signal: legal matters and related-party transactions.

Legal matters list the cases and regulatory issues the company faces. A few routine cases are normal for a large company. A pile of serious ones is not.

Related-party transactions show whether money moves between the company and connected entities, such as promoter-owned firms.

Small, disclosed related-party dealings are common. Large or unusual ones deserve a closer read, because they can change how much profit really belongs to ordinary shareholders.

A quick money-math example

Say the offer-stage document later sets a price band of Rs 100 to Rs 105 with a lot size of 15 shares.

Your minimum application would be about Rs 1,575 (15 shares at Rs 105). That is only the smallest cheque, not a signal of value.

To judge value, compare the asking valuation with listed peers using the financials you already read in the DRHP. Price without context is just a number.

This is why the DRHP homework comes first. By the time the price appears in the RHP, you should already know whether the business deserves it.

DRHP vs RHP: what changes before you can apply

A DRHP will not tell you everything. The RHP (Red Herring Prospectus) comes closer to the offer stage and usually adds the details you need to actually apply.

So the DRHP question is: do I understand the business and its risks?

The RHP question is: do the offer details still make sense after everything I read?

"RHP is available" does not mean "IPO is good." It only means you finally have the offer-stage document to check.

A reading order that saves time

IPO documents are long. You do not need to pretend they are easy.

Start with the sections that answer the biggest questions, in this order:

Do not read only the colourful business story. Read the uncomfortable parts too. That is where the filing earns its keep.

Where to find the latest DRHP

Use official or near-official routes first, not a screenshot from a chat group.

For Indian IPOs, that usually means the SEBI public issue filings page, stock exchange filing pages, the company investor-relations page, and lead manager or registrar pages.

Screenshots lose date, source and context, so an old DRHP image can be badly out of date.

If a friend forwards one, ask: which filing is this, and is it the latest version? That question is not rude. It is basic investor hygiene.

Red flags to slow down on

One red flag is not an automatic avoid. But each one means read more, not less.

Slow down if you see:

• fast revenue growth but weak cash flow
• heavy dependence on one customer or group company
• large or unusual related-party transactions
• unclear use of IPO money
• many legal cases you do not understand
• heavy debt
• promoter selling you cannot explain

Retail investors also tend to relax when the brand is famous. A popular app can still have thin cash flow, and a strong name can still carry an expensive price tag. Using a product every day is not the same as understanding the business.

Is an IPO even the right route for you?

Honest aside: not every good investor needs to apply to IPOs at all.

IPOs are one option, not a core plan. If reading filings feels like too much work right now, a simpler long-term core often does the job just as well.

If you are still deciding how to build that core, PaisaSeed's guide on index funds vs active mutual funds for beginners is a calmer starting point than chasing every new listing.

You can always come back to IPOs once the filing-reading habit feels natural.

Final self-check before you apply

Before you apply to any IPO, run through this:

• Did I read the RHP, not only the DRHP?
• Do I understand how the company earns money?
• Did I actually read the risk factors?
• Do I know whether money goes to the company or to selling shareholders?
• Do I understand the price band and lot size?
• Am I applying because I understand the business, or because everyone is talking about it?

If the honest answer is "only because of buzz," pause.

You can keep building the habit with PaisaSeed's Business & Companies guides before the next IPO trend arrives.

Bottom line

Before applying for an IPO, treat the DRHP as homework, not a signal. Read the risk factors, confirm cash flow backs the growth, check where the money goes and who is selling, then wait for the RHP to confirm price and dates. If you cannot explain the business in your own words, buzz is not a reason to apply.

This guide is educational and not investment advice, IPO advice, or a recommendation to apply or avoid any public issue. IPO documents, dates and offer details can change. Always check the latest official filing before making any decision.