How will cabinets approval to set up semiconductor units benefit CG Power, Tata Electronics and India?

Shares of CG Power and Industrial Solutions were in heavy demand in Friday's trade last week after the cabinet approved setting up a semiconductor unit in Gujarat—the stock, however, pared gains later in the session.

The company said that the Union Cabinet approved CG Power, in partnership with Renesas Electronics Corporation of Japan and Stars Microelectronics of Thailand, to set up a semiconductor unit in Sanand, Gujarat.

The JV will set up a manufacturing facility in Sanand, Gujarat, with a capacity that will ramp up to 15 million units per day. It will cater to industries such as automotive, consumer, industrial, and 5G, among others.

Along with this, the cabinet has also approved the setting up of two more semiconductor units by Tata Group company, Tata Electronics, in Gujarat and Assam. 

Meanwhile, Kaynes Technology is yet to receive approval from the government for its semiconductor unit. 

How will the approval benefit CG Power and Tata Electronics?

According to Arafat Saiyed, Vice President, Incred Capital, the manufacturing facility will contribute Rs 300 crore to CG Power’s topline. 

"The average selling price of a 36-bit microelectronic should be around US$0.6 per chip when CG Power starts its Outsourced Semiconductor Assembly and Test (OSAT) plant. Assuming a 15 per cent cost for OSAT, coupled with a production capacity of 9 million chips per day, this should contribute Rs 300 crore to CG Power’s topline," said Saiyed.

As per Incred Capital, Tata Electronics' partnership with Powerchip Semiconductor Manufacturing Corporation (PSMC) for making 28 nanometre (nm) chips will be the first foundry in India. 

With this announcement, Tata Electronics has entered the global semiconductor industry.

How will this move benefit India?

India will notably become one of the few countries to have its foundry. 

Further, semiconductors are a notoriously complicated industry, and with Tata Electronics in partnership with PSMC trying to make 28 nanometres (nm) chips, which are much harder to construct, this announcement by the government could be a major landmark in India’s semiconductor journey.

Additionally, as per analysts, the combined outlay for all these projects is Rs 1,256 billion, or Rs 1,25,600 crore, with the Government of India roughly giving an incentive of Rs 63,000 crore for these projects. 

This is in addition to incentives for Micron of Rs 114 billion (Rs 11,400 crore) for setting up an OSAT plant at Sanand in Gujarat. This brings total incentives by the government of up to Rs 74,400 crore, suggesting that a major portion of the initially planned Rs 76,000 crore has been allocated by the government.

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