The defence test company behind Chandrayaan-3 has a ₹4.73 crore compliance problem

Before a satellite is allowed to leave Earth, someone has to pretend to be space. Every circuit is asked to do its job in a vacuum, every signal is poked and measured, and every failure has to happen in a lab rather than a few hundred kilometres above the planet. Digilogic Systems builds the machines that run those rehearsals.

The company is not a household name. It is the kind of supplier the Indian space and defence establishment quietly depends on. When ISRO's Chandrayaan-3 mission went through its lunar landing and the Aditya-L1 solar observatory was readied for launch, Digilogic's checkout hardware, delivery schedules and testing protocols were singled out in a formal letter of appreciation from ISRO in 2023.

From family partnership to listed company

This is a business that grew out of an Indian Air Force radar expert's workshop, not a corporate boardroom. Madhusudhan Varma Jetty founded the firm as a partnership in May 2007, after fifteen years of radar fitting in the Air Force and more than 38 years of broader defence and space work. The partnership became a private limited company in December 2011. It stayed that way for more than a decade before becoming a public limited company in July 2025.

By January 2026, it had moved to the BSE SME platform under stock code 544684. The IPO priced shares in a band of ₹98 to ₹104, with a total issue size of ₹81.00 crore. After the dust settled, the company mobilised ₹69.66 crore in net proceeds, largely earmarked for debt reduction and capital spending.

The board remains a family affair. Madhusudhan Varma Jetty is Chairman and Managing Director, Radhika Varma Jetty handles administration and human resources as a Whole-Time Director, Shashank Varma Jetty runs business development as CEO and Whole-Time Director, and Hitesh Varma Jetty manages production at the Hyderabad facility. The CFO is Sriharsha Vadakattu and the Company Secretary is Kameswara Rao Vempati. For the year ending March 2026, the CEO drew ₹1.29 crore in gross remuneration and the CMD received ₹96 lakh.

The compliance overhang

Here is where the small-company past crashes into the public-company present. Before the IPO, the company raised money through a private placement — a share sale to a small group of investors, not the general public. It issued 1,70,207 equity shares at a premium of ₹283.76 per share, amounting to over ₹5 crore. Under Section 42(6) of the Companies Act, 2013, application money from a private placement has to be kept in a strictly separate bank account until the allotment process is complete. The Registrar of Companies says Digilogic did not maintain that separate account.

There was a second, smaller lapse. The company delayed filing the DPT-3 form, a statutory return for reporting outstanding money or loans that do not qualify as deposits. That delay fell under Section 450.

Digilogic did not try to hide the problem. In December 2025, before the Red Herring Prospectus went in, the company voluntarily filed adjudication applications, known in company-law paperwork as GNL-1. Management argued the lapses came from incorrect professional advice rather than any intent to misuse funds, and that an existing account had been earmarked only for the placement money. The adjudicating authority did not accept that defence.

In April 2026, the Registrar of Companies imposed the maximum penalties available under Section 42(10) — multiple orders of ₹2 crore each on the company and its defaulting executive directors — culminating in an aggregate penalty exposure of ₹4.73 crore. Digilogic has now taken the matter to a Regional Director. It maintains there is no immediate material impact on operations. But the episode is a reminder that a company can be excellent at testing satellites and still trip over company-law filings.

A company can be excellent at testing satellites and still trip over company-law filings.

What the company actually makes

At the centre of Digilogic's work is a simple idea: modern testing equipment should be software-defined, not a pile of single-purpose boxes. The company builds Automated Test Equipment, or ATE, around open standards called PXI and PXI Express. These are essentially rugged, high-bandwidth backplanes that borrow ideas from the personal-computer world and harden them for military and industrial use.

A PXI Express chassis can move data at up to 24 GB/s. It also carries 10 MHz and 100 MHz reference clocks, a star trigger bus, and slot-to-slot local buses. In practice, that means separate measurement modules can be synchronised to less than a microsecond. That timing precision matters when you are testing high-frequency radio signals, phased-array radars or electronic-warfare hardware. The chassis are built to dissipate up to 82W per slot and survive environments that are not kind to laboratory-grade equipment.

