DRHP Drafting: A CA's Section-by-Section Guide

A DRHP — Draft Red Herring Prospectus — is the single most consequential document a private company will ever produce. It runs 400-700 pages, is the basis of SEBI’s observations, defines what investors see, and locks in the legal disclosures that follow you for the life of your listed existence. Founders treat it like a document review exercise. It’s not. It’s a 4-6 month writing project that touches every part of the company.

This is the practitioner’s walk-through — what each section actually contains, who drafts it, what gets revised after SEBI observations, and where founders typically lose months. Use this as a map of where you are in the process.

The DRHP structure overview

The DRHP follows the format prescribed in Schedule VI of the SEBI ICDR Regulations. The document has two layers: the main offer document (sections drafted by the merchant banker, legal counsel and company), and the statutory annexures (financials, legal opinions, consents, and certificates).

Headline sections, in the order they appear: cover page, general information, capital structure, objects of the issue, basis for issue price, statement of tax benefits, industry overview, business description, regulatory framework, history & corporate matters, management, promoters & promoter group, group companies, related-party transactions, dividend policy, financial information, MD&A, risk factors, outstanding litigation, and statutory and other declarations.

Most of the content is drafted in parallel across teams. The CA owns the financial information, restated financials, related-party disclosures, and the tax statement. The merchant banker owns the structural sections and risk factors. Legal counsel owns the litigation, regulatory framework, and the statutory declarations. Industry and business sections are typically drafted by the company with merchant banker support.

Cover page and general information

The cover page is short but legally dense. It contains the company name and logo, the issue size and structure (fresh issue / OFS / both), the price band placeholder, the book-running lead managers, the registrar, the listing exchanges, and the standard disclaimer text. The general information section adds the registered office, corporate office, statutory auditors, bankers to the issue, and the credit rating where applicable.

What founders miss: the name change history and the registered office change history have to be disclosed here. If the company changed names or moved jurisdictions in the last 10 years, every change has to be footnoted with dates and regulatory references. This is a common drafting bottleneck for companies with messy historical records.

Risk factors — the longest section that founders dread

The risk factors section is where SEBI scrutiny is heaviest and where the highest number of revisions happen. The current SEBI guidance is that risk factors must be specific to the company, not boilerplate, and ranked by materiality. Generic risks (“adverse economic conditions could affect our business”) are now actively challenged by SEBI in observations.

Typical risk factor categories: internal risks (concentration of customers, dependence on key personnel, related-party transactions), external risks (regulatory, market, currency), issue-specific risks (lock-in, dilution, no prior trading), and investment-specific risks (market price volatility post-listing). Specific business risks unique to the issuer often run 30-60 individually-drafted risk factors.

This is also the section where the cumulative disclosure principle hurts you. Every litigation, every regulatory notice, every related-party dependency that you didn’t want to highlight gets surfaced here. The risk factor count by itself is a signal — if a comparable issue has 45 risk factors and yours has 28, SEBI may come back asking why.

Restated financial information — where the CA earns the fee

Restated financial information covers the last three years (and the latest stub period) of audited financials, restated to reflect changes in accounting policies, prior-period adjustments, mergers / demergers, and any material adjustments identified during the IPO due diligence. The restatement is performed under SEBI ICDR Schedule III format and signed by the company’s peer-reviewed auditor.

The CA team prepares restated standalone and consolidated financials, restated cash flow statements, restated statements of changes in equity, and the accompanying notes. This is a 14-18 week exercise for most companies — longer if there are historical accounting restatements.

What blows the budget here: prior-period errors discovered during restatement (revenue recognition timing, inventory valuation, ESOP accounting, related-party pricing). If the diagnostic phase pre-DRHP didn’t catch these, they’ll surface during merchant banker due diligence and you’ll restart restatement. Pre-IPO diagnostic time is the highest-leverage spend you can make on this section.

MD&A — Management Discussion & Analysis

MD&A is the narrative explanation of why the financials look the way they do. The format follows SEBI ICDR Schedule VI and covers three years of P&L analysis, year-on-year movements explained, balance sheet analysis, cash flow analysis, significant accounting policies, and known trends and uncertainties.

