The Chennai-based Murugappa Group announced on Wednesday that it would get into semiconductor assembly and testing and would invest $791 million over five years in the business.

The group’s foray into semiconductors would be through CG Power and Industrial Solutions, a company set up by Crompton Greaves, which the Murugappas took over in November 2020.

Share price surge

After the group made this announcement, the share price of CG Power surged by about 20 per cent to ₹469.

The ₹7,000-crore company has filed an application with the Union Ministry of Electronics and Information Technology (MeiTY) seeking subsidies for an ‘outsourced semiconductor assembly and testing’ (OSAT) facility in India.

The announcement said that the group would fund the project through a combination of subsidies, JV partners, equity contributions, and debt. Discussions are on for a joint venture with technology providers.

Semi conductors

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 industry is broadly divided into three segments – design, fabrication and assembly-and-testing, fabrication being the most capital, technology, water and power intensive segment.

The Indian semiconductor market was estimated at $15 billion in 2020 and is expected to grow to $63 billion by 2026.

The global Outsourced Semiconductor Assembly and Test Services (OSAT) services market is growing and is witnessing good growth in view of technological advancements. With a projected market size of $76.23 billion by 2028 and growing at a CAGR of 8.07 per cent during the forecast period (2023–2028), OSAT is playing a pivotal role in the rapidly expanding semiconductor industry, according to industry reports.

Shifting gears

The ₹75,000-crore Murugappa group, which was born in the 1940s, is into tubes and cycles, fertilisers and chemicals, sugar, abrasives, and financial services. For decades, the group has stuck to its knitting—it has desisted from entering new areas, giving a thoughtful miss to the industries that opened up in the early 1990s, such as IT, power, automobiles, and telecom. The group has grown through aggressive acquisitions, but only within its businesses.

But in recent years, with the younger generation at the helm, the group is seen to changing tack, moving from adjacencies to emerging opportunities—it has picked up stakes in companies as diverse as in e-mobility, phase-changing chemicals, drones, cameras for mobile phones, and online payment gateway services.

And now the group is getting into semiconductors.

Under its Semicon India programme, the government of India has earmarked ₹76,000 crore to be used to provide financial support to companies investing in semiconductors, display manufacturing, and design ecosystems. For OSAT, the programme promises “fiscal support of 50 per cent of capital expenditure”.