A lot of this architecture comes from National Instruments, better known as NI. Digilogic is a Silver Alliance Partner and has been a Gold partner in the past. By its own estimate, 37% to 47% of its hardware inventory is bought directly from NI. That relationship is a double-edged thing. It gives the company access to NI's FlexRIO hardware and the LabVIEW programming environment, which lets engineers design FPGA circuits graphically instead of writing low-level hardware description languages. An FPGA is a chip that can be rewired after manufacturing to do one job extremely fast, and in radar and communication testing that speed is the whole point. Traditional FPGA programming requires scarce specialists. LabVIEW's graphical approach lets Digilogic's certified architects build complex circuits without getting stuck in code that reads like a chip manual.

The product range follows the needs of defence labs. There are transmitter and receiver module testers for AESA radars, missile checkout systems that simulate military-standard avionic interfaces, actuator and avionics test systems for flight-critical units, and cable-harness testers that hunt for insulation failures before they cause a short in the air. There are radar target echo simulators that can create phantom aircraft on a lab bench, and a synthetic aperture radar environment simulator based on ray-tracing. There is even a communications tester powered by an Intel i7 processor and 8GB RAM, with a vector signal analyser that can scale up to 26.5 GHz. The pitch is that one software-defined bench can replace more than a dozen standalone instruments.

Tested for space, aimed at lasers

Space is the best marketing the company has. For ISRO, Digilogic has built satellite payload checkout systems that test the command and data-handling, power, and attitude-control subsystems, and move high-speed data at up to 2.5 Gbps. That contribution earned the 2023 letter of appreciation from ISRO for work on Chandrayaan-3 and Aditya-L1.

More recently, the company produced the Fine Pointing System for a laser weapon. In April 2025, DRDO's Centre for High Energy Systems and Sciences tested a vehicle-mounted 30kW Laser-Directed Energy Weapon, the Mk-IIA, at the National Open Air Range in Kurnool. The system defeated fixed-wing UAVs and swarming drones. Digilogic supplied the fine pointing hardware — the part that keeps the beam locked on a moving target long enough to do real damage. CHESS-DRDO formally acknowledged that contribution in 2025.

Directed energy weapons look attractive because they attack at the speed of light and avoid the absurd economics of firing an expensive missile at a cheap drone. The engineering problem is keeping the beam focused; the source says optical quality has to stay at a factor of M^2 below 2 over long distances. Digilogic's fine pointing gear sits in that exact gap.

The policy tailwind

For years, Indian defence laboratories assumed a serious test bench had to come from a European or American original equipment manufacturer. That assumption has been formally reversed. The Defence Acquisition Procedure 2020 and successive Positive Indigenisation Lists have banned imports of hundreds of defence subsystems and made the domestic option the default. Procurement committees now have to defend the decision to import, rather than the decision to buy local.

Digilogic comes to that contest with AS9100D and ISO 9001:2015 certifications, more than 800 deployed test systems, and an 18-year track record. The result is that indigenisation policy functions almost like a moat. It does not guarantee orders, but it removes the pricing and risk penalty that once pushed buyers towards foreign equipment.

The financial inflection point

The last five years show a company that has crossed from a decent niche supplier to something with real operating leverage. The full picture is in the table below.

The inflection really shows up in FY25 and FY26. Revenue grew 8.42% in FY26 to ₹78.27 crore, but net profit jumped 33.8% to ₹10.43 crore. Operating profit margin — what the company keeps from operations before interest, taxes, depreciation and amortisation — improved by 152 basis points to 19.6%. Net margin expanded by 221 basis points to 13.46%. Management attributes that to a product mix that now leans more heavily on proprietary application software and IP cores woven into hardware, which carry better margins than plain hardware assembly.

The IPO also cleaned up the balance sheet. Digilogic used ₹8.00 crore of the proceeds to pay down debt. Total borrowings fell 70%, from ₹13.34 crore in FY25 to ₹4.06 crore in FY26. The debt-to-equity ratio — a measure of how much of the balance sheet is funded by borrowings — dropped from 0.40 to 0.04. The company also reported positive free cash flow from operations of ₹12.63 crore in FY26, and net worth grew 226% to ₹108.09 crore. For a company that used to finance government clients by borrowing short-term, that is a very different shape.