What founders consistently get wrong: MD&A is supposed to be candid. If revenue grew 40% YoY but EBITDA margin contracted, MD&A has to explain what drove the margin compression — and not in a way that paints over real structural issues. SEBI specifically watches for selective disclosure here.

The MD&A is co-drafted by the company CFO, the CA, and the merchant banker. Plan for at least four full revision cycles, each touching the underlying financial schedule. This section frequently lands in the final version 3-4 days before filing.

Industry overview and business description

The industry overview is typically commissioned from a specialist industry research firm (CRISIL, Frost & Sullivan, Praxis, Markets & Markets, etc.). The cost is ₹15-30 lakhs depending on industry depth and report scope. The report has to be branded, dated, and the underlying assumptions have to support every market-size and growth-rate claim made elsewhere in the DRHP.

The business description section then layers the company on top of the industry: products and services, customer concentration, geographical mix, operational metrics, capacity utilization, R&D activities, HR data, and SWOT. Every quantitative claim has to be source-traceable — to your audited financials, to the industry report, or to a contemporaneous management estimate with a clear basis.

What founders lose months on here: the gap between what the founder believes about the business and what can be defensibly disclosed. “We are the largest regional player” needs to be supported by a third-party industry report. “Our customer retention is best in class” needs a defined metric and a comparable cohort. Drafting fights happen here.

Related-party transactions section

For most promoter-led companies, this is the most embarrassing section of the DRHP — and the one SEBI scrutinises most heavily. It discloses every related-party transaction in the last five years, the arm’s-length basis, the approval mechanism, and the materiality classification.

Categories of related parties include the promoter family, the promoter group entities, subsidiaries and associates, key managerial personnel, and relatives of KMP. Transactions to disclose include sales, purchases, loans, guarantees, leases, fees, expense reimbursements, and investments. Quantum, nature, and pricing have to match the financial statement notes.

Where founders lose time: discovering, mid-DRHP, that a 12-year rental agreement with a promoter HUF was never independently valued and the rent has been at a 30% discount to market. That requires a back-dated valuation report, a board explanation, and a clear forward-looking corrective action. Pre-IPO diagnostics should catch this — but often don’t.

Group company section

The group company section discloses every entity in the promoter group: subsidiaries, associates, JVs, promoter-controlled private companies, promoter-controlled public companies, and any entity where promoters / KMP have material economic interest. For each, you disclose nature of business, shareholding, five-year financial summary, litigation, and regulatory issues.

The footprint here is bigger than founders expect. A typical mid-market promoter family in India will have 15-30 group entities once you include HUFs, partnership firms, dormant entities, and joint ventures. Cleaning this list — winding up dormant entities, simplifying ownership chains, divesting conflicting businesses — is itself a 6-12 month pre-IPO activity.

Where founders lose months

Across many DRHP cycles, the same patterns of delay repeat. One: historical accounting restatements surfacing prior-period errors that require auditor reissue and board approval. Plan a diagnostic 12 months before the planned DRHP filing date — not 6.

Two: related-party cleanup. If you have an arm’s-length issue, fix it 6 months before drafting starts, not while the DRHP is being drafted. Board minutes, contemporaneous valuation, and corrective action all need time.

Three: the industry report. If commissioned late, it becomes the binding constraint on filing date. Engage the research firm at the same time as the merchant banker mandate, not three months later.

Four: board augmentation. SEBI requires specific independent director composition, audit committee composition, nomination & remuneration committee composition. If you’re still recruiting independent directors when DRHP drafting is under way, you’re behind schedule.

Bottom line

A clean DRHP is the product of disciplined preparation, not heroic drafting. The companies that file successfully on the first attempt are the ones that did 12-18 months of structural cleanup before the merchant banker mandate. The ones that struggle are the ones that started DRHP drafting and tried to fix the underlying business at the same time.

As the CA, my work on a DRHP is largely done before drafting even begins — the restated financials, the related-party clean-up, the tax statement, the regulatory positioning. By the time the merchant banker is drafting risk factors, the financial story should be locked. Get there early and the DRHP is a two-quarter project. Try to do everything at once and it becomes a year-long marathon.