DIGILOGIC SYSTEMS LIMITED IPO Explain

Digilogic Systems IPO Overview

Hyderabad-based defence & aerospace test equipment manufacturer raising ₹81.01 cr (₹69.68 cr fresh issue + ₹11.33 cr OFS). Price: ₹98-104 (Book Building). Lot: 1,200 shares (₹2,49,600 min investment – 2 lots). GMP: ₹5-6 (4.81%-5.77% premium over upper band – WEAK investor interest).

Funds for new facility capex (₹51.73-51.74 cr), debt repayment (₹8 cr), general corporate purposes. OFS at 14% indicates modest promoter exit.

Lead: Indorient Financial Services. Registrar: Kfin Technologies.

Incorporated December 2011 (14+ years old – established player but founded operationally in 2007, data conflict exists). Originally partnership firm 2007, incorporated 2011, converted to public limited 2025. AS9100D and ISO 9001:2015 certified. Offices in Hyderabad (corporate HQ), Bengaluru (marketing). 106-133 employees (data variance, PitchBook: 133, Tracxn: 106 as of Aug 2025).

Products/Services: Automated Test Equipment (ATE) systems, radar and Electronic Warfare (EW) environmental simulators, application software, embedded signal processing solutions, data acquisition platforms, IP cores, system integration & upgrades, lifecycle support services. High-performance test systems spanning DC to 40GHz for missiles, radars, electronic warfare, satellite systems, SATCOM, underwater calibration.

Three business segments: (1) Test Systems (ATE, checkout systems, radar/EW simulators), (2) Application Software (data acquisition, IP cores), (3) Services (system integration, upgrades, lifecycle support). B2G (Business-to-Government) project-based model serving Indian defence organizations (DRDO, PSUs), aerospace firms through government tenders and third-party system integrators. Development cum Production Partner (DcPP) status.

Technology Partner: National Instruments alliance for PXI, VXI, LXI open architecture integration. International collaborations: Metakosmos (Australia) MoU for human spacesuit test beds, SPHEREA (France) MoU for defence/aerospace capabilities.

PRE-IPO Investor: Negen Capital invested in company (data from PitchBook).

IPO DETAILED INFORMATION

Issue Details

Parameter	Details
IPO Type	SME (BSE SME)
IPO Open Date	20 January 2026 (Monday)
IPO Close Date	22 January 2026 (Wednesday) – 3 days
Anchor Investor Bidding	19 January 2026 (Sunday) – SME anchor portion
Allotment Date	23 January 2026 (Thursday) – Expected
Credit to Demat	27 January 2026 (Monday) – Expected
Refund Initiation	27 January 2026 (Monday) – Expected
Listing Date	28 January 2026 (Tuesday) – Tentative
Price Band	₹98 to ₹104 per share (Book Building)
Face Value	₹2 per share
Lot Size	1,200 shares per lot
Min Investment (Retail)	₹2,49,600 (2 lots minimum = 2,400 shares at ₹104)
sNII Investment	₹3,74,400 (3 lots minimum = 3,600 shares)
bNII Investment	Data not specified
Issue Size	₹81.01 crore at upper band (₹76.95-81.01 cr range)
Fresh Issue	₹69.68 crore (86.0%) – 67,00,000 shares
Offer for Sale (OFS)	₹11.33 crore (14.0%) – 10,89,196 shares by promoters
Total Shares Offered	77,89,196 equity shares (includes 3,90,000 for market makers)
Listing	BSE SME
Post-Issue Market Cap	~₹301.1 crore (at upper band ₹104)

Note: 86% fresh issue vs. 14% OFS – majority funding for company growth.

Issue Break-up

Category	Allocation	Shares (Approx)
QIB (Qualified Institutional Buyers)	50%	36,99,000 shares
NII (Non-Institutional Investors)	15%	11,10,000 shares
Retail Individual Investors	35%	25,90,000 shares
Market Maker	5.01%	3,90,000 shares

Note: Standard SME allocation structure. Retail gets 35%, QIB 50%, NII 15%. Net public offer is 73,99,196 shares (excluding 3.90 lakh market maker portion).

Selling Shareholders (OFS ₹11.33 crore)

Promoters Selling 10,89,196 shares (14.0% of total issue):

From 4 total promoters (Jetty family – husband, wife, 2 sons), partial exit by:

• Mr. Madhusudhan Varma Jetty – Promoter (partial stake sale)
• Mrs. Radhika Varma Jetty – Promoter (partial stake sale)
• Mr. Jetty Shashank Varma – Promoter (partial stake sale)
• Mr. Hitesh Varma Jetty – Promoter (partial stake sale)

Note: OFS at 14.0% is modest – promoters taking partial liquidity but retaining majority stake post-IPO. All 4 Jetty family promoters participating in partial exit. Company incorporated 2011 (14+ years), operationally since 2007 (~18 years) – longer hold than typical quick-exit SME IPOs.

