Selecting Your Merchant Banker and Navigating the DRHP Process
How to choose the right lead manager, what the DRHP process actually involves, and the mistakes that cause SEBI to send it back
Who this is for
SMEs that have decided to pursue a BSE SME or NSE Emerge listing and are at the stage of appointing a merchant banker and beginning the DRHP drafting process. Promoters who have received pitches from multiple merchant bankers and are unsure how to evaluate them.
What it costs you to ignore it
The diagnosis behind it
This playbook is triggered by a Red or Critical finding on:
IPO Readiness AssessmentThe Protocol
Shortlist three to five SEBI-registered merchant bankers with a demonstrated track record on the exchange you are targeting — BSE SME or NSE Emerge. Ask each for: the number of SME IPOs managed in the last 24 months, the average subscription level achieved, the number of SEBI observation letters received, and two references from recent issuers.
Evaluate merchant banker pitches on four criteria: SEBI observation rate (lower is better), distribution network and ability to bring HNI and institutional investors, fee structure (typically 2–4% of issue size for SME IPOs), and the seniority of the team that will actually work on your file — not the partners who pitch.
Appoint the full IPO team alongside the merchant banker: statutory auditor (must be a peer-reviewed firm acceptable to SEBI), legal counsel (for the offer agreement and DRHP legal sections), registrar to the issue, and a market maker (mandatory for SME IPOs). The merchant banker will recommend names — you are not obliged to use their preferred vendors.
Begin the DRHP drafting process: the merchant banker leads, but the promoter must be actively involved in the business description, risk factors, and related-party disclosure sections. These are the sections SEBI scrutinises most closely and where observations are most commonly raised.
Conduct a pre-filing review of the DRHP with independent legal counsel — not the counsel appointed by the merchant banker. Focus on: accuracy of the financial statements as presented, completeness of risk factor disclosures, and consistency between the business description and the audited accounts.
File the DRHP with SEBI and the exchange. SEBI typically issues observations within 30 days for SME IPOs. Respond to each observation specifically and completely — a partial response invites a second round of observations. The merchant banker leads the response, but the promoter must review and approve every answer.
What you can do yourself vs what needs help
The DRHP process cannot be executed without a SEBI-registered merchant banker — that is a regulatory requirement. The promoter's role is to select the right merchant banker, be actively involved in the drafting of the business description and risk factors, and conduct an independent review before filing. Delegating the entire process to the merchant banker and signing whatever is presented is the most common and most expensive mistake in SME IPOs.