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The shares of CG Power and Industrial Solutions surged about 20 per cent to Rs 469 on Wednesday after the Murugappa Group company announced plans to enter the business of semiconductor assembly and testing.
The Rs 6,973-crore (consolidated FY23) company has applied to the Union Ministry of Electronics and Information Technology (MeiTY) for approval to set up an outsourced semiconductor assembly and test (OSAT) facility in India with a proposed investment of about $791 million (Rs 6,600 crore) over a period of five years, according to its filing to stock exchanges.
The company has sought subsidies to set up the OSAT facility. It seeks to fund the project through a combination of subsidy, joint venture partners, equity contribution, and debt, as required.
The company proposes to set up the unit as a joint venture with technology providers, which is under discussion.
Semiconductors are the building blocks of electronic devices ranging from smartphones and cloud servers to passenger cars, industrial automation, critical infrastructure, and defence systems. The Indian semiconductor market was estimated at $15 billion in 2020 and expected to grow to $63 billion by 2026.
OSAT (Outsourced Semiconductor Assembly and Test) plays a vital role in the semiconductor industry by providing assembly, packaging, and testing services to semiconductor manufacturers.
OSAT Market
The global OSAT market is witnessing good growth in view of technological advancements. “The market size was valued at about $27.95 billion in 2021 and is projected to reach $72.9 billion by 2028, expanding at a CAGR of 8.5 per cent during 2023-2031,” according to Straits Research.
It has been learned that the increasing commercialisation of advanced technologies such as AI and 5G is driving advancements in packaging platforms, including fan-out packaging and 3D flip chip technology. These packaging solutions address the need for high-power consumption and offer benefits such as improved chip connectivity. As a result, the demand for Outsourced Semiconductor Assembly and Test (OSAT) services is growing, particularly in emerging markets, with Asia witnessing significant growth in semiconductor manufacturing, according to industry information.
The government of India has already announced some sops for assembly, testing, marking, and packaging units for providing capex subsidies up to 50 per cent with a minimum threshold investment of ₹50 crore.
Murugappa Group acquired a controlling stake in the cash-strapped CG Power in November 2020 for ₹700 crore, and it became a subsidiary of Tube Investments in November 2020. CG Power is engaged in the design, manufacturing, and marketing of products related to power generation, transmission, and distribution. It has units in Maharashtra, Goa, and Madhya Pradesh.
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