Objects of the Issue (Fund Utilization)

Fresh Issue Proceeds (₹69.68 crore at upper band) will be used for:

Specific Allocation:

1. Capital Expenditure – Setting up Proposed New Facility – ₹51.73-51.74 crore (74.2-74.3% of fresh issue)
   • Location: Plot No. 6/2, TGIIC Hardware Park Phase II, Rangareddy District, Hyderabad 500005
   • Built-up area: 6,050 square meters (facility + environmental test capability)
   • Environmental Test Facility for electronic sub-systems
   • Advanced testing equipment, machinery, assembly infrastructure
   • CRITICAL: Company has NOT yet placed orders for plant, machinery, equipment or applied for requisite government approvals (per RHP) – execution risk!
   • Objective: Enhance operational capabilities, reduce outsourcing dependence, expand capacity, improve margins
2. Debt Repayment/Prepayment – ₹8.00 crore (11.5% of fresh issue)
   • Full or partial repayment of outstanding borrowings
   • Reducing interest burden and improving financial flexibility
   • Strengthening balance sheet leverage ratios
   • Specific loans/lenders not disclosed
3. General Corporate Purposes – Balance funds (~₹9.95-10 crore, 14.3-14.5%)
   • Working capital for project-based defence business
   • Business expansion and market penetration
   • IPO offer-related expenses (registrar, BRLM fees, legal, documentation)
   • Strategic initiatives
   • Contingency reserves

Strategic Context:

• HEAVY focus on capex (74.2%) – new 6,050 sq meter facility to reduce outsourcing, increase capacity
• ₹8 cr debt repayment (11.5%) suggests moderate leverage – not debt-stressed
• Environmental test facility for electronic sub-systems enables in-house testing vs. third-party outsourcing
• Defence/aerospace project-based business requires working capital for long development cycles (2-3 years)
• AS9100D, ISO 9001:2015 certified operations support quality requirements for mission-critical applications
• National Instruments partnership provides technology backbone (PXI, VXI, LXI architectures)

CRITICAL EXECUTION RISK:

• RHP explicitly states company has NOT placed orders for machinery/equipment, has NOT applied for government approvals for new facility
• Facility setup timeline uncertain – delays could adversely affect business, operations, financial condition
• Capex deployment risk: 74.2% of IPO (₹51.73 cr) allocated to unapproved, un-ordered facility

OFS Proceeds (₹11.33 cr):

• Goes to 4 Jetty family promoters for partial liquidity
• 14% of total issue – modest exit vs. major exits (like Amagi’s 54% OFS)
• Promoters exit after 14-18 years (2007/2011-2026) – longer hold than typical SME promoters (5-7 years)

Note: 74% allocation to single new facility capex is concentrated. Success depends on execution (government approvals, machinery procurement, timely commissioning). If facility faces delays/cost overruns, could impact financials.

Lead Managers & Registrar

Book Running Lead Manager (BRLM):

1. Indorient Financial Services Limited
   • Address: B/805, Rustomjee Central Park, Andheri Kurla Road, Chakala, Mumbai – 400093, Maharashtra
   • Phone: +91-79772 12186
   • Website: www.indorient.in

Registrar:

• Kfin Technologies Limited
  • Address: Selenium Tower – B, Plot 31 & 32, Gachibowli, Financial District, Nanakramguda, Serilingampally, Hyderabad – 500032, Telangana
  • Phone: +91 40 6716 2222
  • Website: www.kfintech.com

Market Maker:

• To be appointed for BSE SME platform (standard requirement)

Promoters & Management

Key Promoters (4 Individual Promoters – Jetty Family):

1. Mr. Madhusudhan Varma Jetty – Promoter (Partial OFS participant)
   • Founder and senior promoter since 2007/2011
   • Technical and operational leadership
   • Decades of experience in defence/aerospace test equipment
   • Oversees company strategy and government relationships
2. Mrs. Radhika Varma Jetty – Promoter (Partial OFS participant)
   • Co-promoter and wife of Madhusudhan Varma Jetty
   • Family stakeholder since inception
   • Supports business operations and strategic direction
3. Mr. Jetty Shashank Varma – Promoter (Partial OFS participant)
   • Son of Madhusudhan + Radhika Jetty
   • Next-generation family member
   • Involved in business operations and succession planning
4. Mr. Hitesh Varma Jetty – Promoter (Partial OFS participant)
   • Son of Madhusudhan + Radhika Jetty
   • Next-generation family member
   • Technical and operational responsibilities

