That doesn't sound like a TOE turret, as the TOE is more complex than a locking pawl.
Denford did fit a more basic ratchet type turret, which I think was their own design.

I'm not aware of any cheap grayscale encoders.
You could use an absolute rotary encoder (about £40 on Ali from a quick search), combined with a microcontroller capable of reading whatever output the encoder uses, that converts the absolute position into a more basic output, but that would involve some coding and circuit design.

You could stack 3 optical slot sensors that read suitable slotted discs to generate gray scale (or whatever combination of bits you'd like for each position).

However the simplest method would likely be a single home sensor, and run a turret homing macro when you power the lathe on.