Why quarterly numbers can mislead

One warning label applies to any quarterly comparison. The Ministry of Defence runs on annual budget cycles, so bookings and revenue tend to bunch in the second half. In the first half of FY26, revenue was merely 25% of the previous full-year total. If you looked at that half in isolation, you would think the business had collapsed. It had not. It was simply waiting for the government's billing window. This is why the company argues that trailing twelve-month numbers and annual order conversion are the saner ways to read it.

From assembler to manufacturer

The IPO capital is also being used to change what Digilogic is. In April 2026, the company held the groundbreaking ceremony for Project Udaan at the TGIIC Hardware Park in Hyderabad. The plan is to spend up to ₹63.70 crore of IPO proceeds on a 65,000 square foot advanced manufacturing facility, with commercial production scheduled for December 2027. The facility is meant to move the company into Electronics Manufacturing Services, with Environmental Stress Screening labs, rapid prototyping units, and floors for Built-to-Print and Built-to-Spec manufacturing. The goal is to compress lead times, protect intellectual property, and hold onto more of the margin.

Then there is the supply-chain fix. In May 2026, Digilogic incorporated a subsidiary called Abhedhya Systems Private Limited, in which it owns 80% and initially put in ₹4 lakh. Abhedhya will design and manufacture radio frequency and microwave components — the very inputs that the company currently buys from the outside world. Management expects products to appear within an 8-to-12-month window, with meaningful high-margin revenue by FY28.

How it compares to the rest of the sector

India's defence electronics market is split. Big platform players like HAL and Bharat Electronics sit at the top. In the sub-system and testing niche, Digilogic is often compared with Paras Defence, Zen Technologies and Data Patterns. The valuation table below gives a rough map.

The numbers show a smaller company with a lower trailing price-to-earnings multiple than some peers — around 50.7 times earnings for Digilogic, compared with 126.3 times for Paras Defence, 83.8 times for Zen Technologies and 103.0 times for Data Patterns. But the comparison is not apples-to-apples. Zen is a mass-production story; its 77.9% five-year revenue CAGR comes from selling combat training simulators and anti-drone equipment directly to soldiers. Digilogic builds the engineering simulators and test systems used to validate those underlying technologies, which is a smaller-volume, highly specialised niche. Against Paras, Digilogic has historically been more of an asset-light integrator, which helps explain its higher return on capital employed of 18.6% versus Paras's 16.29%. Some of the valuation gap also likely reflects the company's short listing history on the SME exchange, lower absolute scale, and heavy dependence on government buyers.

Where it can go wrong

None of this is a straight line upward. The risk register is real.

• Client concentration: 99% of revenue comes from Indian government entities — DRDO, ISRO and defence public sector undertakings. If defence R&D budgets are deferred, there is very little else to cushion the fall.
• Supplier dependency: 37% to 47% of hardware purchases come from National Instruments in the West. Management has said long lead times from Western OEMs pushed roughly ₹20 crore of executable revenue from FY26 into FY27.
• Working capital: serving the government means waiting to be paid. Debtor days have consistently been above 200, which makes the company a financier of its own receivables.
• Project execution: Project Udaan involves capital expenditure nearly equal to the company's entire FY24 revenue. Moving from systems integration to full-scale electronics manufacturing is a different discipline, and schedule slippage would hurt medium-term returns.

What the next year actually hinges on

For FY27, management is targeting 25% to 30% topline growth and 45% to 50% expansion in EBITDA and PAT. That is not a forecast from this report; it is the company's own guidance. The solid ground beneath it is smaller. As of May 2026, the formal order book stood at ₹31 crore. The company is chasing a reported ₹110 crore tender pipeline and a ₹150 crore identified opportunity matrix, and it wants ₹100 crore in firm purchase orders by September 2026 so the orders can be executed in the second half. Recent wins — a ₹7.15 crore DRDO contract, a ₹4.88 crore Ministry of Defence order, and a ₹4.08 crore satellite testing checkout system — show that money is moving, but the bulk conversion is still open.

So that is the balance. A company with an unusually clear technical record — Chandrayaan-3, Aditya-L1, a directed-energy weapon — is now being judged on more ordinary things: order book conversion, supply chain resilience, and whether it can run a publicly listed business as cleanly as it runs a test bench. The next twenty-four months could show whether those two identities are compatible.