Promoter Holding:

• Pre-IPO: Likely 100% given private limited status till 2025 conversion
• Post-IPO: Estimated 65-70% after dilution (77.89 lakh shares issued, promoters retaining majority)
• OFS: 10,89,196 shares (14% of issue) – modest partial exit by all 4 Jetty family promoters

Company Contact:

• Registered Office: #102, 1st Floor, DSL Abacus Tech Park, Uppal Kalsa Village, Uppal Mandal, Rangareddy – 500039, Telangana, India
• Corporate Office: Plot No. 6/2, TGIIC Hardware Park Phase II, Rangareddy District, Hyderabad – 500005, Telangana, India
• Phone: +91 40 [number not disclosed in sources]
• Email: [email protected] (inferred)
• Website: www.digilogicsystems.com

COMPANY DETAILS

Digilogic Systems Limited is a Hyderabad-based defence and aerospace technology engineering company incorporated on 8 December 2011 (14+ years old, operationally founded in 2007 giving ~18 years history per some sources – data conflict exists), making it an established player (not startup), converted to public limited in 2025. Operating from AS9100D and ISO 9001:2015 certified facilities in Hyderabad (corporate HQ) and Bengaluru (marketing office) with 106-133 employees (data variance), the company specializes in design, development, integration, manufacturing, supply, and lifecycle support of Automated Test Equipment (ATE) systems, radar and Electronic Warfare (EW) environmental simulators, application software, and embedded signal processing solutions for high-performance test systems spanning DC to 40GHz, serving Indian defence organizations (DRDO, PSUs), aerospace firms, and strategic electronics customers through project-driven Business-to-Government (B2G) model via government tenders and third-party system integrators, organized into three business segments: (1) Test Systems (ATE, checkout systems, radar/EW simulators), (2) Application Software (data acquisition platforms, IP cores), (3) Services (system integration, upgrades, lifecycle support), supported by National Instruments partnership for PXI/VXI/LXI open architecture integration and international collaborations with Metakosmos (Australia) and SPHEREA (France).

Key Highlights:

• 14-18 Years Old: Incorporated Dec 2011 (14+ years), operationally founded 2007 (~18 years per some sources) – established player
• Location: Hyderabad HQ + Bengaluru marketing office, new facility planned (Plot 6/2, TGIIC Hardware Park Phase II)
• Strong FY25 Recovery: Revenue +39.55% (₹51.63 cr to ₹72.06 cr FY24-25), PAT +237.92% (₹2.40 cr to ₹8.11 cr) but from CRASHED FY24 base
• FY24 CRASH: Revenue flat -0.02% (₹51.64 cr to ₹51.63 cr FY23-24), PAT crashed -56.29% (₹5.49 cr to ₹2.40 cr) – MAJOR red flag
• PAT Margin: 11.25% (FY25) vs. 4.65% (FY24) – recovery but 10.63% (FY23) was higher
• NEGATIVE Cash Flow: Operating cash flow turned negative (FY25) despite 237% PAT growth – working capital stress
• EXTREME Customer Concentration: Top 3 clients 70.92% revenue (FY25) – single customer loss would devastate
• WEAK GMP: ₹5-6 (4.81%-5.77% premium) – poor investor sentiment, listing gains likely minimal
• AS9100D + ISO Certified: Aerospace quality management + quality management system certifications
• DcPP Status: Development cum Production Partner for Indian defence ecosystem
• Negen Capital Backing: Pre-IPO institutional investor (PitchBook data)

Operations

Geographic Presence:

• Corporate HQ: Hyderabad, Telangana (#102, DSL Abacus Tech Park, Uppal)
• Marketing Office: Bengaluru, Karnataka
• Proposed New Facility: Plot No. 6/2, TGIIC Hardware Park Phase II, Rangareddy District, Hyderabad 500005 (6,050 sq meter, funded by IPO)
• Markets: Primarily India (defence organizations DRDO, PSUs, aerospace firms) through government tenders

Growth Trajectory:

