Before any company goes public in India, it must file a Red Herring Prospectus (RHP) with the Securities and Exchange Board of India (SEBI). This document contains everything you need to know about the company's business, financials, and the risks involved.
Top 3 Things to Check in an RHP
- Objects of the Issue: Is the company using the money to pay off debt or to fund future growth? Growth is generally preferred.
- Financial Track Record: Look at the revenue and profit growth over the last 3 years. Are they consistent?
- Risk Factors: What are the internal and external risks that could destroy the company's business model?
Always remember, investing without reading the RHP is like buying a house without looking inside.