Understanding the IPO Journey: From Risk Factors to Business Reality
When the story of an Initial Public Offering (IPO) begins, it sprouts from context and credibility. The first volume of The DRHP Rulebook explored the Risk Factors chapter, which serves as the issuer’s structured confession of vulnerabilities and regulatory red flags. This second installment advances that journey, shifting from disclosures of risk to disclosures of reality: the Industry Overview and Our Business chapters.
These twin chapters don’t just describe; they define. The Industry Overview maps the issuer’s external ecosystem, while the Our Business chapter delves into the internal engine. Volume II aims to dissect how macroeconomic cues, domestic policy signals, sectoral nuances, and the primary business of the issuer company converge into a foundation of transparency. The Business chapter demands operational clarity, where trust is earned through evidence, not embellishment.
The Importance of Authentic Disclosures
What happens when this foundation is treated like marketing material? Drawing from an empirical review of SEBI’s observation letters spanning a plethora of Draft Red Herring Prospectuses (DRHPs), Volume II challenges drafters to resist cosmetic disclosures and instead build credibility, layer by regulatory layer. In a world where every business claims to lead, this is where it must be proven—not in adjectives, but in disclosures; not in claims, but in clarity; not in formality, but in substance. Because when investors read between the lines, only one thing echoes: data trumps description.
Industry Overview: Mapping the Market Before Making a Pitch
No issuer company can declare its destiny until it maps the market it dares to conquer. This is gospel-worthy when discussing the ‘Industry Overview’ chapter of a DRHP. Far from being a ceremonial backdrop, this chapter is a legal mandate that must adhere to Regulation 24(2) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018 for Main Board IPOs, while SME issuers concern themselves with Regulation 245(2), supplemented by Clause 10(A) of Part A, Schedule VI of the ICDR Regulations.
The concise codification of Clause 10(A) makes it discretionary upon the issuer company to synthesize an industry report rooted in unassailable facts that ought to be independently validated and free from rosy bias. This chapter must provide authentic dynamics of the market that the issuer company aspires to navigate.
Avoiding Marketing Hype
Yet, time and again, issuer companies have attempted to turn this chapter into a marketing brochure, peppering it with phrases like “market leader” or “fastest growing,” bereft of any cogent external validation. Such pompous claims keep the regulator on alert. The observation letters from the regulator bear testimony to the fact that the Industry Overview chapter is not a sales pitch; rather, it is a factual declaration.
The regulator’s intention is clear: every data point etched in this chapter must be recent and sourced from credible third parties. This ensures that all statistical references are not only fresh but also reflect a balanced and unvarnished view of the industry landscape. Cherry-picking favorable metrics while conveniently sidestepping known sectoral constraints amounts to masking reality—an approach the regulator is quick to call out.
Structuring for Clarity
Issuer companies need to understand that while drafting the Industry Overview chapter, structure is the pulse of clarity, making it as indispensable as ice in the Arctic. A compelling narrative alone is not enough; regulatory compliance requires a clear, logical, and transparent framework that allows investors to precisely understand the economic context, sector dynamics, and the issuer company’s positioning.
The structure matters because it aims to craft a vibrant mosaic of factual insights. Investors should grasp the sweeping economic currents shaping the landscape, decode the structural and regulatory DNA of the issuer’s industry, and pinpoint the issuer company’s place within this realm—not with flashy descriptors, but with the sharp clarity of comparative data and unyielding facts.
The “Glass-Funnel” Approach
The most effective way to achieve a structured chapter is through a funnel-based approach, termed the “Glass-Funnel” approach. This method starts from the broad macroeconomic canvas and narrows down seamlessly to the issuer company’s competitive landscape. This transparent analytical structure filters information efficiently, allowing each layer to be perceived with clarity.
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Global Economic Landscape: Every economic story begins with the winds that blow across borders. The global economic signals affecting a sector’s characteristics set the rhythm for a well-written Industry Overview chapter. Disclosed numbers should touch upon global GDP growth trajectories, interest rate cycles, commodity price shifts, and geopolitical changes.
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Macroeconomic and Policy Context for India: Flowing down from the global perspective, the chapter should address India’s economic trajectory and sectoral trends. This section must answer how India’s policies and economic direction impact the issuer company’s industry.
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Sectoral Snapshot and Trends: This section must include key metrics, figures, charts, and graphs that showcase sector size, CAGR, market fragmentation, demand drivers, and customer demographics.
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Sub-sector Nuances and Issuer Relevance: Issuer companies must zoom in on specific sub-sectors or verticals that align with their primary business, offering depth without resorting to promotional language.