• Revenue Volatility:
  • FY23-24: -0.02% YoY (₹51.64 cr to ₹51.63 cr) – FLAT, stagnation
  • FY24-25: +39.55-39.64% YoY (₹51.63 cr to ₹72.06 cr) – STRONG recovery
  • FY23-25 CAGR: 13.46% (modest 2-year growth but masks FY24 flatness)
• PAT Extreme Volatility:
  • FY23-24: -56.29% YoY (₹5.49 cr to ₹2.40 cr) – PAT CRASHED 56%!
  • FY24-25: +237.92% YoY (₹2.40 cr to ₹8.11 cr) – PAT rebounded 3.4X!
  • FY23-25 CAGR: 93.29% (explosive but misleading – recovery from crashed FY24 base)
• Margin Volatility:
  • FY23: 10.63% PAT margin (healthy)
  • FY24: 4.65% PAT margin (compressed 597 bps!) – margin crash
  • FY25: 11.25% PAT margin (expanded 660 bps) – margin recovery
• CRITICAL: Operating cash flow turned NEGATIVE (FY25) despite ₹8.11 cr PAT and 237% growth
  • Indicates severe working capital stress typical in project-based defence contracts
  • Long payment cycles from government customers (DRDO, PSUs)
  • Project development cycles 2-3 years creating receivables/inventory buildup

CRITICAL CONTEXT:

• FY24 revenue flatness + 56% PAT crash indicates operational stress, margin compression, project delays, or customer payment issues
• FY25 recovery (39% revenue, 237% PAT) looks strong but from VERY LOW FY24 base (₹2.40 cr PAT)
• Absolute PAT ₹8.11 cr (FY25) is still SMALL for ₹301 cr post-IPO market cap (PE ~37X on current earnings)
• Customer concentration 70.92% (Top 3) is EXTREME – loss of 1-2 major defence contracts would crash revenue again
• Negative operating cash flow despite profitability is RED FLAG – cash conversion problem
• Defence project-based business inherently lumpy – revenue/PAT volatility likely to continue

Sustainability Questions:

• Can 39% revenue growth sustain or revert to FY24 flatness?
• Will margins stay at 11.25% or compress again like FY24 (4.65%)?
• How to address negative operating cash flow and working capital stress?

Company Strengths

1. India’s Defence Indigenization Push – Atmanirbhar Bharat, Make in India:
   • India’s defence budget ₹6.21 lakh cr (FY25), up 4.3% YoY – growing allocation
   • Atmanirbhar Bharat policy mandates 75% domestic defence procurement by 2025
   • Make in India initiative creating opportunities for domestic defence equipment manufacturers
   • DRDO, HAL, BEL, other PSUs increasing indigenization – Digilogic’s ATE/test equipment benefits
   • Long-term defence modernization (missiles, radars, EW systems, satellites) requires testing infrastructure
   • Development cum Production Partner (DcPP) status provides competitive positioning
2. 18+ Years Industry Expertise – Established Relationships with DRDO, Defence PSUs:
   • Founded 2007/2011 (14-18 years operational history) – survived multiple business cycles
   • Long-term relationships with DRDO, defence PSUs, aerospace firms
   • Proven track record delivering mission-critical ATE, radar/EW simulators for defence programs
   • Repeat business from government customers indicates trust and performance
   • AS9100D, ISO 9001:2015 certifications validate quality management for critical applications
   • National Instruments alliance provides technology backbone and industry credibility
3. End-to-End Solution Capabilities – ATE, Simulators, Software, Embedded Processing, Integration:
   • Three business segments: (1) Test Systems, (2) Application Software, (3) Services (integration, upgrades, lifecycle support)
   • Comprehensive “design-to-deployment-to-support” offerings vs. competitors’ point solutions
   • Reusable engineering platforms for efficient project delivery
   • Custom COTS (Commercial Off-The-Shelf) based rugged systems for harsh defence environments
   • High-performance test systems spanning DC to 40GHz (RF/microwave capability)
   • Reduces customer need for multiple vendors – one-stop-shop advantage
4. Strong FY25 Recovery – 39.55% Revenue, 237.92% PAT Growth:
   • Revenue surged 39.55% YoY (₹51.63 cr to ₹72.06 cr FY24-25) after FY24 flatness
   • PAT exploded 237.92% YoY (₹2.40 cr to ₹8.11 cr FY24-25) – 3.4X jump
   • PAT margin expanded from 4.65% (FY24) to 11.25% (FY25) – 660 bps improvement
   • Demonstrates ability to recover from FY24 operational challenges
   • Current ratio 1.61 (FY25) – improved liquidity management
5. International Collaborations – Metakosmos (Australia), SPHEREA (France):
   • MoU with Metakosmos (Australia): Design and develop test beds for human spacesuit technology
   • MoU with SPHEREA (France): Strengthen capabilities in defence and aerospace industries
   • Global partnerships provide technology access, credibility, potential export opportunities
   • Positions Digilogic for international defence/aerospace programs beyond India
6. Niche Technical Expertise – RF Test Simulation, Electromechanical Testing, SATCOM, Underwater Calibration:
   • Specialized capabilities in complex defence testing domains
   • RF test simulation for radars, electronic warfare systems
   • Electromechanical testing for missile systems, propulsion motors
   • SATCOM (satellite communication) testing solutions
   • Underwater calibration for naval/submarine systems
   • AI-driven automation integration (per company website)
   • Difficult-to-replicate technical expertise creates barriers to entry
7. New Facility Expansion – ₹51.73 Cr Capex to Reduce Outsourcing, Expand Capacity:
   • IPO allocating 74% (₹51.73 cr) to new 6,050 sq meter facility
   • Environmental test facility for electronic sub-systems – in-house vs. outsourcing
   • Enhanced operational capabilities and capacity expansion
   • Potential margin improvement from reduced third-party outsourcing
   • Strategic positioning for larger defence contracts requiring integrated testing capabilities

