Draft red herring prospectus

The offer document an Indian company files before a public issue, describing the business, the financials, the risks and what the money will be used for. The version filed with the regulator is the draft; the later one carrying the price band is the red herring.

It is the single richest document about a private company that will ever be public, and for a first-time analyst it is better teaching material than most annual reports, because it explains a business from scratch to a reader assumed to know nothing.

Four sections carry most of the value. The risk factors, which are drafted by lawyers and are unusually candid. The restated financial statements, which run for several years on a consistent basis. The objects of the issue. And the basis for the issue price, which sets out the peer comparison the company itself chose.

Industry chapters cite paid research and should be read as sponsored. The financials and risks are the parts under liability.

Read the risk factors first, then the objects, then the basis for the price.

The best free textbook about a business.

Risk factors, objects, restated financials, price basis.

The restated financial statements deserve particular attention because they are unusual. Indian rules require the accounts to be restated onto a single consistent basis across the periods shown, correcting for accounting policy changes and for the effects of restructuring that happened during the period. That produces a comparable multi-year series for a company that has never had one, and it is often the only place such a series exists. Building the revenue, margin and return-on-capital history from that table takes twenty minutes and is worth more than every other section combined.