- Peer Comparison and Market Position: Comparative benchmarking evaluates an issuer company’s performance against industry peers on objective, quantifiable parameters.
Industry Challenges & Integrated Risk Factors
While the Risk Factors chapter addresses vulnerabilities unique to an issuer company, the Industry Overview chapter must disclose inherent sectoral challenges in a neutral and factual manner. These challenges may include capital intensity, policy and regulatory uncertainty, input price volatility, labor law sensitivities, environmental compliance burdens, and geopolitical disruptions.
By articulating these discussions with care, investors can understand the broader risks of the industry without implying issuer-specific problems. However, when such systemic risks affect the issuer disproportionately, SEBI requires a reference or cross-link to the Risk Factors chapter to ensure consistency.
Data Accuracy & Visualization
At the heart of the Industry Overview chapter must be a fair and balanced representation of the sector. Investors should rely on this chapter as a clear window into the industry’s realities. One effective way to ensure clarity is through well-curated visual disclosures using charts, graphs, and tables that illustrate market size, growth trajectories, or competitive segmentation.
Our Business: Unpacking the Disclosures That Power the Enterprise
While the Industry Overview answers the question, “Where does the company play?”, the ‘Our Business’ chapter compels a series of questions: “What is the primary business of the company? How does it operate, and how well does it perform? What drives the company’s revenue?”
Business Structure and Commercial Identity
Every investor begins with a simple question: What does the issuer company do? This chapter must answer it without flourish or fog. Whether the company operates in a B2B, B2C, or B2G model, each aspect must be presented factually and free of promotional language.
The disclosure begins at the root: the legal identity and historical transformation of the issuer company. Any material changes, such as metamorphosis from a private to a public limited entity, must be transparently set out.
Products, Services, and Operational Footprint
Once the issuer company’s business identity is established, the next layer of disclosure must capture the operational anatomy of the company. This includes a clear account of core products, supporting services, and any innovation-led components that define the portfolio.
Geographic Footprint and Infrastructure
A company’s geographic footprint is not just a list of addresses; it is a statement of scale, capability, and ambition. This section must capture where the company operates, delivers, manufactures, and reaches, both domestically and globally.
Revenue Composition and Segmental Performance
Investors want to understand how a company earns its keep. This section must connect the business model to the income engine, providing a clear breakdown of revenue segment-wise, geography-wise, product-wise, and service-wise.
Recognition and Assurance
Once the issuer company has mapped its products, revenue model, and market reach, the next critical layer is credibility. This includes disclosures around certifications, regulatory compliance, and operational systems.
SWOT Analysis
Every issuer company has strengths, vulnerabilities, opportunities, and threats. This section must offer an objective and evidence-backed view of the issuer company’s current business position.
Visual Disclosures for Enhanced Clarity
Visual disclosures serve as an alchemist’s tool that transforms raw data into perceivable insights. They provide a tangible, immersive experience of an issuer company’s operations, revealing how the business thrives.
Strategic Tie-ups and the Safety Net
The final stretch of the chapter must shift from narrative to infrastructure. Any joint ventures, strategic alliances, or collaborative arrangements must be clearly disclosed, along with any insurance coverage that protects the business.
Practitioners’ Takeaways
There is no punctuation mark to the living chronicle of a business, and no final full stop to what ought to be disclosed. With every DRHP filed, every market cycle turned, and every SEBI observation issued, the contours of the Industry Overview and Our Business chapters continue to evolve. What remains unchanged, however, is their purpose: to speak the truth of the enterprise through granular, grounded, and governance-ready storytelling.
Read together, the Industry Overview and Our Business chapters formulate the thesis in the form of testimony of a concerned DRHP. Their value lies not just in satisfying regulations but in anticipating scrutiny, inviting confidence, and holding up under questions.
Guiding Signposts
Industry Overview:
- Integrity of Excerpts: Avoid omitting or altering material information.
- Comprehensiveness of Challenges: Explicitly cover challenges and threats.
- Recency of Data: Ensure all data points are current.
- Disclosure of Negative Insights: Reflect a balanced view.
Our Business:
- Primary Source Mandate: Base disclosures on issuer-derived information.
- Avoid Promotional Language: Refrain from unsupported claims.
- Business Structure Clarity: Provide an organizational diagram.
- Revenue Composition: Offer a clear breakdown of revenue.
This is no routine filing; it is a summons to craft a legacy. For every issuer, merchant banker, advisor, and investor, these chapters are your canvas. Paint the Industry Overview with the hues of truth; sculpt Our Business with the chisel of accountability. Your DRHP will not merely meet the regulator’s gaze; it will stand as a testament to trust.