Key Risks & Challenges

1. EXTREME Customer Concentration – Top 3 Clients 70.92% Revenue (FY25):
   • Top 3 customers contribute 70.92% of FY25 revenue – SEVERE dependency!
   • Single customer loss or contract non-renewal would devastate financials
   • Defence contracts are multi-year but subject to budget cuts, program cancellations, policy changes
   • Lumpy, project-based revenue creates feast-or-famine cash flow (evident in FY24 flatness vs. FY25 growth)
   • Customer names not disclosed – likely DRDO, HAL, BEL, other PSUs with concentrated procurement
2. FY24 CRASH – Revenue Flat (-0.02%), PAT Crashed 56% (₹5.49 Cr to ₹2.40 Cr):
   • FY23-24: Revenue stagnated at ₹51.63 cr (-0.02% YoY) – ZERO growth
   • FY23-24: PAT crashed 56.29% (₹5.49 cr to ₹2.40 cr) – profitability collapsed despite flat revenue!
   • PAT margin compressed from 10.63% (FY23) to 4.65% (FY24) – 597 bps erosion
   • Indicates: (1) Operational challenges, (2) Project delays, (3) Margin compression from cost overruns, (4) Customer payment issues
   • FY25 recovery (39% revenue, 237% PAT) from VERY LOW FY24 base – sustainability questionable
   • Volatility suggests project-based business risks – revenue/PAT can crash again
3. NEGATIVE Operating Cash Flow (FY25) Despite 237% PAT Growth – Working Capital Stress:
   • Operating cash flow turned NEGATIVE in FY25 despite ₹8.11 cr PAT and 237% growth
   • Indicates severe working capital management challenges:
     • Long receivables cycles from government customers (DRDO, PSUs) – 90-180+ day payments
     • Inventory buildup for multi-year project development cycles
     • Advances to suppliers/contractors for project execution
   • Project-based defence business requires upfront working capital before customer payments
   • Cash flow volatility creates funding pressure – need for continuous working capital loans
   • IPO allocates only ₹8 cr debt repayment – working capital needs likely exceed this
4. New Facility Execution Risk – NOT YET Ordered Machinery, NO Government Approvals (Per RHP):
   • IPO allocating 74% (₹51.73 cr) to new facility but RHP explicitly states:
     • Company has NOT placed orders for plant, machinery, equipment
     • Company has NOT applied for requisite government approvals
   • CRITICAL RISK: Facility setup timeline uncertain – delays would adversely affect business, operations, financial condition
   • Approval delays, machinery procurement issues, construction delays, cost overruns all could derail 74% of IPO deployment
   • Execution track record unknown – first major capex expansion
   • If facility faces 12-18 month delays, IPO funds idle, opportunity cost high, growth targets missed
5. Small Scale – ₹72 Cr Revenue, ₹8.11 Cr PAT (FY25) – Limited Ability to Compete for Large Contracts:
   • Revenue ₹72.06 cr (FY25) is SMALL vs. established defence players (BEL ₹15,000+ cr, HAL ₹26,000+ cr)
   • PAT ₹8.11 cr is TINY – insufficient earnings base for ₹301 cr post-IPO market cap (PE ~37X)
   • Small scale limits ability to bid for large defence contracts (₹100+ cr projects) due to:
     • Working capital constraints (upfront project execution costs)
     • Performance bank guarantee requirements
     • Limited execution capacity
   • Difficulty attracting top technical talent vs. established defence firms offering job security